Holiday Rituals

WWRD U.S. v. United States is exactly the kind of case that makes me love what I do. Much like our recent foray into sunflowers seeds, this case seems to have a simple answer that gets derailed by the law. It has to do with some potentially festive articles, which is also one of my favorite legal topics.

The question here is the classification of several examples of tableware that are decorated with Christmas or Thanksgiving motifs. The items have names like "Old Britain Castles - Pink Christmas" and "12 Days of Christmas crystal flutes." Customs and Border Protection classified the merchandise in various headings based on their composition. The plaintiff protested and asserted that the merchandise is specifically designed and intended for use in conjunction with Christmas or Thanksgiving dinners. According to plaintiff, that makes the correct classification HTSUS item 9817.95.01, which reads:

Articles classifiable in subheadings 3924.10, 3926.90, 6307.90, 6911.10, 6912.00, 7013.22, 7013.28, 7013.41, 7013.49, 9405.20, 9405.40 or 9405.50, the foregoing meeting the descriptions set forth below: 

Utilitarian articles of a kind used in the home in the performance of specific religious or cultural ritual celebrations for religious or cultural holidays, or religious festive occasions, such as Seder plates, blessing cups, menorahs or kinaras . . . .

The history of this provision is interesting. After a lot of litigation, in 2007 the HTSUS was amended to clarify when utilitarian articles are "festive articles" related to holiday celebrations. The amendment added Note 1(v) to Chapter 95, which excludes from Chapter 95 "Tableware, kitchenware, toilet articles, carpets and other textile floor coverings, apparel, bed linen, table linen, toilet linen, kitchen linen and similar articles having a utilitarian function (classified according to their constituent material)."

This change caused a related problem. Changes to the HTSUS are supposed to be revenue neutral. Removing these items from the duty-free provisions of Chapter 95 resulted in an increased rate of duty. To fix that, the ITC added 9817.95.01, which is also duty free and avoids the messy issues of classification as festive articles.

What all that means is that because of Note 1(v), these products cannot be classified in Chapter 95. If they are not classifiable in 9817.95.10, then CBP correctly classified them according to their constituent materials. So, what about 9817.95.10?

A lot of the legal analysis is about breaking down text to find its correct meaning. Doing that to 9817.95.01, we find that merchandise classifiable there must be:

1. Classifiable in 3924.10, 3926.90, 6307.90, 6911.10, 6912.00, 7013.22, 7013.28, 7013.41, 7013.49, 9405.20, 9405.40 or 9405.50
2. Utilitarian
3. Of a kind used in the home
4. In the performance of specific religious or cultural ritual celebrations for religious or cultural holidays, or religious festive occasions

There was no controversy surrounding the first three elements. The sole question before the Court was, therefore, whether these items are used in the performance of specific religious or cultural ritual celebrations for religious or cultural holidays, or religious festive occasions.

Ask yourself whether Thanksgiving dinner is a specific cultural ritual celebration? It is a specific cultural celebration. That seems to be clear. After all, we all know what that looks like, right?

Normal Rockwell's Freedom from Want
via a Quinta Arts Foundation

But, is the imported tableware part of a "ritual celebration?"

We all have family rituals for Thanksgiving dinner.  Do you have to hide the alcohol before Uncle Abe arrives and starts mixing overly sweet Old Fashioneds? Does Grandpa insist on carving the turkey his special circa 1975 electric carving knife? Does little Jenny come back from Berkeley to lecture everyone on the evils of industrial turkey farming while being the sole person willing to eat her tempeh loaf and non-gmo cranberries? How about when the entire assembled family simultaneously leans back from the table just enough to loosen their belts and newly-tight pants and then moves in for pie? 

I am less comfortable opining on Christmas rituals. I can, however, say with certainty that my personal Hanukkah ritual involves using a curved carrot peeler as an implement to clear candle stubs from the menorah each of the eight nights. Another widespread ritual is the discussion among knowledgeable Jews of exactly the best means of accomplishing that task.  Add to that the ritual second degree burns inflicted on the poor bubbe tasked with frying the latkes or, in fancy households, the sufiganyot. The latter should look familiar to Rustbelt residents who enjoyed paczki this week.

