How Many Times Do I Have to Pay Duties?

The first time you import merchandise into the U.S., you would expect to pay customs duties, and under the Harmonized Tariff Schedule of the U.S. (HTSUS), unless the goods are exempted from such payment, that money will have to be paid.

But what about if the merchandise had

a. Already been imported,

b. Duties Paid,

c. Subsequently Exported, and

d. Now being reimported again?

 Is paying again required?

Well, depending on the circumstances, there can be ways of either recouping some of the initial duty payment, or qualifying for an exception to avoid paying the duty such as the exemption where articles exported from the U.S. are

1. Returned within 45 days of such exportation,

2. Were “undeliverable”, and

3. Which had not left the custody of the carrier or foreign customs service.

As a general rule however, 19 CFR 141.2 of the Customs regulations provides that dutiable merchandise imported and afterwards exported, even though the duty had been paid on the first importation, is liable for duty payment on every subsequent importation into the Customs territory of the US (unless exempt by law).

This rule does not however, apply to imports of:

(a) Personal and household effects taken abroad by a resident of the United States and brought back on his return to this country (see §148.31);

(b) Professional books, implements, instruments, and tools of trade, occupation, or employment taken abroad by an individual and brought back on his return to this country (see §148.53);

(c) Automobiles and other vehicles taken abroad for noncommercial use (see §148.32);

(d) Metal boxes, casks, barrels, carboys, bags, quicksilver flasks or bottles, metal drums, or other substantial outer containers exported from the United States empty and returned as usual containers or coverings of merchandise, or exported filled with products of the United States and returned empty or as the usual containers or coverings of merchandise (see §10.7(b), (c), (d), and (e));

(e) Articles exported from the United States for repairs or alterations, which may be returned upon the payment of duty on the value of repairs or alterations at the rate or rates which would otherwise apply to the articles in their repaired or altered conditions (see §10.8);

(f) Articles exported for exhibition under certain conditions (see §§10.66 and 10.67);

(g) Domestic animals taken abroad for temporary pasturage purposes and returned within 8 months (see §10.74);

(h) Articles exported under lease to a foreign manufacturer (see §10.108); or

(i) Any other reimported articles for which free entry is specifically provided.

Questions or comments?  Post below or email me at clark.deanna@gmail.com

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Eco-Friendly & Trade Agreement Beneficiary Gifts

With the holidays upon us, there is no shortage of vendors here in New York City offering gifts and stocking stuffers for sale. 

As I try to buy gifts made using either an eco-friendly production method or one which derives from a sustainable production environment – in terms of the workers involved – I was pleased to learn of Nakate Project’s high fashion necklaces and bracelets from Uganda that not only meet both of these standards but are also a gorgeous gift that I would be happy to give to any of my friends.
 
NOTE: As these goods come from the African continent, duty free treatment for these and thousands of other products is available under the GSP and AGOA programs.  Just another good reason to source from Africa!

Having been examining quite a bit of jewelry and accessories at my office lately, I wondered about the tariff classification of Nakate’s paper beaded necklace, an image of which can be found here. 

As this jewelry is not made of, nor contains, silver, gold or platinum, it would not be considered jewelry of a precious metal.   It likewise has no gemstones or semi-precious stones.  It further is not made of any base metal.

It therefore does not fall into these categories for classification purposes.  Rather, it falls into the classification for “Imitation Jewelry.”

Interestingly, jewelry of this kind is classified based upon a cost per quantity measurement.  (As an aside, if anyone reading this has any insight into the historical reason for this, it would be great if you could share it with the rest of us readers!)

The tariff specifically provides that if the jewelry is

… valued not over 20 cents per dozen pieces or parts, then classification will be 7117.90.5500 (HTSUS 2012) which provides for “Imitation jewelry: Other: Other: Valued not over 20 cents per dozen pieces or parts: Other.”  The rate of duty will be 7.2% ad valorem.

