Sunflower Seeds

I am falling behind on Rulings of the Week, but not for want of effort. I am keeping up with CIT decisions (more or less). The latest of which is Well Luck Co., Inc. v. United States. The case has to do with the classification of sunflower seeds that have been processed for human consumption. Some have been flavored with spices or other flavorings and dried. All are roasted and salted. The question is the tariff classification, which turns out to be trickier than you think.

The options are HTSUS item 1206.00.00, which covers "Sunflower seeds, whether or not broken." The applicable rate of duty is free and this is what the plaintiff claimed is correct. Customs and Border Protection liquidated the sunflower seeds in HTSUS item 2008.19.90 as "Fruits, nuts and other edible parts of plants, otherwise prepared or preserved . . . not elsewhere specified or included: Nuts, peanuts (ground-nuts) and other seeds . . . ." The applicable rate of duty is 17.9%, which is a significant deviation.

Think about everything you know about classification. In your heart, you already know the answer, don't you? Sunflower seeds are sunflower seeds. They are called out eo nomine in 1206.00.00 and that tariff item covers all forms of the sunflower seed. Easy. On top of that, as between the two, Heading 1206 is more specific in that is covers sunflower seeds. Heading 2008, on the other hand, covers other edible parts of plants not elsewhere specified or included, which is far less specific. Finally, since sunflower seeds are specified in 1206, they cannot be included in 2008.

All of that makes sense.

And yet, your conclusion (and mine) is wrong. Let's try to sort it out.

First off, do not jump to Relative Specificity under General Rule of Interpretation 3(a) until we fully explore the text as required by GRI 1.

Let's agree that if the processed sunflower seeds are classifiable in 1206, they are excluded from 2008. So that is the first question the Court of International Trade had to decide: are processed sunflower seeds "sunflower seeds" for purposes of Heading 1206? Getting the botany out of the way, there was no dispute that the imported product is the edible seed of Helianthus annuus, the common sunflower.

The problem for the plaintiff in this case is that the Explanatory Notes further define sunflower seeds of Heading 1206 as "minimally processed" and having general uses including for the extraction of oil and for sowing. These are not those seeds. They have been processed to add flavoring (even if just salt) and have been heated to an extent that they are no longer suitable for sowing. These are sunflower seeds with the specific use of being a food item. As a result, they are excluded from Heading 1206 and reamin classifiable in Heading 2008.

This conclusion is consistent with the Explanatory Notes. It is also consistent with the overall structure of the HTSUS, which moves from less processed to more highly processed materials. There is no doubt that the imported seeds are more highly processed than similar seeds for oil extraction or sowing. Thus, I don't have much of a problem with this result.

But, I think there is an analytical open question. A few Court of Appeals cases have held that the Explanatory Notes should not be used to impose a restriction on the language of the HTSUS that is not present in the text. See, e.g., Archer Daniels Midland v. U.S. Is that what happened here? Is there an answer to this issue that does not violate that principle?

There are no legal notes to Chapter 12 that exclude processed sunflower seeds. There are also no relevant Section Notes. Suddenly, this is a hard case.

The Court resolved this concern by noting that the meaning of the term "sunflower seed" is actually ambiguous. The lexicographical materials submitted to the Court indicate two distinct meanings. First, there are the raw and minimally processed seeds that remain suitable for oil extraction and for sowing. Those seeds may also be used for human consumption. Although not addressed by the Court, it is worth noting that Heading 1206 includes two statistical suffixes for sunflower seeds for "human use." The suffixes are not relevant to classification, but are indicative that some of the seeds of Heading 1206 are edible by humans.

The second meaning of sunflower seeds is in reference to the prepared snack food, which is no longer capable of general use. Having found two distinct meanings, the term is ambiguous and it makes sense and is legally correct to look to the Explanatory Notes to resolve the ambiguity.

That resulted in a substantial duty increase, which is why I suspect the Federal Circuit will let us know whether it agrees with this analysis. Given Archer Daniels Midland and the related cases, it is a close call on which reasonable judges might differ.

Ruling of the Week 2016.11: Seriously?

Calling this post a "Ruling of the Week" is a little disingenuous. It has been many weeks since I was able to make a "weekly" post. Nevertheless, this is my effort to get back on that self-imposed horse.

Today, we look at HQ H264891(Apr. 5, 2016), primarily because before I read this ruling I had never heard of "tendu leaf cones." I bet most you had not.

A tendu turns out to be the East Indian Ebony tree, diospyros melanoxylon. Someone decided to import leaves of the tendu tree rolled into a tapered cone and secured with threads and a band. You might reasonably be wondering why anyone would need this product. It turns out that these cones are commonly used as wrappers for bidis, which are an alternative to cigars and can be packed with tobacco or "other smoking mixtures." This image should help illustrate what we are talking about.