The legal problem is that while those may be rituals in a colloquial sense, they are not rituals in a tariff sense. According to the Court of International Trade, a ritual is "a customarily repeated often formal act or series of acts." That means it is something done the same way, using the same steps, every time. A ritual is essentially scripted and can be reduced to the instructions necessary to accomplish it. That is distinct from the raucous and chaotic family gathering around the Thanksgiving or Christmas table.

That understanding of "ritual" is consistent with exemplars in the tariff item. Seder plates, for example, are part of the ritual Passover Seder. "Seder" means "order" and the important ritual of every Seder is telling the story of the redemption from salvery in Egypt. The event is so ritualized that there is a manual given each participant. 

No matter what crazy things happen at any particular Seder, there is a defined ritual for telling the Passover story. It involves four cups of wine, four questions, and a plate full of symbolic foods. Often, the evening ends with a debate over whether Charlton Heston was better in The 10 Commandments or in The Omega Man, but that is not in the haggadah. 

Plaintiffs in this case lost because the Court of International Trade found that a family dinner is not a "ritual," even when it falls on Thanksgiving or Christmas. In other words, every celebration is not a ritual celebration. With no ritual involved, the dinnerware could not be classified in 9817. 

Note to the tableware industry, you might want to take a lesson from Maxwell House Coffee and start printing instruction books for Thanksgiving and Christmas dinner.

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.

Who Moved My CAFTA-DR Cheese?

La Nica Products is an odd case. It involves a claim for preferential duty treatment under the US-Central America-Dominican Republic Free Trade Agreement, or CAFTA-DR. The merchandise is cheese from Nicaragua. On its face, one would think that an agricultural product like cheese would satisfy most rules of origin. But, that is not the issue in this case.

The problem here is the identity of the party making the claim. La Nica was listed as the importer of record and made the claim for duty-free treatment. After entry, La Nica, who had been listed as the importer of record, filed a Post-Entry Amendment ("PEA") attempting to change the importer of record to another party. Apparently, the other party purchased the cheese while it was en route. Customs and Border Protection asked La Nica for proof of the sale to the new alleged IOR and for a certificate of origin to support the CAFTA-DR claim. Plaintiff did not respond.

Customs denied the the PEA request and liquidated the entries as dutiable, thereby denying the CAFTA-DR claims as well. Plaintiff protested, and CBP denied the protests.

Under 19 CFR § 10.583(a), an importer may make a claim for preferential treatment under CAFTA-DR. The same regulation notes that a claim may be based on a certificate of origin from the importer, exporter, or producer. CAFTA-DR claims are, of course, subject to verification and can be denied if the Port Director determines that the importer has provided insufficient evidence to verify the origin of the merchandise.

What went wrong here? While the La Nica made the CAFTA-DR claim, it also told CBP that it was not the importer. Having sold the goods in transit, it appears that La Nica was no longer the owner of the goods at the time of entry and, therefore, was not the proper importer of record. Because the CAFTA-DR regulations require the the claim be made by the importer, La Nica is out of luck.

A couple things to remember about this. First, La Nica apparently never asserted that even though it sold the merchandise, it retained the right to make entry. If it retained a verifiable financial interest in the goods, it might have satisfied CBP's liberal interpretation of "owner" for purposes of making entry. That is not addressed in the decision.

The confounding issue here is that someone needs to be the IOR. Customs denied the PEA on the grounds that La Nica failed to prove the in-transit sale. That would seem to indicate a finding by CBP that La Nica still owned the merchandise and, therefore, was a proper importer. Alas, the CIT did not agree. Plaintiff has the burden of proof. In Court, La Nica continued to assert that it had made a successful sale of the cheese. Thus, the evidence before the Court indicated that La Nica was not the owner, which resulted in it being the wrong party to make the CAFTA-DR claim.

That is an example of free-trade whiplash.

Snuggies Are Blankets

[UPDATED TO ADD LINK TO THE DECISION]

Remember Snuggies? A few years back, they were part of the zeitgeist. Here is a reminder of exactly what is a Snuggie.