 OR

… valued over 20 cents per dozen pieces or parts, then classification will be 7117.90.9000 (HTSUS 2012) which provides for “Imitation jewelry: Other: Other: Valued over 20 cents per dozen pieces or parts: Other: Other.”  The rate of duty will be 11% ad valorem.

 Now I don’t know about you, but these types of figures beg the question…what type of jewelry (nevermind the parts) is valued at less than 20 cents (USD) per dozen pieces?  Or in other words, what type of jewelry (not including children’s or of plastic) is only 1.67 (i.e., $0.0167) cents/piece?  Umm…and what is the quality like?

 Questions/comments?  Post below or email me at clark.deanna@gmail.com

 

How to Classify a Composite Good - Key Chain Case Study

I was admiring key chains recently that were sold separately from their corresponding designer handbags.  Noting that the ring was of metal but the decorative part was of leather, I found myself wondering if it was considered a composite good under the tariff, i.e., the Harmonized Tariff Schedule of the U.S. (HTSUS).

A “composite good” is one composed of more than one material which can be either a mixture of materials in one (1) article, an article made up of different components (as in the case of this key chain), or even goods put up in a set for retail sale (which is a term of art by the way in customs-ease and may not mean what you might think it does – so ask someone if that question arises).

Since the key chain is a composite good, we look at the HTSUS’ General Rules of Interpretation (GRI) for guidance on how to classify it.  GRI 3(b) states that when goods are prima facie (i.e., appear to be) classifiable under two (2) or more tariff headings, classification shall be determined as if they consisted of the material or component that gives them their “essential character,” insofar as this criterion is applicable.

Endnote (IX) to GRI 3(b) explains that “a composite good made up of different components shall be taken to mean not only those in which the components are attached to each other to form a practically inseparable whole, but also those with separable components, provided these components are adapted to one another, are mutually complementary, and that together they form a whole which would not normally be offered for sale in separate parts.”

Customs has consistently held that, when a key chain has both a functional and non-functional component, it is the functional component which provides the article’s essential character.  (HRL 950636) Therefore, the ring component makes up the utilitarian part of the key chain with the leather portion deemed as being merely decorative.

Provided the metal key ring was of steel, the whole key chain would therefore be classifiable under HTSUS heading 7326.

Questions/comments?  Post below or email me at clark.deanna@gmail.com

Translating Numbers – Converting a “Compound Duty Rate” to an Equivalent “Ad Valorem” Duty Rate

Every type of imported product has a tariff classification number to identify it and a corresponding numerical figure that represents its duty rate.

The duty rate for most products is represented as a percentage value such as 19.7%.  When it is a percentage, a duty rate is referred to as an “Ad Valorem” rate of duty.

The concept of a duty rate is relatively simple except for when a product has a “compound rate” of duty, such as a watch.  Under the tariff, an example of a watch’s rate of duty is broken out into multiple components, four (4) in fact, in the following example (HTSUS* 9102.11.10):

Movement – 0.44¢ (cents)

Band/strap or bracelet – 14.0%

Case – 6.0%

Battery – 5.3%

On certain occasions however, there is a need to convert a compound rate of duty to a percentage, or Ad Valorem one, such as in the case of dinnerware sets classifiable under HTSUS Heading 8215.

As described by US Customs**, to convert a compound rate to an equivalent Ad Valorem rate, one.

(i)                  obtains the unit value of each article,

(ii)                applies the article’s listed compound rate of duty, and

(iii)               calculates the “equivalent Ad Valorem rate” by computing the percentage of the article’s value that the compound rate of duty amounts to. 

For example, suppose that a set classified in subheading 8215.20.0000, includes a knife that is separately classifiable in subheading 8211.91.5000.  The applicable rate of duty for the knife is “0.7¢ + 3.7%,” a compound duty rate.

Suppose that there are four knives included in the set and their total value is 32¢.  To obtain the unit value of a knife (i.e., the value of one knife), we divide 32¢ by 4 which equals 8¢.

