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Archives for May 2021

Disguise material to adopt lower tariff rate (Syrup case)

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“HEARTLAND BY-PRODUCTS, INC.,” imported Sugar syrup from Canada to the U.S.

Heartland disguises the syrup material to adopt a lower tariff rate.

In order to disguise it, Heartland had “Molasses” added to raw sugar to adjust the purity of the product to adopt a lower tariff rate before importation.

Upon receiving the syrup in the United States, Heartland first removed the molasses and then refined the remaining syrup.
The removed molasses was returned to Canada but were again used the same way by adding them to other sugar syrup. As far as appears, this chain continued indefinitely.

How the court classifies the HS code for a disguised item?

This article is regarding the court case of 264 F.3d 1126 (Fed. Cir. 2001)
HEARTLAND v. the UNITED STATES, and UNITED STATES BEET SUGAR ASSOCIATION.

 

US Customs classified it HS:1702.90.10/20 of “HTSUS”

This HS code adopts a higher tariff rate

1702.90.10…3.6606¢/kg of total sugars
1702.90.20…35.74¢/kg

The key point of the classification is the rule below.

Containing soluble non-sugar solids (excluding any foreign substances, including but not limited to molasses, that may have been added to or developed in the product) equal to 6 percent or less by weight of the total soluble solids:

Heartland contends that it’s classifiable HS:1702.90.40 of “HTSUS”

This HS code adopts a lower tariff rate

0.35¢/liter

1.Customs’s opinion

  • there are no commercial identities or commercial uses for the syrups as imported other than the extraction of the molasses after importation
  • the added molasses is a “foreign substance” relative to the sugar to which it is added and, therefore, should not be included when determining the soluble solids content of the sugar syrup under 1702.90.10 HTSUS and 1702.90.20 HTSUS.
  • the addition of molasses to raw sugar is not a “genuine step” in the manufacturing process, but instead amounts to a “‘disguise or artifice’ intended to escape a higher rate of duty such as a quota or tariff rate.”

2.HEARTLAND’s opinion

  • syrup falls under 1702.90.40 HTSUS because it contains more than 6% by weight of soluble, non-sugar solids with no foreign substances, and is not molasses.
  • Customs once agreed with Heartland’s proposed classification, and issued a ruling letter classifying the syrup under 1702.90.40 HTSUS. N.Y. Ruling Letter 810329 (May 15, 1995) (“New York Ruling Letter”).
  • neither the preimportation manufacturing process nor the processing that Heartland performs in the United States involves any artifice or disguise.

3.CIT’s (Court of International Trade) Opinion

The court rejected Customs’ reasoning that the molasses is a foreign substance that should be excluded from the solids content calculation, finding that the record demonstrated that the molasses is made from cane or beet sugar and that the sugar, molasses, and syrup “all have the same chemical ingredients, including impurities that naturally occur in sugar.” .

The court reasoned that because raw sugar itself contains molasses, combining raw sugar with additional molasses does not amount to an addition of a foreign substance. Id. at 1134.

The court stated that Customs’ conclusion to the contrary “was simply wrong.” Id.
The court also stated that “Customs’ interpretation of ‘foreign substances’ to include anything that is itself ‘derived from sugar cane or sugar beets’ is unreasonable and an abuse of discretion.”

The court also rejected Customs’ determination that the addition of molasses amounted to an artifice or disguise.

The court noted that Heartland never falsified or concealed the identity of its sugar syrup, its method of manufacture, or its use. Id. at 1337.

The court determined that evidence of record demonstrated a clear commercial purpose for the addition of molasses, citing testimony to the effect that molasses may be added to adjust the purity of the product during crystallization or to produce a final product of a particular polarity. Id. at 1335.

The court also determined that the evidence of record indicated that Heartland’s sugar syrup results from an intermediate stage of the refining process, citing testimony to the effect that “the process of combining granular raw sugar with molasses, adding water, and heating is common in sugar refining operations.” Id. at 1338.

The court noted that the only evidence indicating that adding molasses to sugar is not a legitimate commercial process relates to the addition of molasses to refined sugar, not the addition of molasses to raw sugar, as is done by Heartland. Id.

The court therefore concluded that Customs’ determination that Heartland had engaged in artifice and disguise and its subsequent consideration of the post importation use of the syrup was “an abuse of discretion and otherwise not in accordance with law.” Id. at 1338-39.

