Note, this is not another post about tariff classification. Read through the facts to get to the more interesting issue.
How much controversy could there possibly be over the tariff classification of an add-on child safety seat for bicycles? Apparently, enough to general HQ H170637 (Feb. 11, 2015).
Kent International imports the Wee Ride child safety seat that is designed to mount in front of the saddle on an adult bicycle. Here's what it looks like:
Back in 2005, CBP issued a ruling classifying the Wee Ride as a bicycle accessory in 8714.99.80, subject to a 10% rate of duty. Customs subsequently issued rulings to other importers classifying similar safety seats in 9401.80.40 as seats, which is a duty-free provision. Obviously, that gave competitors an advantage and probably annoyed Kent. Kent even got some protests approved on the basis of the subsequent rulings. However, Kent's subsequent entries were liquidated in 8714, forcing anther round of protests, which included an Application for Further Review, the intent of which seems to have been to convince Customs to revoke the earlier unfavorable ruling.
The bad news for Kent is that CBP revoked the later inconsistent rulings and determined the correct classification to be as bicycle accessories in 8714. See HQ H180103. In other words, CBP stuck to its guns and affirmed the earlier decision issued to Kent.
What options does that leave Kent? Remember, there has been a substantial period in which it paid a higher rate of duty than did competitors importing similar products. Can it get that money back to level the proverbial playing field?
Kent first argued that the rulings classifying safety seats in 9401 and CBP's liquidation of some of Kent's safety seats constitutes a "treatment." The legal effect of a "treatment" is that, like a ruling, Customs cannot modify it without providing public notice and comment pursuant to 19 USC 1625. But, a treatment is not a ruling. According to CBP, the fact that Kent asked for and received a ruling on the product trumps any argument it may have that CBP developed an inconsistent treatment of these products, which it then modified without proper notice. Rather, the ruling issued to Kent remains in effect until modified or revoked, which never happened. Strike one for Kent.
Picking up on this point, Kent next argued that CBP implicitly revoked or modified the ruling it received when CBP issued the conflicting subsequent rulings to other importers. According to Kent, the appropriate remedy for this is that it should receive the more favorable treatment accorded to the other importers. That, of course would be entirely fair and reasonable.
But, based on the epic litigation involving the classification of "white sauce" in International Custom Products I, CBP disagreed. In that case, the Federal Circuit held that a subsequent Notice of Action was not sufficient to modify or revoke a ruling without the other requirements of section 1625. As a result, the subsequent modification was null and void. Applied to this case, the subsequent rulings were not section 1625 notices of the proposed modification of the ruling originally sent to Kent. As a result, the subsequent rulings had no impact on the ruling issued to Kent. In other words, Kent is stuck with the ruling issued to it until that ruling is modified or revoked. Strike two.
Finally, Kent argued that CBP's rulings and liquidations of seats in Heading 9401 constitutes a de facto established and uniform practice. This is a little different than a mere "treatment." An EUP usually involves a finding by the Secretary of the Treasury. When there is an EUP, Customs cannot increase the rate of duty on merchandise until 30 days after the publication of notice in the Federal Register. See 19 USC 1315(d). On top of that requirement, the courts have found that in some cases there can be a de facto EUP even without a finding of the Secretary of Treasury.
It is hard enough to establish that there is a de facto EUP. It is even harder to do so when CBP has issued a ruling on your product that is inconsistent with the alleged EUP. Moreover, the practice with respect to these seats was not "uniform;" some of Kent's products were liquidated as bike accessories and some as seats. Consequently, CBP declined to find an EUP. That is strike three.
As a result, CBP did not grant any relief to Kent. Under GRI 1 and, specifically, Note 1(h) to Chapter 94, Customs found the bike seats to be classifiable as bike accessories. The problem with all this is that the classification applied to Kent's products appears to be correct (at least we can assume that for now). By applying the correct classification to Kent and an incorrect, more favorable rate of duty to other importers, CBP did potentially substantial damage to Kent. The question is whether someone who got the correct rate of duty has any remedy in this circumstance. Based on these facts, it does not appear that Customs thinks so.
What will the Court say when this get there, as I assume it will. First, there is the classification. Let's hope Kent is protesting entries on which it is paying duties. That will provide a remedy going forward. For the prior period in which Kent was at a tariff disadvantage, it seem Kent needs some kind of equitable remedy. Here's hoping Kent finds it.
What lessons can be learned from all this? First, remember that if you seek a ruling, you will be bound by the result. Do not take that process lightly. Submit a fully supported, well reasoned request that actually advocates for your desired result. A ruling that says "Here is my sample. Please tell me the correct classification," is a recipe for potential disaster. Second, stay abreast of what is happening in your industry. When the conflicting rulings were issued, Kent could have stepped up as an interested party and argued against the results. This might have shortened the period in which it was at a disadvantage.
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