STR WEBINAR: “Back to School” Tariff Classification Refresher

After you see the kids off to their first days of school, take some time to brush up on your own education! Whether you are new to tariff classification or a veteran classifier, an in-house customs compliance professional or a customs broker, it’s always good to get back to the basics. This webinar breaks down the classification process into simple steps that are guaranteed to help you evaluate the classification of your goods and comply with importer and broker requirements. It will also address some recent developments, including some very new and fairly new tariff provisions (e.g., 2012 HTSUS, Footwear, Monitors) and note some common pitfalls.

  • A Classification Road Map
  • Applying the General Rules of Interpretation
  • Identifying Areas of Risk for In-House Reviews
  • Desktop Classification Resources

Deborah Stern is a Senior Associate in the Import and Export Practice Group of Sandler, Travis & Rosenberg, P.A., resident in the Miami office. Ms. Stern advises domestic and multinational clients on both U.S. and foreign customs compliance and other trade matters. She concentrates her practice in traditional customs areas, such as tariff classification, seizures and penalties, country of origin marking, valuation, trademark infringement, broker compliance, bonded warehouses, government procurement, trade preference programs and free trade agreements, as well as the World Customs Organization’s Harmonized System. Formerly a senior attorney with US customs and Border Protection, where she handled domestic and international tariff classification matters, she has substantial experience in almost every product area of the tariff schedule.

Register Here: https://seminars.strtrade.com/events-Back_To_School_090612,rsvp.html

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STR Webinar: ‘KOREA-US FTA “ALL OTHERS” (NON-TEXTILE/ APPAREL/ AUTO/ HIGH TECH SECTORS)’ on February 9, 2012

http://bit.ly/AqDbli

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Out with the old…

As we embark on the New Year, it’s a good time to verify that your classification databases have been updated for the February 3rd implementation date of the 2012 HTSUS (Publication 4276 [PDF] (362 KB), keeping in mind others countries have already implemented 2012 amendments, while others may not be on track to implement just yet.

Noteworthy changes to the 2012 HTSUS include new subheadings in the agricultural chapters (1-27), that more precisely identify species of fish and other aquatic animals, vegetables, roots and tubers, fruits, nuts, and cereals.  There are also new provisions for chemicals controlled under the certain international agreements (e.g., Montreal Protocol for ozone depleting chemicals).  A brand new heading 9619 was created for diapers, tampons, sanitary napkins and similar items.  The provisions for video game machines and consoles have been updated in heading 9504, and cordless remote control devices that operate by infrared are now excluded from being classified as accessories to them.  Lastly, a variety of subheadings have been deleted due to low trade volume.

Other modifications to the HTSUS, which have already come into effect, include the new tariff provisions for footwear with textile outer soles, modifications to the pharmaceutical appendix, and changes to the rules of origin for the Chile FTA, all of In addition, there are a few things coming down the pike, including the Korea-US FTA which should enter into force in the next month.  And, for the first time, the rules of origin are expected to be consistent with current HTSUS.

If you haven’t done so already, review your tariff classifications under the new HTSUS.  If the classification has changed, check the new duty rate.  Modifications to the HTSUS should be substantially duty neutral by law so if the rate of the new classification is higher, you may have recourse to get the old duty rate reinstated.

Know how these changes can or will impact your imports.  While you are at it, start the New Year off right and schedule an annual review of your compliance materials…particularly if it’s been more than a few years since your last review!

Questions? Email me at dstern@strtrade.com.

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The Key to Being Duty Free

With the entry into force of new free trade agreements (FTA) with South Korea, Colombia and Panama just around the corner — well, there are some long corridors before we get to the corner, but they are coming — it’s a good time consider the important role tariff classification plays in benefiting from an FTA.

Tariff classification dictates both whether a product is eligible for preferential treatment under the agreement and may determine whether that product qualifies for preferential treatment if it’s made with foreign inputs. So even if it is manufactured in an FTA party country, it may not be entitled to preferential duty treatment.

Is it Eligible?

Not every product is able to benefit from duty free or reduced duty treatment immediately after entry into force, and some products may never be eligible.  Eligibility is identified through an imported product’s entered classification by the FTA’s special preference indicator in the “special” column in the HTSUS.  An incorrect classification can be the difference between duty free and woe is me.  It can deprive you of a great duty savings opportunity or result in an improper FTA claim.  Particularly as FTA claims are a subject to heightened scrutiny and enforcement, it’s important to ensure you’ve got that classification right.