According to the commercial, Snuggies are wearable blankets with sleeves-like tubes. That raises an interesting classification question. Is it a blanket of HTSUS item 6301.40.00 (8.5%) or is it a garment classifiable in 6114.30.30 (14.9%)? Or, if it is neither, is it an "other made up article?" The Court of International Trade had to decide that question in Allstar Marketing Group v. U.S.

These are important questions in my world. I get that there is a lot going on in the larger world. Lately, I have been inspired and a little shamed watching lawyers who practice in areas affecting the actual lives and liberty of people, particularly refugees and others trying to entry the country. It made me proud to be a lawyer to see my colleagues set up shop at airports to provide assistance. Yesterday, I was at a meeting sponsored by HIAS Chicago at which an immigration lawyer offered pro bono assistance to arriving refugees. Occasionally, we get to undertake projects for individuals and worthwhile organizations, but that is uncommon in my practice. Here is an example of which I am still proud. Happily, I am currently working on a project that I think will serve the larger public, but it is still in the early stages and will not have the direct, personal impact that we have seen from the good work of immigration lawyers.

Now, back to the wearable blanket.

The evidence presented to the Court of International Trade shows that the importer referred to Snuggies as blankets in communications with the producer-supplier. The marketing materials show people using Snuggies in a variety of settings both in the home and outside, including on an airplane and at a sports stadium. Snuggies have sleeve-like tubes attached to allow users (or are they wearers?) to use their arms freely while still in the comparative warmth of the Snuggie.

The Court found that it had all the information necessary to resolve the matter and that there were no material questions of fact in dispute. That means, the only question is whether Snuggies fit within the common and commercial meaning of the tariff terms "garments" or "blankets." Under Note 2(a) to Chapter 63, if Snuggies are classifiable as garments, they cannot be classified as blankets or other textile items.

Tariff item 6114.30.30 covers "Other garments, knitted or crocheted: Of man-made fibers: other . . . ." There is no dispute that Snuggies are knitted of man-made fibers. The question is, are they "garments?" Looking at the structure of Section XI, the Court found that the items specified in Headings 6101 through 6114 are "garments," which is interchangeable with "apparel." Prior court decisions indicate that apparel is articles that "are ordinarily worn--dress in general." These are "clothes and covering for the human body warn for decency or comfort" as well as adornment. The government argued that because Snuggies are worn for comfort, they are apparel. The Plaintiff argued that because they are not worn for decency and adornment, they are not apparel.

The Court focused on the fact that apparel is "ordinarily worn." Specialized items covered by the apparel provisions include aprons, smocks, clerical vestments, scholastic (and presumably judicial) robes, and certain sports apparel. According to the Court, all of these are more akin to apparel than are Snuggies.

The Court then considered the use of the product. For why, see here. Physically, Snuggies are one-size-fits-all items and are open in the back. These characteristics do not resemble the kind of apparel that is "ordinarily worn." Furthermore, Snuggies were "inspired" by prior existing products called "Slankets" and "Freedom Blankets," both of which were marketed as blankets. Finally, the sales and marketing literature refers to the Snuggie as a blanket. According to the Plaintiff, that makes Snuggies improved blankets.

Blanket is defined as a warm covering used especially on a bed or a similar article used as a body covering for warmth. The Snuggie was designed and marketed as a covering for warmth. Since "blanket" is an eo nomine tariff description, it includes all forms of the article, including improved forms. From that, the Court was able to find Snuggies to be blankets (with sleeves). The addition of sleeves, according to the Court, did not so modify the nature of the article to make it something other than a blanket. The sleeves are incidental to the warming cover that is a Snuggie.

Thus, the plaintiff wins (this round) and Snuggies are classifiable as blankets of 6301.40.00.

IKEA Scope Rehearing Denied

Apparently there is some kind of festival of TV commercials starting in a few minutes. I understand it will be punctuated by grown men playing football for millions of dollars. Consequently, I will make this quick.

