United States Court of International Trade
Blanket with Sleeves Classified as Blanket
In Allstar Marketing Group, LLC v. United States, Court No. 13-395, Slip Op. 17-15 (February 10, 2017), plaintiff challenged U.S. Customs and Border Protection’s (“Customs”) liquidation of the subject import, a polyester fleece knit article referred to as a “Snuggie®,” under subheading 6114.30.30 of the Harmonized Tariff Schedule of the United States (“HTSUS”),2 as “Other garments, knitted or crocheted: Of man-made fibers: Other,” dutiable at 14.9 percent ad valorem. Plaintiff contends that Customs should have classified the subject imports under subheading 6301.40.00,HTSUS, as “Blankets,” dutiable at 8.5 percent ad valorem, or alternatively, under subheading 6307.90.98, HTSUS, as “Other made up articles,” dutiable at 7 percent ad valorem. Before the Court were cross motions for summary judgment.
The Snuggie® was inspired by the "Slanket®" and the "Freedom Blanket," two products already on the market that were marketed as blankets. In all purchase orders and specifications, the Snuggie® were described as a blanket. The retail packaging shows users wearing the Snuggie® on their front with their arms through the sleeves while reclining or seated on an airplane, couch, bed, and floor, and engaging in activities such as reading, writing, knitting, holding a remote control, using a laptop, holding a baby, and playing backgammon.
First, the Court found that the Snuggie® was not a garment or “wearing apparel” as discussed in Court of Appeals for the Federal Circuit’s (“Federal Circuit”) decision in Rubie's Costume Co. v. United States, 337 F.3d 1350 (Fed. Cir. 2003), or under the Explanatory Notes of 6114. Second, use of the Snuggie® precludes it from being classified as a garment. Factors guiding the Court’s determination whether the Snuggie® is classifiable as a garment include (1) its “physical characteristics” and “features,” (2) “how it was designed and for what objectives,” (i.e., its intended use), and (3) “how it is marketed.” GRK Canada, Ltd. v. United States, 761 F.3d 1354, 1358 (Fed. Cir. 2014). The physical characteristics feature a 71 by 54 inch rectangular piece of polyester fabric with 28.5 inch sleeves attached to the front. There are no closures and the piece is open in the back. According to the Court, the loose fitting nature of the piece with no closures do not suggest that the article is a garment. In regards to design, it was designed and inspired by other blankets, and was to be loosely worn as an outer layer roughly covering the front to give warmth. All sales and marketing materials, including purchase orders and specs, refer to the Snuggie® as a blanket. Finally the Court found that a blanket is defined as a “a large (possibly oblong) piece of fabric, and second, that a blanket is used as a covering for warmth, often, but not always, as common knowledge dictates, on a bed”. Slip Op. pg. 29. Because the Snuggie® was more akin to a blanket, the Court found in favor of the plaintiff.
For all these reasons, the Court granted plaintiff’s motion for summary judgment and denied defendant’s cross motion, classifying the subject merchandise under HTS subheading 6301.40.00, which provides for “Blankets (other than electric blankets) and traveling rugs, of synthetic fibers.”
Party Lacking Right to be “Importer of Record” Lacks Right to File Tariff Preference Claim
A newly-published decision of the United States Court of International Trade indicates that firms seeking preferential tariff treatment for imported goods must prove that they are qualified to act as the “Importer of Record” for those goods. Otherwise, the claims for preferential treatment can be denied.
In La Nica Product Inc. v. United States, Slip Op. 17-9 (February 2, 2017), a company identifying itself as importer of record filed entries of cheese from Nicaragua, claiming duty-free treatment under the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA). Subsequent to entry, the importer filed Post-Entry Amendments (PEAs), claiming that it had sold the goods in transit, was not the importer, and seeking refunds of the fees it paid at the time of importation. [This was unusual, since the filing of a superseding bond, rather than submission of a PEA, is the way to substitute a new Importer of Record].
Customs responded by issuing a CF 28 Request for Information, requesting documentation of the in-transit sales, and seeking evidence to substantiate the DR-CAFTA claim. When no response was received, Customs liquidated the entries as dutiable. La Nica protested, and brought an action before the CIT seeking duty refunds.
The CIT took the position that, by law, the importer of record must be the “owner or purchaser” of the imported goods. Since La Nica was now claiming that it was not the “owner” of the goods at the time of importation, the Court held that it could not properly be the “importer”. Further, the Court held that since a DR-CAFTA claim must be made by the “importer” and La Nica did not satisfy that requirement, the DR-CAFTA claim was also invalid. It upheld CBP’s denial of the protest.