Now, we apply the knife’s listed compound duty rate.  Plugging 8¢ into the duty rate, we get 0.7¢ + 3.7%(8¢).  This equals .996¢ per knife, which amounts to 12.45% of the knife’s value (i.e., .996 is 12.45% of 8¢). 

Therefore, 12.45% is the knife’s equivalent Ad Valorem rate. 

Sounds simple?  I didn’t say it would be, though it doesn’t have to be complicated either.  Give it a try!

Questions/comments?  Post below or email me at clark.deanna@gmail.com

* HTSUS stands for the "Harmonized Tariff Schedule of the United States" which can be found at the US International Trade Commission's website at www.usitc.gov

**Reference is made to HQ967248 (12/22/04)

Floral Wedding Accessories

Having recently been in a wedding, I noticed that once the dresses had been chosen, that simply left accessories to choose from to create some final personal touches.

In the case of textile flower accessories and accents, the question became where do you wear them? Do you want to pin it on you? Maybe wear it in your hair? How about both?

Surprisingly, with the same amount of care a wedding party might choose to accessorize, so too does the tariff differentiate in terms of classifications and rates of duty based upon the usage of these flowers.

For example, when attached to a pin that is intended for wearing in the hair, these may be classified under the provisions for combs, hair-slides and the like under Harmonized Tariff Schedule of the U.S. (HTSUS) heading 9615 with duty rates ranging from 5.1% to 11%.

Contrast that to where a flower is attached to a pin for usage as a clothing accessory only. HTSUS heading 6217 provides for "other made up clothing accessories, parts of garments or of clothing accessories, other than those of heading 6212 (i.e., brassieres, girdles, corsets, braces, suspenders, garters, and similar articles) of man-made fibers," which includes the popular wedding fabric, satin.

In this case the tariff may change to a classification under this heading where the duty rate is at 14.6%.

This means that even where you took the same flower that you could have put in your hair but instead opted to pin to your bridesmaid gown (note that a different pin is required for attachment to the hair versus apparel), it is not only classifiable under a different tariff number but also that it is susceptible to a different rate of duty.

Where you have the option of wearing the flower as both a hair pin and as that which may be pinned to clothing, the classification may change yet again to a section under HTSUS heading 6702 which is the provision for artificial flowers, foliage and fruit.

Essentially under the HTSUS, at least in this instance (and plenty of others), by being two things at once, it actually becomes neither, but a new thing.

Questions/comments? Post below or email me at clark.deann@gmail.com

When is a Tote Bag a Wallet?

Never obviously, at least not under the Harmonized Tariff Schedule of the United States (HSTUS).

But what about when you have a make-up bag that could double as a wallet or snack bag? When does size matter when it comes to an HTSUS classification determination?

What about when you have a lunch bag that is made out of a textile? Will the classification turn on it being coated in a plastic coating? What about a rubber/plastic combo?

While I will pass on answering the question about when “size matters,” I can tell you that a duty rate can significantly jump when an article is considered to be coated with an outer surface of plastic versus that of a textile.

Take HTSUS subheading 4202.32 which classifies articles of a kind normally carried in the pocket or in the handbag. The rate of duty on this type of product, such as a make-up bag, when it has an outer surface of cotton is 6.3%.

Contrast this to the same article with an outer surface of a reinforced or laminated plastic, such as a resusable lunch bag. Now an importer is looking at paying a compound rate of duty of 12.1¢ per kilogram, along with an additional 4.6% on top of that.

The rate of duty on most products is typically an ad valorem rate, i.e., a percentage, of the invoice total. On occasion, a product will have a "compound" rate of duty which represents a per unit or per measure (e.g. 10¢/kg) price PLUS an additional ad valorem rate of duty for duty calculation purposes.

Moreover, where the same article is coated in a sheeting of plastic that is neither of reinforced or a laminated plastic, now that same article will have a 20% rate of duty, all because of the outer material of the product.

