ACI’s 9th National Forum on Import Compliance and Enforcement

Kenneth Weigel

Partner

Alston & Bird

Classification of “Parts”

Randi Keenan

Manager, Import Compliance

Safariland, LLC

June 12 - 13, 2014

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#ACIImport

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Today’s Topics

•Common Practice/Blind Classification.

• Foundation of Classification.

•Quick Review of GRIs.

•Definition of Part.

•Additional U.S. Rule of Interpretation.

• Examples of Parts Classification.

•Reasonable Care Standard.

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Common Practice/Blind Classification

• “Formal training is not needed…we only import parts that are easily classified as parts of the item they are used with.”

• “When there are two HTS numbers that fit, we choose the HTS with lowest duty rate.”

• “When I was hired…there was a folder on my desk with previously used classifications.”

• “I search for the description in the HTS Index and use the number it directs me to.”

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Example Of Blind Classification Of A Part

• Merely look at HTSUS Headings. • Wood dowel pins imported by a toddler bed manufacturer. • The dowels are used to secure the footboard to side rails. • HTS Index key word search for bed indicates chapter 94. • Chapter 94 key word search for toddler will lead us to entries for

toddler beds. • Sub heading 9403.90 has a specific entry for wooden parts of

toddler beds. • BUT…… Subheading 4421.90 specifically lists wood dowel pins by name!

4421.90 would be the correct classification

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Foundation Of Classification

• Section titles, chapters and subchapters: • Ease of reference only.

• No legal significance.

• Governed by: • Section and Chapter Notes.

• 6 General Rules of Interpretation (GRI).

• Additional U.S. Rule of Interpretation.

• Explanatory Notes .

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General Rules Of Interpretation (GRI)

• Rules for classification of items under the HTSUS .

• Critical in classification of parts.

• Apply the GRI:

• Start with GRI 1.

• Only move on if you don’t meet GRI 1.

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GRI 1

• The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only.

• Classification “shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions” – the other GRI’s.

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GRI 2(a) Unfinished And Dissembled Articles

• Any reference in a heading to an article shall be taken • to include a reference to that article incomplete or

unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article.

• to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

• The term “essential character” means the attribute that serves to distinguish what an article is; that which is indispensable to the structure, core or condition of the goods; the aggregate of distinctive component parts that establishes the identity of an article as what it is.

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GRI 2(b) Mixtures Or Combinations Of Materials And Substances

• Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances.

• Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance.

• The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.

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GRI continued…

• GRI 3

• 3a – Seemingly 2 or more headings, the most specific takes precedence.

• 3b – Most specific cannot be determined; Essential Character is then considered.

• 3c – Classify all components; choose last in numerical order.

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GRI continued…

• GRI 4 – Most Akin.

• GRI 5 – Specially fitted container rule.

• GRI 6 – Apply previous GRI at heading and subheading level. But, only compare headings to headings and subheadings to subheadings.

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Parts Rule

• ADDITIONAL U.S. RULES OF INTERPRETATION

• In the absence of special language or context which otherwise requires--

• “(c) a provision for parts of an article covers products solely or principally used as a part of such articles but a provision for "parts" or "parts and accessories" shall not prevail over a specific provision for such part or accessory;”

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Definition Of Part

• 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. See Clipper Belt Lacer Co.,

Inc. v. United States, 14 CIT 146 (1990).

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CAFC Tests

• The article could not function as such article without the claimed part.

• Camera lens because without a lens the cameras could not function and take of pictures.

• The claimed part is dedicated solely for use in such article and could not function without it

• A supercharger to be installed in a car engine is dedicated solely for supercharging the car engine and when applied to that use the supercharged car engine cannot function without the supercharger.

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

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Parts vs Accessories

• Accessory is not defined in either the HTSUS or the Explanatory Notes.

• Accessories are subsidiary devices used in connection with the item.

• Accessories are not necessary to enable the goods with which it is used to fulfill its intended function.

• Intended solely or principally for use with a specific article.

• Accessories are of secondary or subordinate importance not essential in and of themselves. They must somehow contribute to the effectiveness of the principle article such as facilitate the use or handling of the principle article, widen the range of its uses or improve its operation. See HQ 087704(September 1990).

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Parts Classification Depends On Correct Classification Of Imported Article

• What is the finished article?

• Is there a parts provision for the finished article?

• Is the item being imported a part?

• Is the item being imported nonetheless classified elsewhere?

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Example: Is it A Part?

• Cut to shape steel plate -- Steel plate or part of a pressure vessel?