The court, therefore, granted Heartland’s motion, declared the revocation ruling unlawful, and ordered that the sugar syrup be classified under 1702.90.40 HTSUS

The United States and the United States Beet Sugar Association appeal the decision of the United States Court of International Trade in favor of Heartland By-Products, Inc.

4.US Court of Appeals for the Federal Circuit’s opinion

The court cited Explanatory Note 17.02(B)(2), which states that ” [j]uices and syrups obtained during the extraction of sugars from sugar beet, sugar cane, etc.,” fall under 1702 HTSUS, and that these syrups “may contain pectin, albuminoidal substances, mineral salts, etc., as impurities.” Id. at 1335.

The court determined that because this note permits products with the same impurities as molasses to be classified under 1702 HTSUS, it undermines Customs’ determination that molasses
is a foreign substance.

This note, however, does not indicate whether the molasses added to raw sugar to make Heartland’s sugar syrup is a “foreign substance” under 1702.90.10/20 HTSUS because it does not set forth under which subdivision of 1702 HTSUS the described sugar syrups are classified.

Moreover, the impurities described in the note are naturally present in the juices and sugar syrups, not added to raw sugar like the molasses at issue in this case.

Heartland does not argue that its sugar syrup contains less than 6% by weight of soluble non-sugar solids when the weight of the molasses solids is excluded.

Therefore, in view of our determination that Customs’ interpretation of the term “foreign substances” should not be disturbed, The court upheld the revocation ruling classifying Heartland’s sugar syrup under 1702.90.10/20 HTSUS

CONCLUSION

For the foregoing reasons, the decision of the Court of International Trade declaring the revocation ruling unlawful and ordering that Heartland’s sugar syrup be classified under 1702.90.40 HTSUS is REVERSED.

Author’s Opinion

The remarkable point of this case is that when Heartland had applied Ruling, Heartland never falsified or concealed the identity of its sugar syrup, its method of manufacture.
And Customs agreed with Heartland’s proposed classification and issued a ruling letter classifying the syrup under 1702.90.40 (lower tariff rate).

In this circumstance, Customs did not see the entire process of the Trading, from the manufacturing process to suppling consumer, therefore Customs issued wrong Rulings.

This example indicates that HS classification is not determined at the point of importation but the entire process of the Trading.

Source:United States Court of Appeals for the Federal Circuit

Pool Lounger classified as “6307” or “3926”? (GRI3(b)(Ⅷ)denied case)

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Pool Lounger made of PVC and Textile classified as Textile product(HS:6307)or Plastic product(HS:3926)?

This article is regarding the CBP ruling of “HQ H298313”

Source:amazon.com ©AQUA-LEISURE INDUSTRIES, INC.

Item’s description

The 44-inch Monterey Pool Lounger is a “composite good” consisting of both PVC (which is a form of plastic) and polyester mesh textile fabric.
According to provided figures, the PVC represents 30% by weight and 16% by value while the polyester mesh makes up 70% by weight and 84% by value of the lounger. While the mesh fabric constitutes the most weight and value and provides the full-body support of the user giving the user the ability to sit or recline, we also have to consider that the PVC air chambers give the pool lounger the ability to float.

 

US Customs classified it as a Textile product(HS:6307) in Ruling NY N270096.

6307 Other made up articles, including dress patterns:
* * *
6307.90 Other:

Aqua Leisure Industries contends that it’s classifiable as a Plastic product(HS:3926)

3926 Other articles of plastics and articles of other materials of
headings 3901 to 3914:
* * *
3926.90 Other:

 

1.Customs’s opinion

The 44-inch Monterey Pool Lounger is a “composite good” consists of both PVC (which is a form of plastic) and polyester mesh textile fabric. According to the provided figures, the PVC represents 30% by weight and 16% by value while the polyester mesh makes up 70% by weight and 84% by value of the lounger. While the mesh fabric constitutes the most weight and value and provides the full-body support of the user giving the user the ability to sit or recline, we also have to consider that the PVC air chambers give the pool lounger the ability to float.
Without the inflatable PVC chambers, the lounger is not able to perform its main function as a pool or lake float. We thus find that the essential character of the overall product cannot clearly be ascribed to either single material.
General Rule of Interpretation GRI 3(c), directs that in such circumstances the classification will be the heading that appears last in numerical order among those which equally merit consideration. The competing headings here are 3926 (other articles of plastics) and 6307 (other made up textile articles). Heading 6307 appears last in the tariff.