Nuances like these are rife throughout the tariff. I would recommend that importers take a periodic review of its imports to confirm that its use of HTSUS classifications are correct in order to identify any errors – as the HTSUS changes throughout the year – as well as to avoid future penalties due to stopped shipments or customs audits where inadvertent classifications may be discovered and outstanding duties across multiple entries may be sought.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Shoes and Pricing - A Factor You Probably Never Thought About

Ever wonder why a plain looking pair of shoes cost more than the fancier looking one? Is it that the “no-frills” sandal offers a more “classic” and “elegant” look than the decorative one?

Well… not necessarily… Oddly enough, depending on the classification, i.e., the tariff number, of the shoe in question, the duty rate can go from a mere six percent (6%) to that of thirty-seven point five percent (37.5%) (and this is the rate for imports from countries that we have good trade relations with - it is 66% if being imported from others – ouch!)

On a $100 pair of shoes, that is the difference in the shoe costing $106 versus $137, which as an aside, can really add up given that here in NYC, we used to have a provision on apparel that it was tax-free so long as it was under $110.

That means that a pair of shoes for $106 really did cost that much, so just escaping having to pay tax made a difference. While a $25 difference in price may not break the bank however, the shoe at $137 really translates into a total cost of nearly $149 once you add on the tax.

Simply put, importing a shoe with a lower duty rate is better for both the importer (greater chance of selling the shoe) and the consumer (cheaper price – you hope anyway!)

So why would a plain sandal cost less anyway?

This is because while the material of a shoe, i.e., of leather, versus plastic, or a rubber/plastic combination, etc., plays a role in determining its tariff classification and the rate of duty, so does the amount of this material across the surface area of the “upper” part of the shoe, which in everyday language means, the top part of the shoe, for all intents and purposes.

US Customs measures the external surface area of the upper as the surface you see covering the foot when the shoe is worn. [US Customs Treasury Decision (T.D. 93-88)]

In general, the external surface area of the upper (ESAU) for footwear classification is taken to be the constituent material having the greatest external surface area, no account being taken of accessories or reinforcements such as ankle patches, edging, ornamentation, buckles, tabs, eyelet stays or similar attachments. [Chapter 64, Note 4(a) of HTSUS]

Many factors are considered when making an ESAU determination for footwear with uppers consisting of different materials. [NY J81564, 3/26/03] For example, the type and construction of the shoe, the completeness and visibility of the materials, its plausibility, and the manner in which ornaments are attached, are among the considerations to be weighed. [NY J81564, 3/26/03]

Customs has found that in the case of footwear for which the upper consists of two or more materials, where a material clearly constitutes a significant portion of the ESAU, then it is considered more than a mere accessory or reinforcement. [HQ 085381, 11/21/89]

Customs has further found that when material in the upper is neither an accessory nor reinforcement, it is considered a part of the constituent material of the upper external area. [HQ 081646, 3/27/89]

All of these factors can lead Customs to conclude that footwear is correctly classified under the tariff number that corresponds to a high rate of duty.

Questions/comments? Post below or email me at clark.deanna@gmail.com

The Complexity of Fabric Classification

I picked up an Emilio Pucci scarf recently and have been enjoying learning about all of the different ways of wearing it. Its size is approximately 3 ft x 3 ft and while I bought it to wear as a cover up on the beach, I’ve been discovering its many variations as a shawl and scarf.

While wearing it the other day in my office, I found myself researching fabric issues and I couldn’t help but think about how appropriate it was given that I was wearing a large (and gorgeous) piece of cloth!

The issue I was looking into had nothing to do with the material of my new accessory but rather that of bonded fabrics and the identification of where nuances arose as between the general rule on bonded fabrics and “pile” fabrics. I was also trying to determine if there were any differences when the fabric was knit versus crocheted.

Finding this answer required an analysis of the Textile Section Notes of the tariff (Harmonized Tariff Schedule of the United States, “HTSUS”) and in particular, Chapters 59, 60 and 61. Let me explain how the tariff is organized.