• HTSUS allows for some processing of steel plate.

• Must assume character of an article.

• Merely cut to shape does not make it a part.

• Punching of steel sheet –

• one punch item remains steel sheet;

• multiple punches may become an article of steel;

• if thereafter formed, could become a part – muffler for lawn mower.

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Example: Is it A Part?

• Plastic material used for doctor blades imported in coils. • An article of plastic under heading 3926, HTSUS, or

• A part of a machine under 8419.90 or 8439.99. • The Canadian International Trade Tribunal classified a

similar article under heading 8439.99 as other parts of machinery for making or finishing paper or paperboard.

• As imported, it be used to make various types of blades which could be classified under various HTSUS provisions.

• As imported it had no essential character and thereby its sole or principle use could not be determined.

• It is an article of plastic under heading 3926, HTSUS. HQ963029 (2000).

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Example: Is it A Part?

• Elevator guide rails. • Angles, shapes or sections of steel under heading 7216, HTSUS.

• Part suitable for use solely or principally with the machinery of

headings 8425 to 8430 classified under 8431, HTSUS.

• Cut to specific lengths, heights and widths and have no practical use other than as elevator rail guides.

• Explanatory Notes to heading 84.28 state that when presented separately, static structural elements are classified in heading 84.31 provided they are fitted or designed to be fitted with the mechanical features essential to the operation of the moving parts of the complete installation.

HQ965520(2002) .

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Example: Is it A Part?

• A One Piece Woven Fabric used in the manufacture of airbags for motor vehicles.

• Classified as an automobile part under item 8708.95.2000, HTSUS, because it has the essential character of an unfinished airbag based on the specific cutting, shape and design.

N181103(2011).

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Part Or Incomplete Article? -- Application Of GRI 2(a)

• A complete rolling mill imported in separate components and assembled post-importation classified as a metal rolling mill under heading 8455, HTSUS.

• A rolling mill imported without a decoiler and runoff table is also classified in heading 8455, HTSUS, based on GRI 2(a) as an unfinished or incomplete rolling mill as it has the essential character of the complete or unfinished goods. As imported it is admittedly incomplete but comprised of machines which together possess the essential character of a complete rolling mill line.

See H185699 (2012)

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The Importance Of The Notes In Classifying Parts

• Generally prevent classification in a parts provision.

• Blind classification misses notes and misclassifies parts.

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Example of U.S. Rule 1(c )

• Umbrella-base of cement and umbrella-base of plastic.

• There is no specific provision in the HTSUS for the umbrella-bases or umbrella-base rings.

• Accordingly, as they are a part or an accessory to an umbrella of heading 6603, this tariff provision prevails over tariff provisions for “other articles of cement” and “other articles of plastic.”

HQ966352 (2003)

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Example Of U.S. Rule 1(c )

• Hook and eye tape used for brassieres.

• Parts of brassieres of heading 6212.

• Parts of garments under heading 6217.

• Hooks and eyes of heading 8308, HTSUS.

• Based on rule 1(c) heading 6212, HTSUS, is not the most specific heading. Heading 8308, HTSUS, which provides for hooks and eyes is the most specific heading and where the goods are classified.

HQ966818(2004)

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Screen Protector For Play Station Portable

• Competing Provisions: • Subheading 3926.90, HTSUS, as other articles of plastic • Subheading 9505.90, HTSUS, as game machines, other than those

operated by coins …; parts and accessories thereof.

• Two notes relevant – • Note 2(y) to Chap. 39 –Chap 39 does not cover articles of chapter

95. • Note 3 to chapter 95 -- parts and accessories suitable for use

solely or principally with articles of this chapter are to be classified with those articles.

• Screen protector was accessory as it was designed to fit and to be used exclusively with the Play Station.

HQ 8063638 (2010)

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Section XV Parts of General Use Note • 2. Throughout the tariff schedule, the expression

"parts of general use" means: • (a) Articles of heading 7307, 7312, 7315, 7317 or 7318 and

similar articles of other base metals; • (b) Springs and leaves for springs, of base metal, other than

clock or watch springs (heading 9114); and • (c) Articles of heading 8301, 8302, 8308 or 8310 and frames

and mirrors, of base metal, of heading 8306.

• In chapters 73 to 76 and 78 to 82 (but not in heading 7315) references to parts of goods do not include references to parts of general use as defined above.