 

2.Aqua Leisure Industries’s opinion

Aqua Leisure Industries contend that the Monterey pool lounger should be classified under heading 3926, HTSUS, because, it is the two plastic PVC air bladder components that impart the essential character of the overall pool lounger.

Aqua Leisure Industries base the argument on the decision in Swimways Corp. v. United States; wherein the Court of International Trade (“CIT”) classified various models of “Spring Floats” and “Baby Spring Floats” designed for the flotation of users in swimming pools, lakes and similar bodies of water in heading 3926, HTSUS, as an article of plastic.

Aqua Leisure Industries argue that the subject merchandise is substantially similar to the “Spring Floats” in the Swimways Corp. decision and that in light of the decision and legal analysis set forth by the CIT, CBP should reconsider its decision in NY N270096.

 

3.Court Opinion

In Swimways Corp., the “Spring Floats” consisted of an inflatable, polyvinyl chloride (“PVC”) bladder that when inflated with air, provided the floatation capacity for the article. The center of the “Spring Float” was a woven elastomer textile mesh that supported the user during floatation.

Swimways Corp., at 1317. In Swimways Corp. the CIT explained that although the merchandise consisted of component materials that were both significant, neither heading adequately described the article as a whole Swimways Corp., at 1321–1322. Accordingly, the CIT resolved to determine which component or material imparted the essential character of the “Spring Float” in accordance with GRI 3(b). Id., at 1322. The CIT noted that both the textile mesh and the PVC bladder contributed different significant functions; with the textile mesh providing support to its user and the PVC bladder providing the flotation characteristic. Id. Yet, the CIT concluded that the PVC bladder imparted the essential character of the article as a whole because the floatation function of the PVC bladder was essential to the functioning of the finished article. Id., at 1324. The CIT explained that because the PVC bladder enabled the article to float in water, it was the component material that allowed the “Spring Float” to perform its primary function, fundamental to its commercial identity as a “float.” Id. As such, the CIT determined that the “Spring Float” was classified in heading 3926 because it was the plastic component materials that imparted the essential character of the product.

CONCLUSION

Customs reconsider the decision that absents the performance of the plastic PVC air bladders, the pool lounger could not perform its fundamental function, which is to float.

Accordingly, Customs find that the plastic PVC air bladders impart the essential character of the product as a whole. Thus, the Monterey pool loungers are classified according to the plastic component material of which the PVC air bladders are made.

By application of GRI 3(b), Customs find that the pool lounger is provided for in heading 3926

Source: CUSTOMS BULLETIN AND DECISIONS

Author’s Opinion

This product is made of PVC 30% by weight and 16% by value while the polyester mesh makes up 70% by weight and 84% by value of the lounger. it seems GRI3(b)(Ⅷ) should be applied to classify in 6307 or GRI3(c).

GRI3(b)(VIII) The factor which determines essential character will vary as between
different kinds of goods. It may, for example, be determined by the nature of
the material or component, its bulk, quantity, weight or value, or by the role
of a constituent material in relation to the use of the goods.

But this idea is overturned by Aqua Leisure Industries’s persuasive opinion with court precedent.
I agree with the opinion that absent the performance of the plastic PVC air bladders, the product sink to the bottom of the pool, but absent the textile part, it’s nothing other than just a Float.

In this example, floating material is considered more important than textile material which gives a user to feel relaxing.
But I guess opinions could be varied depending on the Country.
Some countries may adopt GRI3(b)(Ⅷ) or GRI3(c) without thinking about essential character.

 

And here are other examples of German Customs rulings.

 

Some Pool Loungers are classified in 9503.
There is a possibility that they are considered as a toy?

Ice scraper for Automobile classified in 3926 or 8708?

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Plastic Ice scraper for Automobile classified in 3926 or 8708?
there are differences of classification opinion between U.S. and EU nations regarding Plastic Ice scraper for Automobile.

U.S. Case

U.S. Customs take “Plastic Ice scraper for Automobile” as an Automobile accessory(HS:8708).