Does it Qualify?

While there may be other requirements for qualification, the one we are focused on here is the primary one:  the rules of origin.  If your good is made in an FTA party country with materials and components of foreign origin, product specific tariff shift rules set forth in the agreement (and the General Notes of the HTSUS) will determine whether your good qualifies under the FTA for preferential treatment.   Tariff shift rules require that you know not only the classification of the final product, but the classification of every non-originating component used in its production.

In some cases, the failure of any foreign component to make the tariff shift means the good cannot qualify for FTA treatment.   In others, it triggers the need to make a regional value content assessment to determine if the in-country costs of production are sufficient to qualify the product as originating for purposes of FTA treatment.

In either case, determining the correct classification of the components to apply the tariff shift rule is key to the equation.  Documenting the determination it is equally important.  CBP regularly requests supporting data for a preference claim so it’s best to “know before you go.”

For more information contact Deborah B. Stern, Esq.

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‘Sports wares’ vs Sportswear

For textile and apparel fans who aren’t registered for our ST&R-TAP™ Advisor service, here is an interesting tidbit from its October 6, 2011 edition:

In an October 3 decision in LeMans Corporation v. U.S., the Court of Appeals for the Federal Circuit (CAFC) upheld a lower court decision that motocross jerseys, motocross pants and motorcycle jackets are classified as apparel under HTSUS chapters 61 and 62. Specifically, the ruling affirmed U.S. Customs and Border Protection’s classification of the jerseys as other manmade fiber pullovers and similar articles in HTSUS 6110.30.30 (32 percent duty rate), the pants as other manmade fiber garments in HTSUS 6210.40.50 (7.1 percent duty rate) and the jackets in HTSUS 6201.93.30 (7.1 percent duty), 6201.93.35 (27.7 percent duty) or 6201.92.15 (6.2 percent duty).

LeMans argued that these items should be classified as sports equipment under HTSUS Chapter 95 because they are so highly specialized for use during motocross or motorcycle riding that any apparel-like features are incidental to the primary purpose. LeMans cited the CAFC’s 2003 decision in Rubie’s Costume Co. v. U.S., which held that Customs appropriately classified certain costumes as festive articles under HTSUS Chapter 95 rather than as wearing apparel under Chapter 61 because the costumes were worn only on rare occasions, included “one-size-fits-all” varieties, and were “flimsy” and “lacking in durability.” However, the CAFC states, unlike those costumes the subject merchandise in this case shares more characteristics with ordinary apparel, coming in different sizes and having the durability to be worn repeatedly. In addition, whereas the comfort features of the costumes were secondary, all of the articles at issue here are designed to provide optimal fit and comfort while participating in the sport.

In addition, the CAFC states, the subject items are not classifiable as sports equipment. The vast majority of the examples of sports equipment listed in the Explanatory Notes to Section 9506 are not items worn on the body but instead are articles that are entirely separate from the user (e.g., tennis nets, playground equipment), held in the hand (e.g., golf clubs, tennis rackets) or fastened to a user (e.g., skis, ice skates). The few examples that a user actually would wear are almost exclusively used for protection and would complement, or be worn in addition to, apparel worn for a particular sport.

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WORKS TRUCKS GETTING DUMPED…OR NOT

In last week’s Customs Bulletin, CBP withdrew the revocation of three rulings, HQ 965246 ( November 6, 2001), HQ 964598 (November 13, 2001) and NY H87834 (January 28, 2002) concerning the tariff classification of motorized utility vehicles, per revocation rulings HQ W968312 and HQ W968313.  The notice of final revocation was published just two weeks ago (Vol. 45, No. 35, August 24, 2011).

The three rulings that were being revoked essentially involve where the line is drawn between heading 8704 – “Motor vehicles for the transport of goods” – and heading 8709 – self-propelled “works trucks.”  There are several commonalities between vehicles of headings 8704 and those of heading 8709, but the most distinct difference is that works trucks are not suitable for on-road use. The determination between the two has been the subject of several HQ rulings over the years, and rightfully so.  The line is not completely clear, and the duty difference between these two provisions is astronomical.  Most of heading 8704 is subject to a 25% duty rate, whereas heading 8709 works trucks are duty free.

HQ W968312 and HQ W968313 were to change the classification of the subject vehicles from 8709 to 8704, though interestingly, in the same Customs Bulletin, CBP revoked a ruling classifying another ruling that resulted in the reclassification of a vehicle from 8704 to 8709 (HQ H147081).  And interesting is the fact that HQ 965246 is itself a revocation of a prior ruling that had classified the subject vehicle under heading 8704.