The tariff is arranged by Section which generally categorizes similar merchandise. It has titles such as “Vegetable Products,” (Section II), “Plastics and Articles Thereof, Rubber and Articles Thereof” (Section VII), and “Footwear, Headgear, Umbrellas, Sun Umbrellas, Walking Sticks, Seatsticks, Whips, Riding-Crops and Parts Thereof; Prepared Feathers and Articles Made Therewith; Artificial Flowers; Articles of Human Hair” (Section XII).

At the beginning of each Section are “Notes” unique to all of those Chapters within the Section. Similarly, in the first part of each Chapter are Notes specific to the tariff provisions within that Chapter, along with Additional U.S. Notes that are unique to imports coming into the United States.

With regards to “Textile and Textile Articles,” the tariff provisions for these types of imports are found in Section XI, Chapters 50 through 63.

Making determinations on fabrics can be tricky due to reasons such as the type of combination of fibers, if such fibers had been brushed or cut during the processing thereby creating a “pile,” if fabric is adhered to another type of fabric, or if fabric has been coated or impregnated with a medium that contains varying percentages of a rubber and plastic combination.

The methodology for the classification of goods under the HTSUS is governed by what are known as the General Rules of Interpretation (GRI). The first GRI provides that classification determinations are made in accordance with the terms of the headings of the tariff schedule and any relevant Section or Chapter Notes.

Coming back to bonded fabrics, Note 2 to HTSUS Chapter 59 (entitled, “Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use”) provides a general rule for bonded fabrics, stating that where a knitted or crocheted fabric is coated, impregnated, laminated or covered, then it would be classified in HTSUS Chapter 59.

Despite this general rule however, Note 1(c) to HTSUS Chapter 60 (entitled, “Knitted or crocheted fabrics”) sets forth an exception to this rule where the imported merchandise involves a knit pile fabric that is coated, impregnated, laminated or covered. Under this circumstance, these fabrics are classifiable within Chapter 60, under Heading 6001, and not under Chapter 59.

Moreover, Additional Legal U.S. Note one (1) to HTSUS Chapter 60 provides a specific definition for the term “long pile fabrics.” As defined, these are “fabrics made by inserting fibers from card silver into the loops of the ground fabric during knitting.” In everyday language, this simply means that a certain manufacturing process must have been utilized in order to qualify under this provision.

Needless to say, making classification determinations can sometimes seem like solving a puzzle as multiple Chapters and Notes need to be analyzed before any conclusions can be drawn.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Welcome to a New Year of Customs Audits!

While just a few weeks into the new year, I can’t help but notice that US Customs is off to the races with its auditing programs, one of which I will write about here known as a “Focused Assessment.”

The Focused Assessment program is a systematic risk-based approach to auditing in which the auditing team evaluates a company’s Customs and Border Protection (CBP) related internal controls to determine the likelihood of non-compliance and assess “risk.”

As shown by the definition above, and probably presumed by most importers when it receives the phone call indicating that an audit will be occurring in the (near) future, when US Customs comes in to do one, it already suspects some wrong doing on the part of the importer.

This does not mean, however, that an importer was knowingly or intentionally engaged in “risky behavior,” which can take many possible forms, such as classifying merchandise with an erroneous tariff number, or failing to add into the dutiable value of a product an item supplied by the importer (to its manufacturer) for incorporation into the merchandise ultimately imported, which is commonly referred to as an “assist.”

An example of this would be a women's sleepwear importer supplying bows to its vendor for attachment to robes or night gowns that it imports. Under US Customs regulations pertaining to “valuation” (which in everyday language, is the methodology for determining the dutiable value of imported merchandise), both the cost of the article supplied by the importer AND the cost of the freight to ship it to the vendor must be added to the invoice value of the imported merchandise. This of course, can be a tricky thing to calculate but alas, it is not the subject of this blog post so I will continue with my discussion on focused assessments. (If you have a valuation question, feel free to email me).