The La Nica decision is interesting for a number of reasons. First, it cautions that companies seeking to claim preferential tariff treatment should ensure that they meet the requirements to act as “importer of record”, if that is a requirement for claiming the preferential tariff treatment . Second, the Court tied a party’s eligibility to make a claim for duty-free treatment to that party demonstrating that it was a proper “importer”.
It would not be unreasonable to expect that, in the future, CBP might take a similar position during NAFTA verifications and in considering other claims for duty free entry.
What is unusual, or perhaps ironic, about this case is that, when a party does not qualify to act as importer of record, but files an entry and gives a bond, Customs will generally hold that party liable for payment of duties, and subject that party to the obligations owed by any other importer of record. In the La Nica decision, the Court agreed with that position to the extent that La Nica remained liable for the duties assessed, but took the position that CBP did not have to accord duty-free treatment to such a technically improper importer of record.
Flavored Sunflower Seeds Held Classifiable as Parts of Plants, Prepared or Preserved
Sunflower seeds which have been cooked and flavored, for sale as snack foods, are more appropriately classified under Harmonized Tariff Schedule (HTS) subheading 2008.19.90 as other parts of plants, “prepared or preserved” than as sunflower seeds of HTS subheading 1206.00.00, the Court of International Trade recently held.
The products in Well Luck Co. v. United States, Slip Op. 17-16 (February 15, 2017) consisted of three flavors of prepared sunflower seeks – “All Natural”, “Spiced” and “Coconut Flavor” which had been slow-cooked or roasted, salted and flavored with spices. The importer claimed that the HTS subheading 1206.00.00 was an eo nomine provision for sunflower seeds, which covered all forms of such seeks. However, the court held that the tariff provision for sunflower seeds only covered seeds “that are minimally further processed only to an extent that leaves the seeds suitable for general uses, including sowing and oil extraction”. The operations performed on the sunflower seeds at bar destroyed their range of uses, making them suitable for use only as snack foods.
This, the Court said, exceeded the processing permitted by subheading 1206.00.00. Resorting to dictionary definitions, the Court held that the term “prepared”, as used in Heading 2008, anticipated goods being readied for eating, while “preserved” implied a treatment allowing the goods to be held for later use. These terms accurately described the products at bar, the Court held, sustaining Customs’ classification and dismissing the importer’s claim.
United States Court of Appeals for the Federal Circuit
Federal Circuit Affirmed Oil Country Tubular Goods Determination
In American Tubular Products, LLC and Jiangsu Chengde Steel Tube Share Co., Ltd. v. United States, Court No. 2106-1127 (February 13, 2017), American Tubular Products, LLC (“ATP”) and Jiangsu Chengde Steel Tube Share Co., Ltd. (“Chengde”) (collectively, “the Appellants”) appeal from the decisions of the United States Court of International Trade (“the Trade Court”) affirming the Department of Commerce’s (“Commerce”) antidumping duty calculations in the first administrative review of an antidumping duty order directed to certain oil country tubular goods (“OCTG”) from the People’s Republic of China.
On remand from the Trade Court’s previous decision, Commerce explained that it was unable to conclude that the OCTG not specifically tested were necessarily carbon steel, noting the uncertainties in Chengde’s sampling process and its failure to provide the requested technical descriptions of its steel billet input. However, Commerce found that the Customs entry summary established that the entered OCTG were composed of carbon steel. Commerce thus continued to use a carbon- steel surrogate value to value the portion of steel billets for which there was direct evidence --- the mill certificates or entry summary, to show that carbon steel billets were consumed. As a result Commerce used a simple average of the carbon steel billets and alloy steel billets to arrive at a dumping margin of 137.62%. The Trade Court, in its most recent decision regarding these issues, affirmed Commerce’s findings where appellants could not establish that the untested OCTG was made from carbon steel. Moreover, the Trade Court sustained Commerce’s denial of scrap offset as supported by substantial evidence and in accordance with law, finding that Chengde had failed to meet Commerce’s requirements to secure a scrap offset. As for the freight, Commerce calculated international freight using a surrogate value, as if it was purchased from an NME supplier. Commerce continued to do so in the Final Results, finding that Chengde had failed to establish that the Korean carriers set the freight price. The Trade Court sustained those results.
The Federal Circuit affirmed the Trade Court’s findings. As for the untested OCTG, Commerce correctly found, the sample mill certificates submitted by Chengde were limited. They did not indicate whether they represented the entire quantity of a sales contract, and did not provide context for their relevance to the untested products by describing the testing procedures. The certificates represented limited quantities of the sales contracts or CONNUMs involved. Even with repeated requests to Chengde for more information on the raw materials used, Chengde did not provide sufficient descriptions of the steel billets used. Thus, the Trade Court was correct it sustaining Commerce’s decision to value the untested steel billets by averaging the surrogate values of both carbon and alloy steel.