CBP had stated in revocation ruling W968312 that the revocation of HQ 965246 and HQ 964598 was intended to remove any potential uncertainty in the classification of motorized utility vehicles similar to the subject vehicle by making clear the criteria to be used in classifying this type of vehicle.  But, it seems the uncertainty will remain now at least a bit longer… no doubt a relief for the importers of the works trucks covered by those three rulings!

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Classification Miscommunication: Mouse Pad Case Study for the Upcoming WCO Meeting

The 48th Session of the WCO Harmonized System Committee (HSC) is coming up next month, where member states will get together in Brussels to hash out various classification questions involving tariff interpretation, amendments to the Explanatory Notes and the next round of HS legal text amendments.   Agenda items include a reconsideration of prior votes on products containing different levels of sodium sulphate (an issue that has been hanging around since I was attending the HSC!), the reconsideration of the classification of Maritime Multi Display monitors (an issue of particular interest to those following the recent WTO dispute panel decision against the EU on other types of monitors, and for which the last vote on it was deadlocked),  the classification of motorcycle parts, dissolution test units, dump truck tires, pharmaceutical drugs, shrimp wonton products and assorted other goodies that different WCO member states find to be challenging, or find other member states classifying goods inconsistently.  These issues often arise because different customs administrations or national courts may interpret a particular heading or legal note differently from one another, or may have some other vested interest in a good being classified in a particular provision.

It is similar to when US CBP treats two of the seemingly same good differently because the each operate by different functions, of are made of different materials that may be subject to a particular inclusion or exclusion.  This  is the case with one of the more seemingly innocuous issues on the HSC’s agenda:  the tariff classification of mouse pads.

The issue presented is, in a nutshell, is whether mouse pads should be classified as accessories to computer mice under heading 8473 (accessories of the machines of heading 8471, which covers automatic data processing machines (i.e., computers) and units thereof, like mice) or by constituent material.    US CBP has consistently classified mouse pads of any material other than rubber as accessories in 8473 for the last twenty years.  But, it has also consistently classified mouse pads deemed to be rubber under subheading 4016.10.  See e.g., NY 877399, September 10, 1992; HQ 960129, December 15, 1997; NY C88549, June 10, 1998, NY F85436, April 25, 2000.  Most of these rulings contain insufficient justification for classifying the rubber mouse pad outside of heading 8473, except for  NY C88549, which states: “This computer mouse pad is composed of cellular natural rubber and has a top layer of PVC. The rubber predominates by both weight and value. Noting Legal Note 1(a) to Section XVI of the HTS, this mouse pad would be precluded from consideration under 8473.”

Note 1(a) to Section XVI (Chs. 84-85) excludes from classification within the section “Transmission, conveyor or elevator belts or belting, of plastics of chapter 39, or of vulcanized rubber (heading 4010); or other articles of a kind used in machinery or mechanical or electrical appliances or for other technical uses, of vulcanized rubber other than hard rubber (heading 4016).”    It appears CBP has broadly interpreted “technical uses” in the context of mouse pads.  However, it’s not clear that the exclusion was intended to be interpreted so broadly. In explaining the exclusion,  the General EN(B) to the Section XVI Notes states that the section includes goods of all materials, but does not cover (in relevant part): “(a)   Transmission or conveyor belts or belting, of plastics (Chapter 39); articles of unhardened vulcanised rubber (e.g., transmission or conveyor belts or belting) (heading 40.10), rubber tyres, tubes, etc. (headings 40.11 to 40.13) and washers, etc. (heading 40.16).”

These EN exemplars are quite specific in context, covering either goods specifically provided for outside of Chs. 84 or 85, or those akin to parts of general use.   As such, the scope of the exclusion does not clearly extend to mouse pads.  They are not akin to these exemplars because they are designed solely or principally for use with ADP mice, and further qualify as accessories because they assist the function of the mice and act directly on the mice.    Nevertheless, the exclusion of rubber mouse pads from heading 8473 is a position CBP appears to have taken for the last twenty years, so it’s likely the position it will  support at the HSC.  But maybe raising this issue will cause CBP to reconsider…

In the meantime, can you think of other examples where the same good may be classified as both a part or accessory and by constituent material, without any substantive modifications to the good itself other than a change in material?   Post a comment on our blog or email me directly at dstern@strtrade.com.

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