There are three (3) distinct phases to a focused assessment.

1. Pre-Assessment Survey: An evaluation of a company’s internal controls over US Customs related operations
2. Assessment Compliance Testing: “Transaction testing” used to measure compliance and/or to determine a loss of revenue (i.e., an amount of duties that the government believes should have been paid on certain importations), and
3. Follow-up Review: Verification of a company’s corrected action

The primary areas US Customs focuses on during an assessment are valuation, classification, anti-dumping/countervailing duties, transshipment and intellectual property rights. Secondary areas for assessment include, foreign trade zone activity, special trade programs, such as NAFTA (North American Free Trade Agreement) and special duty provisions, which are those found in Chapter 98 of the HTSUS (Harmonized Tariff Schedule of the United States).

Key features of a focused assessment include:

a) The identification of imports that represent the greatest risk of trade noncompliance
b) The evaluation of the adequacy of a company’s internal control system, and
c) Methods for improving future compliance by identifying risk and reducing it.

But how does US Customs go about evaluating the adequacy of a company’s internal control system? It does so by looking at the following five (5) specific components of a company.

The first is what US Customs refers to in its focused assessment literature as a company’s “Control Environment,” as this apparently “sets the tone of an organization, influencing the control consciousness of its people.” I must admit, even though US Customs attempts to keep importers informed, language such as this “control environment” definition leave little to be understood.

What it is really getting at however, is the question of “What procedures are in place to maintain checks and balances within a company across company activities?” And, given that US Customs is making this inquiry, this question is focused on a company’s import activities.

The second is “Risk Assessment,” that is, Customs recognizes that multiple external and internal risks are faced by each company, and that these risks must be identified and analyzed. It therefore wants to see that a company has made this identification of potential risks across company activities.

The third is known as, “Control Activities,” which are the policies and procedures in place to ensure that management directives are implemented.

The fourth area US Customs is looking at is categorized as “Information and Communication” wherein the identification and summation of information that supports all other control components is communicated throughout a company’s personnel and those entities it works with (that have reason to be communicated to, with respect to “controls.”)

The fifth and final area, is that of “Monitoring,” which evaluates a company’s internal systems.

An evaluation of these five components occurs in the pre-Assessment Survey portion of the focused assessment. Depending on the results of this survey, determines where US Customs goes next with its auditing actions.

In my experience, these audits are time consuming, disruptive to regular business, and may leave an importer in a sleep deprived state. All the more reason to stay both informed and on top of US Customs compliance guidelines.

Questions/comments? Post below or email me at clark.deanna@gmail.com.

Customs Entry and Filing Procedures

Every importer knows that a lack of good entry procedures can lead to delayed, detained, or even seized shipments. Inadvertent classification declarations that lead to additional duty liability are common as well.

Action taken by Customs when this occurs may result in, for example, the issuance of a Notice of Action (Customs Form 29) whereby it applies what it believes is the correct HTSUS number and notifies the importer of the additional duties that must be paid.

The late payment of duties is another common occurrence, so much so that Customs has what I like to call a “parking ticket” approach to addressing the oversight of late payment. This is typically done through an assessment of liquidated damages whereby Customs demands a seemingly large amount of money, or alternatively, allows you to pay a much smaller amount, say $250, provided that it is paid within 60 days of the date of Customs’ notice to the importer. This is known in Customs-ease as the “Option 1” mitigation alternative to payment of the larger liquidated damage amount. This payment may be made through the customs broker or importer.

To give you an overview of Entry Filing, think about it as a two step process. (19 CFR Part 141).

Step 1: Filing an entry that seeks the Immediate Delivery/Release of the shipment (CF 3461), which is done with the shipment Waybill, commercial invoice (or a pro forma invoice when the commercial invoice cannot be produced), packing lists, and such other documentation as is necessary to determine merchandise admissibility.

