Ruling of the Week 2017.1: Geeks Will Eat Anything

It is a new year and a lot has changed in the world. People in my field are either excited about the possibilities of major changes in trade policy or are horrified by the possibilities of major changes in trade policy.

I have had several calls about whether the U.S. will withdraw from NAFTA, impose new duties on goods made in Mexico by U.S.-based companies, and raise tariffs on goods from China. My answer so far has been, "I wish I knew." The new President and the new Congress will have a lot of authority under domestic law. The bigger questions will relate to how our trading partners respond. The U.S. has agreed many times to hold or lower duties. Going back on those promises will mean violating WTO obligations and multiple free trade agreements. Some people may not care. The U.S. remains fully sovereign and can violate any international agreements it choses. As a former partner used to say, "The WTO has no army."

But, the WTO has the ability to authorize trade retaliation. That means our trading partners will likely raise tariffs on U.S. goods in retaliation for stiffer U.S. tariffs. That makes it harder for U.S. companies to export. Add to that the impact of U.S. tariffs making it harder to import. We could end up with a situation in which domestic producers face higher costs for imported raw materials and components and then can't export their finished goods. That is a bad scenario.

Despite those two paragraphs, I tend to be an optimistic person by nature. I don't really expect the professionals who will be running White House trade policy and Congress to brazenly flout trade agreements and obligations. I don't think anyone wants to start an old fashioned trade war. But, as I said, I can't see the future. It's possible.  We all need to be watching closely. No matter your business needs and policy desires, this is a good time to make sure you have your Senators and Representative on speed dial.

Happy New Year. 2017 will be interesting.

Which brings me to the ruling of the week, N126516 (Oct. 19, 2010), in which we learn that human beings will eat just about anything. In this case, we are talking about snacking on arthropods.

Item 1: Giant toasted leafcutter ants.

Via Wikipedia

Item 2: Oven-baked tarantula spiders.

Also Via Wikipedia

According to the importer, the ants are "grown specially for human consumption" and have a "nutty, bacon-like taste." The spiders, on the other hand are "crisp, crunchy, ready-to-eat snacks." The importer also requested a ruling on scorpions that have been farm raised, detoxified, and are uncooked. For whatever reason, CBP decided it was lacking the necessary information to rule on that tasty snack.

The actual classification of the ants and spiders did not seem to controversial. These are food items prepared and packaged for human consumption. There not being a more specific place these delicacies, CBP classified them as "other prepared or preserved meat, meat offal, or blood." When canned, the classification would be 1602.90.9080; un-canned it is 1602.90.9080.

The importer here is a company called Think Geek Inc. I believe this is its website. Let me just say that this is right in my wheelhouse. I would like one of these and this and this (XL) and even this. Take all my money. I might even trade tariff classifications for gift cards. What I don't want is to eat tarantulas. And, yes, I am fully aware that arthropods provide a valuable source of protein and calories. The fact of the matter is that I get too many calories as it is. Unlike Chicago-mix popcorn and frozen yogurt, I can pass up the spiders and ants.

Krill Oil, Cryptozoology, and Tariff Classification

Podcasts are a terrible thing if you expect to do work or read books while otherwise leading a productive life. Among the many I listen to somewhat regularly is Tetrapod Zoology, from which I learn all kinds of thing about both real and fanciful zoology. It's worth a listen, though it may be a bit of an acquired taste. I came to it through the side door. Co-host Darren Naish is an actual, credentialed scientist who is willing to talk about allegedly unidentified megafauna (e.g., the Loch Ness Monster, Yeti, and Bigfoot), not because they exist but because the notion that they might is entertaining. He and his co-host John Conway are fully comfortable trying to imagine how something as absurd as the Mongolian Death Worm might exist in the real world (because it does not).

Why I am on about this? Because I have been wracking by brain trying to think of puns involving krill and the baleen whales that eat them.

It turns out that people eat krill oil as a dietary supplement, which makes us share at least one thing with baleen whales. In Jedwards International, Inc. v. United States, the question presented to the U.S. Court of International Trade was the proper tariff classification of krill oil. The importer classified the merchandise in 1603.00.90 as "extract and juices of meat, fish or crustaceans . . . ." other than clam juice. This seems like a perfectly good description of the product, which, by the time it gets imported, contains nothing but natural components of the krill and a residual amount of ethanol from the production process. U.S. Customs and Border Protection disagreed and classified the merchandise in 3824.90.40 as a product of the chemical or allied industries, including several miscellaneous chemical products and preparation. To complicate matters, in Court, the plaintiff argued that the correct classification is as an animal fat or oil of Heading 1506 or 1517.

The Court easily eliminated Heading 3824, which is a basket provision for chemical products not elsewhere specified. Since the krill oil is described by at least one other heading, 3824 cannot apply.

To be classified in Chapter 15, the krill oil must be an "animal oil." This is where my limited knowledge of zoology might come in handy. I know, via Wikipedia, that krill are subject to the following taxonomical breakdown:

Kingdom:	Animalia
Phylum:	Arthropoda
Subphylum:	Crustacea
Class:	Malacostraca
Superorder:	Eucarida
Order:	Euphausiacea

From Wikipedia

I also know that creatures in the kingdom Animalia are, by definition, animals. So, this should not be an issue as far as science and the English language is concerned.

But, this is tariff classification we are discussing. In the tariff, an animal oil is defined as "esters of glycerol with fatty acids (such as palmitic, stearic and oleic acids)." This definition is apparently fairly consistent in the literature. The kind of fatty acid found in animal fats is chiefly of triglycerides and small amount of other stuff including free fatty acids.

It turns out that the krill oil is low in triglycerides (23%) and is mostly phospholipids (53%). Since the triglycerides do not predominate, krill oil is not animal oil, at least not according to the Court of International Trade. Despite the product being known commercially as an "oil." Advertising and marketing is evidence to be considered, but does not determine tariff classification.

Having excluded Heading 3824 and Chapter 15, the Court classified the merchandise in 1603.00.90 as an extract of crustaceans. Yummy.

This is one of those cases I tend to find frustrating. The Court relies heavily on the Explanatory Notes for a definition of "animal oils" as esters of glycerol, etc. But the term "animal oil" is not defined in the actual Harmonized Tariff Schedule. That means the Court has added a limitation to the scope of the term "animal oil" by relying, in part, on the Explanatory Notes. In this case, the Court noted that this limitation is consistent with scientific and other lexicographical sources. Consequently, I don't think there is a real problem here.

But, on principle, the Explanatory Notes, in my view, should not be elevated to nearly statutory authority unless there is some ambiguity and the available sources of common and commercial meaning have been exhausted. I HATE the fact that the Explanatory Notes are not available for free to the trade community. If the United States Government expects importers to always consult the Explanatory Notes, they should be available to importers just like the regulations, the tariff, and CBP rulings: free. I know that is not the majority view of the Explanatory Notes. Nevertheless, I think we should consult to the Explanatory Notes less often and with less deference, at least until they are made freely available.

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.