Tax & Accounting Blog

What Every Importer Should Expect: Equal Treatment by CBP with Regard to Tariff Classifications

Blog, Global Trade, ONESOURCE February 26, 2016

A recent notice in the Federal Register published by Customs and Border Protection (CBP) brings to the public’s attention what is basically a complaint by an importer that they have not been treated fairly or consistently by CBP regarding a tariff classification issue.  It is interesting in that it highlights:

  • A common classification determination pitfall,
  • Concerns regarding uniformity in CBP decision making, and
  • The need for importers to maintain adequate controls over the classifications and descriptions used in import declarations.

Sadly, it also reveals how frustratingly long it can take to resolve these kinds of issues.

As a “domestic interested party” the importer in question filed a petition with CBP requesting that a classification ruling issued (to some other importer) way back in 1999 be changed to a classification more favorable in terms of duty rate.  The products in question are hydraulic systems fittings and adapters.  The duty rate is “free” for the desired tariff number (8412.90.9005 –  parts of hydraulic power engines and motors ) as opposed to 4.3% under the tariff number given in the ruling (7307.99.50 – Other tube or pipe fittings of iron or steel).  For reference, the ruling can be found here, NY E83408.

Underlying this ruling, and the other rulings the importer’s attorney cites in its argument for the favorable tariff classification, is the determination of whether a part is “specifically provided for” in the tariff schedule as a “part of general use” such as a screw or a bolt; or whether a part is classified in a parts provision for a particular machine.  Critical to the determination are any related Chapter and Section Notes of the tariff schedule.  In this case, there is disagreement as to which notes win the day.

Legal Note 2 to Section XV in part states:  “Throughout the tariff schedule, the expression “parts of general use” means: (a) Articles of heading 7307, 7312, 7315, 7317 or 7318 and similar articles of other base metals…” (emphasis added on the 7307).

The description for Tariff Heading 7307 reads as follows: “Tube or pipe fittings (for example, couplings, elbows, sleeves), of iron or steel:” (emphasis added on Tube).

Legal Note 1(g) to Section XVI (where the hydraulic parts are found) basically excludes parts of general use per the above Note 2.

To complicate matters, however, there is another legal note in Section XVI, note 2(b), which I will paraphrase.  Basically, when classifying parts of machines “…if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading… are to be classified with the machines of that kind…” (emphasis on solely or principally).

So what has been the guideline CBP has been using in determining whether these hydraulic fittings are parts of general use or parts of hydraulic systems?  Apparently, they have been leaning on what it means to be a “tube” in tariff heading 7307.  If the tube is considered “rigid” the fitting is specifically provided for in 7307, and hence a part of general use.  If the tubing is “flexible” like a hose, than the solely or principally logic wins and the fittings are in the machinery parts provision.  That conclusion itself was not the biggest concern for the importer.  More troublesome have been the inconsistent treatment by CBP toward the importer’s classifications, and the unfair treatment vis-a-vis its competitors’ imports.

When the importer discovered that some of its competitors were not using the dutiable 7307 tariff provision for the same types of products, it filed several protests with the Port of Cleveland in order to change the tariff classifications for some of its previous import declarations.  The first protest was approved and the importer starting reclassifying their products to avail itself of the more favorable duty rate.  The second protest, however, was denied by a different import specialist in the same office.

What the importer is seeking via the interested party petition is for CBP to reconsider the 1999 ruling and re-evaluate the distinction between rigid and flexible tubing.  Alternatively they are asking CBP to look into how other importers are classifying similar products so that everyone is being treated fairly.  The details can be found in these documents submitted to CBP on behalf of the importer, that is, the request to overturn the adverse protest decision, and the subsequent petition request.  CBP has indicated in the Federal Register notice that they are not inclined to change the classification, but will be receiving comments from the public before making their final decision.

So what can we take away from this importer’s experience?

  • These types of issues take way too much time relative to the decisions businesses need to regularly make regarding their costs.  The request to overturn the protest was made in April of 2014.  The domestic interested party petition request was made in October 2014, but is just now being moved along by CBP in February 2016.
  • Importers should try to understand how their competitors are classifying similar products so that they are not at a competitive disadvantage. They can use industry contacts or look into acquiring import data made available by the government or third parties.
  • Importers should take great care when classification decisions depend on whether an item is specifically provided for in the tariff schedule or classified as a part of something else. These are some of the thorniest classification issues out there and tend to draw CBP focus.
  • Related to choosing the correct classification is maintaining control over the product descriptions that are used in import declarations. In this case, the importer’s problems were exacerbated when a description used by the broker was “pipe fittings” instead of “”hydraulic fittings and adapters”.  The best solution would be a centralized classification database where the preferred product descriptions are maintained and can be used to feed an automated or semi-automated declaration process.  Short of this, an importer has to strictly monitor a supplier’s and broker’s role in the import declaration process.

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