Keep in mind that while required to produce certain documentation to the Customs Broker, and to Customs on request, most information is transmitted to Customs electronically through the Automated Broker Interface (ABI).

This must be done within 15 calendar days after the arrival of the importing carrier, but will usually be done earlier on vessel shipments (5 days before arrival) and on air shipments, “wheels up” from the foreign airport.

Step 2: Filing a ‘Follow Up’ Entry Summary (CF 7501) that provides greater detail about the shipment along with the duties preliminarily determined to be due (estimated duties.).

This must be filed within 10 working days after the time of entry/release of the goods for delivery under the CF 3461.

For more information on how to fill out the Entry Summary, click here for instructions published by Customs earlier this month.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Discrimination in the Tariff (HTSUS)? The Legality of the Tariff's Alleged “Disparate Impact” is Challenged in Court

This case immediately caught my attention as it is not often that I hear about constitutional protections in the context of international trade let alone “equal protection” under the tariff.

According to the majority decision by the U.S. Court of Appeals for the Federal Circuit in the case of Totes-Isotoner Corp. v. U.S., (Slip. Op. 09-1113) on February 5, 2010, the government has broad power to discriminate when it comes to tariffs, similar to that in taxation. [p. 17]

Totes unsuccessfully attempted to pursue and prevail on an Equal Protection claim, asserting that because different tariff rates were imposed on “men's” gloves versus “other” gloves, the Harmonized Tariff Schedule of the U.S. (HTSUS) unconstitutionally and unlawfully discriminated on the basis of age or gender.

The Court first discussed the “Article III standing” requirements, which are set forth in Article III of the U.S. Constitution, and whether Totes had a viable “case or controversy” for which the Court could provide a remedy. If no finding of standing were found, the Court would not have been able to hear the case.

To est. Art. III standing, a plaintiff must demonstrate that

1. It has suffered an injury-in-fact
2. There is a causal connection between the government's conduct and it's injury-in-fact
3. Its injury is redressable by the court

The court did find Art. III standing by way of “jus tertii (Latin, for “third party rights”) standing,” which is found when a third party, such as Totes, can demonstrate:

1. a close relationship to the party whose right it (Totes) is asserting;
2. that an injury-in-fact has been suffered by the jus tertii; and,
3. that the “first party” is hindered from filing its own claim.

In addition to standing, Totes needed to demonstrate it also had “prudential” standing, which was defined by the Court as meaning that the “interests of the affected parties must also arguably be within the zone of interests to be protected or regulated by the statue or constitutional guarantee in question.” Totes-Isotoner Corp., supra, at p. 7 (citing, Clarke v. Sec. Indus. Ass'n, 479 U.S. 388, 396 (1987).

After a long discussion regarding the development of today's HTSUS and how it is the result of multilateral agreements, negotiations, and trade concessions, the Court stated that it could not assume there was an intent to impose gender based discrimination between one article (men's gloves) versus another (“other” gloves, which women's gloves would fall into) from the mere fact of a disparate impact, as opposed to a showing of a Congressional intent to discriminate.

To support this claim, the Court reflected on how variations in duty rates may come from the product type and country of origin, the impact on the domestic industry of the place where it is manufactured, or the result of concessions made for other unrelated trade advantages.

In addition to this, the Court eluded to not wanting to open up a “Pandora's Box” of tax claims ranging from sales, income, and property taxes, the last of which may have been placed on “items which are discriminately consumed by any identifiable group,” such as in the case of Bray v. Alexandria Women's Health Clinic, 506 U.S. 263, 270 (1993), wherein it was discussed that “a tax on wearing yarmulkes is a tax on Jews...[and that] some activities may be such an irrational object of disfavor that if they are targeted, and if they also happen to be engaged in exclusively or predominantly by a particular class of people, an intent to disfavor that class can be readily presumed.” Id. at 18.