Here is the search result of the U.S. Customs ruling (CROSS) for “ice scraper”.
Many of them are classified in 8708 as Automobile accessory

 

Here is an individual case N022822

The item under consideration is the Ice Scraper (Item # A002CA00074) used to clear ice and snow from the windows of a motor vehicle. The ice scraper is 7 ½ inches in length by 5 inches in width, at its widest, and features either a snowflake or penguin motif printed on the blade and handle. The Scraper is constructed of 85% polypropylene and 15% silicon.

The applicable classification subheading for the Ice Scraper will be 8708.99

 

Why U.S. customs classify Ice Scraper as an Automobile accessory?

Confirm the definition of “accessories” first.
“accessory” is, subsidiary devices used in connection with the machines, such as interchangeable devices which modify the machine so that it can perform a wider range of operations; devices to increase precision; devices that perform a particular service relative to the main function of the machine.
Source: EN Heading 8466 (B)

 

Based on that definition, here is the reason why Ice Scraper is classified as an Automobile accessory HQ 082080

ice scraper enhances the range of uses ordinarily encompassed by an automobile.
This article enables people to clear ice from the windshields of motor vehicles more quickly and efficiently than the use of built-in defrosting mechanisms, provided the vehicle is so equipped, would ordinarily permit.

And also they think Ice Scraper is for use solely or principally with automotive not for any other context.

Therefore U.S. Customs classified Ice Scraper as an Automobile accessory(HS:8708).

EU Case

To the contrary of The U.S. case, European Union nations classify Plastic Ice scraper for Automobile by material base(HS:3926.90).

German case DEBTI19707/18-1
The product is a 16 cm long plastic ice scraper as defined in note 1 to chapter 39. The product consists of a 10 cm wide, curved icebreaker/scraper edge with integrated grooves and a handle. The goods are opened in a polybag. The ice scraper is used for the free scratching of vehicle windows and is to be classified as ‘other articles of plastics other than those mentioned in subheadings (CN) 3926 1000 to 3926 9050’.(Translated in English)

Bildnummer 1

France case FR-E4-2007-004992-R
PLASTIC WORK IN THE FORM OF A BLADE (ICE SCRAPER) HANDLE WITH PLASTIC FOR REMOVING ICE ON THE WINDSHIELD GLASS AND A VEHICLE.(Translated in English)

European Union nations do not consider it for use solely or principally with automotive.
they understand those items are used for automotive but not solely or principally.

That’s might the reason why they classified it as a plastic article in 3926.90

Conclusion

In order to classify an item as Automobile parts or  Accessory, the item usually needs to fulfill that requirement.

Section XVII GENERAL(III)

(a) They must not be excluded by the terms of Note 2 to this Section
(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88
(c) They must not be more specifically included elsewhere in the Nomenclature

When it comes to considering the condition of ” for use solely or principally with automotive“, often conflict occurs between countries or even persons in the same country.

Some might think Ice Scraper can not be used other than automotive glass.
Some might think Ice Scraper can be used for other than automotive glass.

Those opinion differences make different classification results, the so-called “Gray zone”.

As far as I know, there is no way to fix this problem, hence when you export Ice Scraper for Automobile to the U.S., you need to expect it to be classified in 8707, and when you export it to the EU you need to expect it to be classified in 3926(if it’s made of plastic).

Most important thing is to know there is such kind of opinion differences between country prior to export or import items by searching each country’s ruling database.

Definition of part and accessories under HS code

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Part

“part” of an article is something necessary to the completion of that article. It is an integral, constituent, or component part, without which the article to which it is to be joined, could not function as such article. 

Source: United States v. Willoughby Camera Stores, Inc., 21 C.C.P.A. 322 (1933)

Accessory

“an ‘accessory’ must bear a direct relationship to the primary article that it accessorizes.”

Source:Rollerblade, Inc., 24 Ct.

“[a]ccessories are of secondary importance,” but must “somehow contribute to the effectiveness of the principal article”

Source: HQ 960950 (Jan. 16, 1998)

“accessory” is, subsidiary devices used in connection with the machines, such as interchangeable devices which modify the machine so that it can perform a wider range of operations; devices to increase precision; devices which perform a particular service relative to the main function of the machine.

Source: EN Heading 8466 (B)