Consistent with my New Years Resolution to cover scope and other trade-related issues that closely impact customs compliance, here is a note on IKEA Supply AG v. United States. This is a request for a rehearing of a prior decision in which the Court of International Trade held that certain IKEA towel bars are within the scope of the antidumping and countervailing duty orders on aluminum extrusions from China. The bars are indisputably aluminum extrusions. In each box, there is mounting hardware that does not constitute aluminum extrusions, but which, according to Commerce, are fasteners. Finished goods are excluded from the scope of the orders. In a scope determination, Commerce held that because the finished towel bars are extrusions and that the only non-extrusion parts of the kits are fasteners, the bars fall within the order. In the first IKEA case, the Court of International Trade affirmed that decision.

This opinion involves an effort by IKEA to have the court reconsider its prior decision. Motions to reconsider are not easy to win. The moving party needs to show that there was an intervening change in the law, newly discovered evidence, clear error, or a need to prevent a manifest injustice.

The CIT did not see any of those reasons here. IKEA's first argument was that the Court failed to consider additional non-extruded components of the towel bar sets. The CIT basically said, "too late." These components were not discussed anywhere in the prior record or court proceedings. Thus, the Court would not consider them now. Moreover, there is no reason to believe that IKEA was not aware of these facts.

The second, and more interesting point, is that the CIT did not have the benefit of the CIT decision in Meridian Products LLC v. United States. In that case, another judge of the CIT held that Commerce needs to consider all of the non-extruded part of the kit, including those it considers to be fasteners. Under that test, there is a likelihood that IKEA might have won.

Sadly for IKEA, but legally correct, CIT judges are co-equal and the prior decision of any one CIT judge does not bind a subsequent judge. Technically, one judge does not even bind himself or herself in a later unrelated case. Thus, the intervening change in law raised by IKEA is really not a change in the law, until the Federal Circuit speaks on the issue. Then, it will be a change in the law.

Lock Washers: Scope and Suspension

Here, we continue our dive into the intersection of customs and trade law. The Court of International Trade decision in United Steels and Fasteners, Inc. v. United States, raises interesting issues about how scope decisions from the Department of Commerce impact customs entries awaiting liquidation. If you are a traditional customs compliance professional who does not often delve into trade questions, buckle up. This will be bumpy.

This case involves the antidumping duty order on Helical Spring Lock Washers from China. The scope of this particular order covers:

circular washers of carbon steel, of carbon alloy steel, or of stainless steel, heat-treated or non-heat-treated, plated or non-plated, with ends that are off-line. HSLWs are designed to: 1) function as a spring to compensate for developed looseness between the component parts of a fastened assembly; 2) distribute the load over a larger area for screw or bolts; and 3) provide a hardened bearing surface. The scope does not include internal or external tooth washers, nor does it include spring lock washers made of other metals, such as copper. The lock washers subject to this investigation are currently classifiable under subheading 7318.21.0000 of the Harmonized Tariff Schedule of the United States (HTSUS). Although the HTSUS subheadings are provided for convenience and customs purposes, our written description of the scope of this investigation is dispositive.

The order was first published in 1993.

In 2013, American Railway Engineering and Maintenance-of-Way Association ("AREMA") submitted a scope clarification request to Commerce concerning a specialized type of washer made to its own standards. These washers have modest helicality, a square or rectangular cross section, do not meet the ASME standards referenced in the ITC Report in this case, are specifically for railway use, and (among other things) are 50% to 130% thicker than typical helical spring lock washers. Shakeproof Assembly, the petitioner in the original dumping case and a defendant intervenor in the CIT, responded to the scope request arguing that the washers are within the scope of the order and, furthermore, requesting that Commerce instruct Customs to suspend liquidations and request cash deposits for all unliquidated entries back to the start of the administrative review.

Commerce ultimately held that the washers are within the scope of the order. Commerce also ordered Customs to retroactively suspend liquidations back to the date of the order.

This raises two obvious questions. First, is Commerce right about the scope? Second, should Customs have retroactively suspended liquidations?

The Scope Part

Petitioners and Commerce cannot always specify exactly what merchandise comes within the scope of an antidumping (or countervailing duty) order. Orders tend to specify some products and include general terms to catch similar products. When an interested party needs certainty about a product, it may apply to Commerce for a scope clarification under 19 CFR 351.225. In some cases, Commerce will decide the scope issue on the basis of the language of the order under 19 CFR 351.225(d) without commencing a formal inquiry. If that is not possible, Commerce can initiate a formal scope inquiry under 19 CFR 351.225(e).