Unlike the Bray case, the provisions challenged by Totes in this case were found not to be facially discriminatory and that Totes failed to make a sufficient allegation of the government's intent to discriminate between male and female users. By merely claiming that there was a disparate impact, Totes' complaint had failed to state an equal protection claim.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Understanding the Harmonized Tariff Schedule of the United States (HTSUS) – Part I

The Harmonized Tariff Schedule of the United States (HTSUS) is used for determining the classification and duty rate of an import into the U.S. Sometimes an item is specifically stated in the tariff, such as frozen waffles, which come in under HTSUS Subheading 1905.32.0029. Other sweets that are imported frozen, such as “crème brûlées,” discussed in Customs Ruling HQ H023498 (3/9/09) and described as a “baked custard” upon cooking, are not so readily classifiable.

Classification is made in accordance with the General Rules of Interpretation (GRIs). GRI 1 provides that the classification of a good shall be “determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require,” the remaining GRIs 2 through 6 may then be applied in sequential order.

Using the example of the crème brûlées, we look at HTSUS Heading 1905 which provides:

1905 Bread, pastry, cakes, biscuits and other bakers’ wares, whether or not
containing cocoa; communion wafers, empty capsules of a kind suitable
for pharmaceutical use, sealing wafers, rice paper and similar products:

Under the specific HTSUS subheading for the crème brûlées, subheading 1905.90.9090 provides:

1905.90.90 Other:
1905.90.9090 Other …

When an import cannot be easily classified, looking at the terms of the headings, section or chapter notes as per the GRIs, and/or utilizing the the Harmonized Commodity Description and Coding System Explanatory Notes (ENs) will help interpret the headings of the tariff so as to find an appropriate classification.

The ENs, “although not dispositive or legally binding, provide a commentary on the scope of each heading of the HTSUS, and are the official interpretation of the Harmonized System at the international level.” See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).

As explained in Customs Ruling HQ H023498 (3/9/09), the ENs to heading 1905, HTSUS, state, in relevant part:

“This heading covers all bakers’ wares. The most common ingredients of such wares are cereal flours, leavens and salt but they may also contain other ingredients such as: gluten, starch, flour of leguminous vegetables, malt extract or milk, seeds such as poppy, caraway or anise, sugar, honey, eggs, fats, cheese, fruit, cocoa in any proportion, meat, fish, bakery “improvers”, etc. Bakery “improvers” serve mainly to facilitate the working of the dough, hasten fermentation, improve the characteristics and appearance of the products and give them better keeping qualities. The products of this heading may also be obtained from dough based on flour, meal or powder of potatoes.

This heading includes the following products:
* * * *
(11) Certain bakery products made without flour (e.g., meringues made of white of egg and sugar).”

Using the ENs for guidance, Customs explained that in a recent prior ruling (HQ W968393, 7/16/08), it had concluded that

“The text of heading 1905, HTSUS, provides for “other bakers’ wares” which, when read in the context of the entire clause of which this expression is a part, leads us to now find that the term “other bakers’ wares” refers to baked goods (or wares) other than the “bread, pastry, cakes, [and] biscuits” specified in the heading. In addition, based on the heading text and the examples provided by the ENs, it appears that goods of heading 1905, HTSUS, are consumed “as is” and are not incorporated into other food items.“

Taken in conjunction with the marketing literature submitted by the importer, Customs concluded that the crème brûlées were manufactured goods offered for sale by one who specializes in the making of pastries, akin to bakery products made without flour, such as meringues made of sugar and egg whites, as described in EN 19.05 (A)(11)). In addition, the crème brûlées being fully baked upon importation were thus, ready for consumption “as is,” as opposed to being incorporated into other food items. Customs therefore concluded that they constituted bakers’ wares and were classifiable in HTSUS heading 1905.

In a future post I will explore the rule of “Ejusdem Generis,” another means for interpreting the tariff, and its application for making a HTSUS determination.

Questions/comments? Post below or email me at clark.deanna@gmail.com