Keep in mind that as imported the cones were empty. They were, however, packaged with a plastic tool designed to facilitate filling and packing the cones with whatever smoking material the consumer chooses.

The potential HTSUS headings for this product are 1404, Vegetable products not elsewhere specified or included; 3926, Other articles of plastic; or 4813, Cigarette papers.

Because 1404 is a basket provision, it will only apply if one of the other two more specific headings does not apply. As between 3926 and 4813, it seems clear that cigarette paper is the more specific of the two headings. So, we should start there.

The obvious problem is that a leaf is not, in any ordinary sense of the word, "paper." According to the Explanatory Notes, "Paper consists essentially of the cellulosic fibres of the pulps of Chapter 47 felted together in sheet form." Because of this, Customs has previously ruled that tobacco wrappers made of tobacco leaves are not classified as cigarette papers. That would apply to the unprocessed tendu leaves, and exclude them from Heading 4813.

Customs then determined that the cones and plastic stick constitute a retail set to be classified on the basis of the single product that imparts the essential character. Here, Customs focused on the single item without which the set could not meet its particular need or carry out its specific activity. Customs concluded, reasonably enough, that the tendu leaves impart the essential character.

That, of course, leads to the question of where to classify the leaves. The only remaining option is Heading 1404 as other vegetable products and the applicable rate of duty is free.

So far so good. But, Customs is a law enforcement agency and is responsible for border enforcement for both the Food & Drug Administration and the Alcohol and Tobacco Tax Bureau. One has to wonder whether the importer contemplated that its classification ruling request may end up raising issues of admissibility. Customs specifically warned the importer that it did not rule on the admissibility of the merchandise. It may be subject to additional regulations under the Food, Drug, and Cosmetic Act as amended by the Family Smoking Prevention and Tobacco Control Act. Moreover, the tendu cones may be subject to federal excise taxes. Now that those issues have been raised, the prospective importer should be certain to confirm admissibility and tax status before investing much effort in trying to import these products.

About that Lion and the Lacey Act

A lot has been said about the Minnesota dentist who killed Cecil the lion in Zimbabwe. From the perspective of this blog, the question being asked is whether the American dentist violated any U.S. laws. The short answer is that I don't know for certain whether any criminal laws have been violated.

What has come up in the trade context is whether the hunter violated the Lacey Act. Since Lacey impacts trade, it pops up in my practice and is worth a short exploration.

The Lacey Act was first passed in 1900 and is an early conservation law. As originally enacted, it protected animals from illegal hunting through criminal and civil penalties. The law also prohibits trade in protected animal and plant species that are hunted or harvested illegally.

It is a crime to import into the United States any injurious animals including brown tree snakes, big head carp, zebra mussels, and flying fox bats. 18 USC 42. Exceptions can be made for properly permitted (and dead) zoological specimens and certain "cage birds." A violator may be imprisoned  and fined.

More relevant is that the Lacey Act also makes it illegal to import any plant or animal taken in violation of a foreign law or regulation. 16 USC 3372. This is an important compliance issue for anyone that imports animal and plant products. If you happen to import wood to make violins, for example, you need to know that the wood was harvested legally. Assuming you purchase from a supplier who is a few steps removed from the actual person that cut down the tree, how can you prove that the wood was legally harvested? Keep in mind that the Act applies to derivative products as well. This is a paperwork and due diligence process familiar to importers who have to comply with lots of similar regulations. And, it is important. That is what Gibson Guitars learned when it agreed to pay $300,000 to settle a Lacey Act case.

So, what about Cecil and the dentist? The press has reported that Cecil was illegally lured out of a wildlife sanctuary. That makes the killing illegal under Zimbabwe law (at least that is what I have read). So, did the hunter violate the Lacey Act? Not yet. The Lacey Act only kicks in when the illegally taken wildlife is imported, exported, sold, or otherwise subject to interstate or foreign commerce.

The press also reported that Cecil was decapitated and skinned. I don't know much about hunting, but I do know something about spooky home décor. To me, that sounds like the hunter had the intention to mount Cecil's head and turn his pelt into a rug. Unless he has a home in Zimbabwe, that likely means he was planning to import said lion head and skin to the U.S. That, my friends, would be a violation of the Lacey Act.

It is unclear whether any part of Cecil was actually imported. So, it does not appear that there was a violation of U.S. law. Press reports also indicate that the U.S. has not charged the hunter with a violation of any U.S. law. I suspect the Department of Justice and the Fish & Wildlife Service are smart enough to ask about the present location of the remains. That's why the real issue for the dentist is whether he will be extradited to Zimbabwe for prosecution there.