If an interested party disagrees with the scope determination, it can challenge the decision in the Court of International Trade. The Court will uphold a scope determination that is supported by substantial evidence on the record. That is a highly deferential standard that means the Court may have to uphold a Commerce Department decision even if the judge disagrees with the result. Generally, these decisions can only be overturned where there is a lack of evidence in the administrative record to support them.

Commerce found that the AREMA washers are helical spring lock washers and that the distinguishing characteristics were not sufficient to remove them from the scope of the order. According to Commerce, the design and function of the AREMA washers minimalize helicality [Note: that is a phrase to consider] but did not strip them of their helical function. Commerce was helped in this regard by language in the petition noting that a "significant portion of the larger sizes [of helical spring lock washers] are used for installation of railroad tracks." That seems to be directly addressed at AREMA's product.

Plaintiff raised a number of arguments to show that Commerce's decision was not supported by substantial evidence. First, the fact that these washers are made to AREMA standards, rather than the more common ASME standard. This was not sufficient given that the administrative record shows no requirement that in-scope washers be made to any industry specification. Similarly, the fact that helical spring lock washers generally have a trapezoidal cross-section is not an exclusion of washers with other cross-sections. The Court also found that record evidence supports Commerce's finding that the unique thickness-to-diameter ratio of the AREMA washers did not remove them from the order. In the end, the Court rejected Plaintiff's arguments and found that Commerce's determination was based on substantial evidence in the record. So, the AREMA washers are in scope.

The Liquidation Part

To a degree, that is all background to the second question. To my mind, this is the more interesting part.

Having found the washers to be in scope, Commerce instructed Customs to suspend liquidation of unliquidated entries of AREMA washers as far back as 1993, when the order was first entered. As a practical matter, that means newish entries that have not liquidated and entries subject to an existing injunction. According to the Court, this means entries between October 1, 2011 and September 30, 2013. If this retroactive application of the scope determination is correct, this is the kind of unanticipated potential liability that keeps importers awake at night.

Under the Commerce regulations, specifically 19 CFR 351.225(l)(3), if products are found to be within the scope of the order, Commerce is to instruct Customs to suspend liquidation and to require a cash deposit of estimated duties, "for each unliquidated entry of the product entered, or withdrawn from warehouse, for consumption on or after the date of initiation of the scope of inquiry." In this instance, there was no formal scope inquiry initiated under § 351.225(3). Commerce decided the issue on its own under § 351.225(d). According to Commerce, that means the regulation does not address this exact fact pattern and Commerce can instruct Customs to suspend liquidation back to the date of the order.

The CIT disagreed. First, the history of the regulation makes it clear that suspension of liquidation is a serious step that can have significant consequences for importers and foreign exporters and producers. But, the domestic industry is entitled to the protection of the order for all in-scope merchandise. To balance these interests, Commerce set the date of potential suspension as the date of initiation of the scope inquiry. Thus, while not addressing this circumstance, it is clear that Commerce intended the potential period of subject entries to be limited. Looking to a prior CIT decision, the Court found that Commerce is limited in its authority to request the suspension of duties, regardless of the formality of the proceeding. The Court of Appeals similarly limited Commerce's authority in scope inquiries to after the date of initiation. Without these limits, Commerce would always be able to request suspension retroactive to the date of the order simply by choosing to forgo a formal scope inquiry under 351.225(e) in favor of an informal proceeding under 351.225(d).

Commerce made a good argument that its decision in this scope case was the equivalent of a finding that the AREMA lock washers were always within the scope of the order. By limiting the ability of Commerce to request suspension back to the date of the order, the Court is allowing in-scope merchandise to escape the lawful order. That is true. But, the Court noted, Customs had not identified these products as in-scope. The importer saw the question as uncertain and, therefore, took the correct step of seeking a scope clarification. Under these circumstances, the importer is entitled to rely on Customs' treatment and not have liquidations suspended and cash deposits collected until after the (admittedly informal) scope inquiry was commenced. The exact timing of which remains to be seen. The Court remanded to Commerce to issue new instructions consistent with this decision.