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Section XVII Parts Note • The expressions "parts" and "parts and accessories" do not apply to the following articles,

whether or not they are identifiable as for the goods of this section:

• (a) Joints, washers or the like of any material (classified according to their constituent material or in heading 8484) or other articles of vulcanized rubber other than hard rubber (heading 4016);

• (b) Parts of general use, as defined in note 2 to section XV, of base metal (section XV) or similar goods of plastics (chapter 39);

• (c) Articles of chapter 82 (tools);

• (d) Articles of heading 8306;

• (e) Machines or apparatus of headings 8401 to 8479, or parts thereof; articles of heading 8481 or 8482 or, provided they constitute integral parts of engines or motors, articles of heading 8483;

• (f) Electrical machinery or equipment (chapter 85);

• (g) Articles of chapter 90;

• (h) Articles of chapter 91;

• (ij) Arms (chapter 93);

• (k) Lamps or lighting fittings of heading 9405; or

• (l) Brushes of a kind used as parts of vehicles (heading 9603).

• 3. References in chapters 86 to 88 to "parts" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those chapters. A part or accessory which answers to a description in two or more of the headings of those chapters is to be classified under that heading which corresponds to the principal use of that part or accessory.

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Plastic Hinges Used In A Vertical Stow Box Of The Airbus A380 Aircraft

• Not classifiable under the provision for parts of aircraft, 8803.30, HTSUS, because this heading is in section XVII of the HTSUS and legal note 2(b) provides that parts and accessories does not apply to parts of general use as defined in note 2 to section XV, of base metal or similar goods of plastics.

• Plastic hinge assemblies are classified in heading 3926, HTSUS, as articles of plastic, fittings for furniture, coach work or the like.

N152436 (2011)

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Automobile Gear Shift Link Bracket • Not a part or accessory of a motor vehicle.

• Section XVII note 2(b) states that parts and accessories does not apply to “parts of general use” (as defined in note 2 to section XV) of base metal or similar goods of plastic.

• Gear shift link bracket is a part of general use and classified as an article of plastic in heading 3926, fittings for furniture, coachwork or the like.

N026891(2008).

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Civil Aircraft Control Panel

• Master control panel assembly designed to control the movement of cargo within a civil aircraft’s cargo handling system.

• Not heading 8808.30, HTSUS, as parts of civil aircraft because of Section note XVII, note 2(f) -- parts and parts and accessories do not apply to certain articles whether or not they are identifiable as for the goods of this section including electrical machinery or equipment.

• Master control panel assembly is classified in heading 8537 and a board, panel, console, desk, cabinet and other bases … for electrical control or the distribution of electricity and not as a part of an aircraft. N143696(2011).

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Hinge Pins And Guide Pin For Use On Motor Vehicle Seats

• Not classified under heading 9401, HTSUS, the provision for seats and parts thereof by virtue of section XV, note 2 and chapter 94 note 1(d) which excludes parts of general use from classification in Chapter 94.

• Classification is heading 8302, HTSUS, as base metal mountings fittings and similar article, hinges and parts thereof….

N150495(2011).

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Potential Consequences Of Incorrect Classification – Civil Penalties

• Section 592 of the Tariff Act of 1930 as amended.

• Mistake must be “material.”

• Three levels of culpability: • Negligence – Assumed if a occurs mistake unless

importer can show it was not negligent.

• Gross Negligence – Reckless disregard.

• Fraud – Civil as opposed to criminals but close.

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Maximum Penalties

• Negligence – 20% of the entered value or two times the loss of duties.

• Gross Negligence – 40% of entered value or four times lost duties.

• Fraud – “Domestic value” of merchandise.

• Failure to Meet Reasonable Care Standards as the Customs Broker – $30K per violation.

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Customs Civil Penalty Statute

• Five-year statute of limitations for collecting duties and fees regardless of liquidation.

• Typically Customs rate advances open entries regardless of whether it initiates penalty action.

• Discretion of Customs officer whether to initiate penalty action.

• Incorrect classification is considered negligence unless importer can show reasonable care.

• Reasonable care = classification database with backup rationale.

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Prior Disclosure

• Significantly limits penalty exposure.

• Penalty is amount equal to interest on lost duties in case of negligence or gross negligence. Zero if duty free.

• Importer must do work and provide information to Customs.

• Sampling allowed – but Customs not always familiar with sampling methodology and procedures.

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Resources

• CBP online ruling search http://rulings.cbp.gov/index.asp

• US Court of Int’l Trade http://www.cit.uscourts.gov/SlipOpinions/index.html

• Kenneth G Weigel, Partner

Alston & Bird

PH: 202-239-3431

Email: ken.weigel@alston.com