Tariff Classification And The U.S. Federal Courts: The Twenty Most Significant Precedents

• Published date: 14 February 2022
• Subject Matter: International Law, Transport, Rail, Road & Cycling, International Trade & Investment
• Law Firm: Braumiller Law Group, PLLC
• Author: Mr Mike Smiszek

Introduction

Tariff classification-related court precedents have significantly shaped the way importers, brokers, consultants, lawyers, and Customs and Border Protection (CBP) classify goods today under the Harmonized Tariff Schedule of the United States (HTSUS, or simply HTS). This is true even for many precedents that predate the HTS. The precedential value of these cases lies not necessarily in the facts of any specific dispute'although the context of each case is crucial to understanding a court's reasoning'but, more often, in the insightful guidance they provide on classification methodology that can be applied broadly to similar scenarios. As well, these court opinions serve as important educational resources for everyone professionally invested in the tariff classification process. This article attempts to identify the twenty tariff classification precedents whose influence stands head-and-shoulders over all others. (NB: Excluded from this exercise are antidumping and countervailing duty cases, as well as those that address Section 201, 232, or 301 duties.) There are plenty of cases to choose from, as several thousand classification-related opinions have been issued over the past two hundred years by the federal courts. Some cases, of course, have proved to be more influential than others, but measuring importance and influence is largely a matter of personal judgment so please keep in mind that the cases identified below represent just one man's list.

Classification methodology

Classification methodology changed when the HTSUS replaced the Tariff Schedules of the United States (TSUS) in 1989. Importers still, of course, had to identify the relevant facts about their goods, but they were forced to learn a brand-new classification process based on a set of binding rules called the General Rules of Interpretation (GRIs) and the Additional U.S. Rules of Interpretation (AUSRIs). A comparison of the TSUS and the HTS reveals many similarities between the GRIs|AUSRIs and the equivalent rules in the TSUS known as the General Interpretive Rules, found in General Note 10. But there are also important differences. For example, although the language of GN 10(e)(i) and (ii) looks similar to AUSRI 1(a) and (b), the former was premised on the concept of "chief use" while the latter relies on "principal use". Common sense might dictate that chief use and principal use are equivalent terms, but these terms don't share the same statutory authority and context, hence they cannot be used interchangeably. A court's application of chief use in a TSUS-era dispute cannot control a later court's application of principal use under the HTS. Under the HTS we find that many classification decisions can be made easily and without controversy. Everyone can agree, for example, that golf balls are objectively classified under 9506.32 per GRI 1 and GRI 6. But sometimes an item is classifiable, prima facie, under two or more headings or subheadings, which necessarily requires a subjective analysis per GRI 3 that may lead to disagreement between an importer and CBP. An unhappy importer can protest a liquidated entry believed to be misclassified. If CBP denies the protest, the now really unhappy importer can seek remedy from the federal courts. But which courts currently hold jurisdiction over classification disputes, and how has this jurisdiction evolved over the years?

U.S. Federal Courts and Classification Disputes

Congress has from time to time modified the scope and jurisdiction of all the courts that comprise the federal judiciary, including the specialized courts tasked with handling trade-related litigation. Since its creation in 1980 the U.S. Court of International Trade (CIT) has held jurisdiction as the trial court for most trade-related disputes, while the Court of Appeals for the Federal Circuit (CAFC), created in 1982, hears appeals of CIT decisions. Classification cases in the CIT are typically decided by a single judge, while CAFC decisions are usually issued by a three-judge panel. The CIT and CAFC were preceded, respectively, by the Customs Court and the Court of Customs and Patents Appeals (CCPA), which were themselves preceded respectively by a tribunal known as the Board of General Appraisers (BGA) and by the Court of Customs Appeals (CCA). It's important to note, too, that in the nineteenth and early twentieth centuries, it was common for the Supreme Court to ultimately decide tariff classification cases. But after Congress enacted legislation to reform the judiciary in 1925, the Supreme Court subsequently decided many fewer tariff-related disputes. Indeed, in the HTS era the Supreme Court has, so far, agreed to resolve only two classification disputes: United States v. Haggar Apparel Co. in 1999 (involving duty exemption under heading 9802), and United States v. Mead Corp. in 2001 (discussed below).

The List

So, without further ado, here, in chronological order, is my list of the twenty most impactful tariff classification precedents issued by U.S. federal courts, along with a brief explanation of each decision's significance:

1 ' Worthington v. Robbins, 139 U.S. 337 (1891)

Robbins, a watch manufacturer, imported "white hard enamel" which Customs classified as "watch materials" because the enamel was imported "for use in making watch dials, and was in fact so used." Robbins claimed that the enamel ought to be classified under a basket provision that included "all articles manufactured, in whole or in part, not herein enumerated or provided for." The Supreme Court agreed with Robbins, ruling that: "In order to produce uniformity in the imposition of duties, the dutiable classification of articles imported must be ascertained by an examination of the imported article itself, in the condition in which it is imported." Thus, the condition-as-imported precedent was established.

2 ' Merritt v. Welsh, 104 U.S. 694 (1892)

This is the Supreme Court decision that recognized an importer's right to fashion a product to enjoy a lower duty rate'provided that at the time of import the product isn't in an artificial state that would never exist but for an attempt to reduce the duty rate. "So long as no deception is practiced, so long as the goods are truly invoiced and freely and honestly exposed to the officers of customs for their examination, no fraud is committed, no penalty is incurred." In affirming the lower court decision, the Supreme Court said that Welsh, a sugar importer, could adjust the color of its sugar to satisfy a tariff provision premised on color: "Great stress is laid on the charge that sugars are manufactured in dark colors on purpose to evade our duties. Suppose this is true; has not a manufacturer a right to make his goods as he pleases?" This is the granddaddy of tariff engineering opinions.

3 ' United States v. Citroen, 223 U.S. 407 (1912)

Bernard Citroen imported drilled but unstrung pearls, although the facts showed...