This is a good result for importers of merchandise that is found to be within the scope of an order after entry. The potential liability for antidumping and presumably countervailing duties is limited to unliquidated entries made on or after the date of the scope inquiry. But, do not read too much into that. This is not a Customs penalty case. In theory, Customs can still find that the importer's failure to deposit dumping duties was the result of negligence, gross negligence, or fraud and impose a penalty in addition to collecting duties. Given that customs penalty can be two times the amount of the duties owed for simple negligence, it is possible that a customs penalty will fair outstrip the unpaid duties to be owed as a result of a properly timed suspension of liquidation. On the other hand, if the importer exercised reasonable care (and can prove it), then liquidated entries are final and no penalty would be appropriate.

What the Frak?

Spin up the FTL drive and meet me in the CIC, the Federal Circuit has issued its first 2017 decision in an appeal from the Court of International Trade.

Here is the sitrep: The case in question is Schlumberger Technology Corp. v. United States. The merchandise in question is bauxite proppants. These are the bits of granulated bauxite used in hydraulic fracturing operations to hold open cracks in the rock structures and, thereby, allow for the efficient extraction of oil and gas . In other words, these little bits of bauxite "prop" open the cracks. The proppants are produced from bauxite ore taken from the earth (or, in Hebrew, "Adama") and milled to a powder then granulated to produce larger particles. The particles are sorted by size, dried and kiln fired.

Customs classified the proppants in HTSUS Heading 6909 as "Ceramic wares for laboratory, chemical, or other technical uses; ceramic troughs, tubs, and similar receptacles of a kind used in agriculture; ceramic pots, jars and similar articles of a kind used for the conveyance or packaging of goods . . . ." Schlumberger countered that the correct classification is in  Heading 2606 as "Aluminum ores and concentrates . . . ." During litigation, the government proposed an alternative classification in 6914 as "Other ceramic articles."

Cutting to the chase, the government can only win this case if the bauxite proppants are ceramic wares or other ceramic articles. HTSUS Note 1 to Chapter 69 states that the Chapter covers "ceramic products which have been fired after shaping." Looking to a dictionary, the Federal Circuit held that shaping means "to give a particular or proper form to by or as if by molding or modeling from an undifferentiated mass" or "to give definite or finished shape to  . . . ." The Federal Circuit then noted evidence that the finished proppants vary in size by as much as 100%. This, according to the Court, does not equate to have a definite or particular shape. Thus, the merchandise would be excluded from Chapter 69.

Another important argument that supports the same conclusion is based on the legal principle of noscitur a sociis under which we determine the meaning of the word by looking at the words around it. So, what are the examples of ceramic items included in Chapter 69? We see troughs, tubs and similar receptacles; ceramic pots, jars and similar articles; mortars and pestles; beakers; letters, numbers, and sign-plates; and heating apparatus. All of which are products of a definite form and are quite unlike the bauxite proppants of varying size. This argument, therefore, is old-school felgercarb.

What about Heading 2606? The HTSUS does not define "aluminum ore." However, Note 2 states that "ore" refers to "minerals of mineralogical species actually used in the metallurgical industry for the extraction of" certain metals including aluminum." But, the note makes clear that material may still be an ore "even if [it is] intended for nonmetallurgical purposes." I wonder why that last point was necessary since aluminum ore is an eo nomine term, making its use almost irrelevant. Bauxite is the mineral from which aluminum is extracted. A significant amount of aluminum probably goes into making these.

The Note, however, excludes products that "have been submitted to processes not normal to the metallurgical industry." Normal processes include crushing, grinding, screening, agglomeration into grains, and drying. These describe the process of making proppants. The fact that the steps were not related to the extraction of aluminum does not matter to the outcome. Nothing in the note requires that the processes be for the purpose of extracting metal from the ore. Lastly, contrary to the government's argument, Heading 2602 is not, by its terms or any other authority, limited to ores in primary forms as opposed to ready to use finished products such as proppants.