As for the scrap offset, Chengde did not establish the quantity of scrap generated from the production of OCTG during the period of review, and failed to satisfy its evidentiary burden. Finally, in regards to the freight, Chengde failed to properly establish the price paid to the market economy shippers or to otherwise show that the price it paid for ocean freight was set by market economy shippers. Only prices on the record relating to ocean freight are those between Chinese entities, not the prices paid to the Korean carriers. For all these reasons, the Federal Circuit affirmed the Trade Court’s findings.
Spoliation of Evidence in Section 337 Investigation Justified Default Judgment, LEO
A respondent’s spoliation of evidence in a Section 337 investigation was sufficiently wanton and extensive that the United States International Trade Commission was justified in entering a default judgment against the respondent, and imposing a Limited Exclusion Order (LEO), prohibiting imports of subject merchandise by the respondent for 25 years, according to a new decision of the Court of Appeals for the Federal Circuit.
In Organik Kimya v. United States International Trade Commission, No. 2015-1774 (February 15, 2017), the ITC was engaged in a Section 337 investigation respecting certain patents held by Dow Chemical Company with respect to certain opaque polymers. When evidence developed indicating that three former employees affiliated with Dow might have aided Organik Kimya in producing its own, allegedly infringing polymers, the Section 337 complaint was expanded to include trade secret theft, and the patent owners set out to conduct discovery regarding the three former employees.
At this point, the evidence indicates, the respondent embarked on a campaign of rather shocking destruction of evidence. This included wiping clean the computers of two of the three former employees, and, after inviting the third employee to a hotel in Rotterdam on the pretense of a “safety audit”, physically destroying the drive to his computer with a hammer. Another computer was supposedly placed in a bag and “left” at a highway rest stop.
The Commission’s Administrative Law Judge, seeking to sanction Organik Kimya for the destruction of evidence, entered a default judgment against the company on the claims of patent infringement, and imposed a Limited Exclusion Order (LEO) banning imports of opaque pigments by the company for 25 years. The ALJ reasoned that, without the connivance of the former Dow employees, it would have taken Organik Kimya between 15 and 25 years to develop its own, non-infringing opaque pigments. The full Commission affirmed the default judgment and LEO.
On appeal, Organik Kimya argued that the default judgment was too extreme a sanction, and that a lesser sanction should have been imposed. The Federal Circuit, however, noted that the ITC needed to have the power to impose a default judgment to punish severely sanctionable conduct, and the breath of the spoliation in this case justified the harsh consequences meted out by the Commission. The Court noted that the LEO contained an exception for opaque pigments which Organik Kimya could prove had been developed without the involvement of the three former Dow employees.
Commerce Must Recalculate Specific Antidumping Rates for Chinese Hardwood Exporters
Where mandatory respondents to an antidumping duty review receive zero or de minimis antidumping rates, the “individual rates” for companies entitled to receive such rates must be based on the mandatory respondents rates, absent unusual circumstances, according to the Court of Appeals for the Federal Circuit.
In Changzhou Hawd Flooring Co. v. United States, No. 2015-1899 (February 15, 2017), a number of Chinese producers and exporters who had demonstrated their freedom from State control, and who were entitled to receive “individual” antidumping rates, challenged a Commerce Department decision to assign them rates greater than de minimis. Generally, where mandatory respondents cooperate with the Commerce Department’s investigation, the rate assigned to “individual rate” respondents is based on the arithmetic average of the mandatory respondents’ rates. In this case, both mandatory respondents in the review received de minimis rates, and were excused from depositing estimated antidumping duties. Instead of providing the “individual rate” respondents with an arithmetic average of the de minimis rates – which would have yielded de minimis rates for them as well – Commerce instead deviated from its usual methodology and assigned these firms a rate based on averaging the de minimis rate with the China wide rate for companies which had not proven their independence from Chinese state control. The CIT upheld this methodology.
The Federal Circuit disagreed, however, vacating the CIT’s decision and remanding the case for further proceedings below. Relying on its 2016 decision in Albemarle Co. v. United States, the Federal Circuit held that respondents were entitled to have their rates calculated by the “expected method”, unless Commerce makes certain findings that would indicate that the usual method ought not be followed. Commerce having made no such findings in this case, the Court held, it should have assigned de minimis rates to the individual rate respondents.