How did the government react to this result? My guess is something like this:

The Three-Percent Solution

In real life, I represent importers and exporters who need to maintain compliance with U.S. laws and regulations concerning international trade. For the most part, that means customs law and export controls. As Bryan Garner once said at a seminar I attended, "hence the title" [of my blog].

One of the more complicated and potentially troublesome areas of compliance for importers involves antidumping and countervailing duty orders. The financial consequences of such an order can be dire for companies that entered into purchase contracts prior to the order or without knowing that an order applied to the goods. Often, the latter happens when suppliers assure the buyer that merchandise is either outside the scope of the order or from a source other than the subject country. Unfortunately, suppliers may be uninformed on the scope of the order, too happy to falsely state the origin of the product, or willing to misrepresent that it is otherwise outside the scope of an order. An unwary importer who ends up receiving a rate advance of 200%, for example, may be in for a world of financial and legal trouble.

Moreover, the scope of orders is becoming increasingly complex. The cases involving aluminum extrusions, tires, and solar products are good examples of complicated case scopes.

As a result, I am spending increasing time on scope and related questions for importer clients. My assumption is that readers of this blog are also seeing more of these issues arise. Consequently, I plan to address more of these cases here. I will not be getting into the weeds of determining subsidy and margin rates. But, to the extent the application of an antidumping or duty order impacts import compliance, I will make more of an effort to note it here.

That said, I give you Kyocera Solar, Inc. v. United States International Trade Commission. This case from the Court of Appeals for the Federal Circuit involves the antidumping and countervailing duty orders on Certain Crystalline Silicon Photovoltaic Products from The People's Republic of China and Taiwan. A common strategy for compliant importers facing the imposition of AD or CV duties is to re-source the product from a country not covered by the order. That can be a successful way to mitigate the impact of the order.

The problem for Kyocera in this case is that the Commerce Department defined the scope of the investigation as covering cells and modules produced in Taiwan and modules "completed or partially manufactured" in other countries from cells produced in Taiwan. Kyocera was importing solar modules from Mexico that incorporate solar cells from Taiwan.

Separate and apart from this case, Kyocera is challenging the scope of the order as it applies to its imports from Mexico. Leave that aside for now. In this case, Kyocera raises the more interesting question of whether the International Trade Commission was required to treat the source of these products as Mexico or as Taiwan for purposes of its investigation of possible injury to the domestic industry.


The root of this question is 19 USC 1671d(b) (for countervailing duties) and 1673d(b) (for antidumping duties), which require that the ITC terminate an investigation if it determines that "imports of the subject merchandise are negligible . . . ." Negligible is defined in 19 USC 1677(24) as follows (with exceptions and details omitted here):

imports from a country of merchandise corresponding to a domestic like product identified by the Commission are “negligible” if such imports account for less than 3 percent of the volume of all such merchandise imported into the United States . . . .

The issue here is the meaning of "a country." According to Kyocera, Mexico is "a country" and is, therefore, entitled to its own negligibility test. Presumably, its exports would be less than the 3% threshold and, therefore, excluded from the order.

The International Trade Commission and the Court of International Trade both rejected that argument. Now, the Court of Appeals for the Federal Circuit has upheld the CIT. According to the Court of Appeals, the negligibility test is applied to the subject merchandise. Here, the order defines the scope as including cells from Taiwan finished into modules in other countries. Accordingly, the Kyocera products that include cells from Taiwan are still products of Taiwan even though finished in Mexico. Consequently, products finished in Mexico are not entitled to a separate negligibility analysis.

What is the lesson for importers? First and foremost, understand that scope is more than just the title of the Federal Register Notice. The scope of the order may, as it did here, encompass downstream or upstream products including products finished in other countries. When that is the case, it is not enough to just move finishing operations to another country. That will not necessarily remove the product from scope and might end up causing additional issues if the effort is seen as either evasion or circumvention.

Finally, as long as I am thinking about these things, keep in mind that HTSUS classification is not a reliable test for whether or not a product is in scope. Every order states that classification is provided for convenience, and that the description of the merchandise controls. The fact that an item is not flagged in ACE or elsewhere as within the scope of an order does not mean it cannot actually be within the scope of the order.

More to follow on this and related issues.