ITC Preliminary Report on Proposed HTS Changes for 2007 (Part II)

Proposed HTS Modifications are the Result of WCO Recommendations, Etc.

According to the ITC, it is required to keep the HTS under continuous review and to recommend to the President modifications to the HTS (1) when amendments in the International Convention on the Harmonized Commodity Description and Coding System (Harmonized System, or HS), and the Protocol thereto, are recommended by the World Customs Organization (WCO) for adoption, and (2) as other circumstances warrant.

(The ITC has previously stated that written comments in response to this preliminary report will be forwarded to the U.S. Trade Representative (USTR), and that the ITC is scheduled to submit its final report to the President on March 15, 2006.)

This is Part II of a series of summaries on this report, and covers the ITC's summary of the issues raised in comments received from the trade and from U.S. Customs and Border Protection (CBP) in response to the draft preliminary report¹.

(See ITT's Online Archives or 04/25/05 news, 05042505, for Part I which, among other things, lists the HTS chapters etc. affected by the proposed modifications.)

Issues Raised in Comments Received from the Trade

In its preliminary report, the ITC provides a summary of the issues raised in comments received from the trade and, in some cases, the ITC and CBP's responses to such comments:

Multilayer flooring panels. It was opined that the proposal to provide for multilayer flooring panels in a new HTS 4418.72.90 at a column 1 general duty rate of 8% was not revenue neutral. It was argued that the Harmonized System Committee (HSC) had recently taken a decision to classify such flooring panels in existing HTS 4418.30, which is duty-free, and that a new HTS 4418.72.90 should therefore also be duty-free.

However, the ITC states that it has always interpreted "substantial rate neutrality" to mean that the rate proposed under a section 1205 investigation should reflect established CBP practice. In this case, CBP would normally have classified the subject goods in HTS 4412.22.31 or 4412.29.36, and therefore the ITC used the rate from these subheadings for proposed new HTS 4418.72.90.

Proposal for new notes 1(v) and 4 to Chapter 95. Comments were submitted concerning the proposal to add new notes 1(v) and 4 to HTS Chapter 95, as follows:

Hockey pants - Concern was expressed that proposed note 1(v) to HTS Chapter 95 might contradict a recent U.S. court case, Bauer Nike Hockey USA, Inc. v. U.S., which held that the subject hockey pants were classified as sports equipment in HTS 9506.99.25 (duty-free).

According to the ITC, proposed note 1(v) specifically excludes from Chapter 95 "...apparel...having a utilitarian function..." The commenter suggested that the ITC propose modified wording for proposed note 1(v) that more clearly indicates the purpose of this exclusionary note. However, the ITC states that the text of note 1(v) was approved and adopted at the international level of the WCO and is not open to amendment at the national level.

CBP has indicated that following the Bauer decision, it will continue to classify the subject hockey pants in Chapter 95, regardless of proposed note 1(v), since the pants are regarded as "sports equipment" and not as "apparel" for the purposes of that note. Consistent with this reasoning, the ITC states that it has not recommended any new breakouts in Section XI to cover hockey pants. (See ITT's Online Archives or 03/23/05 news, 05032320, for BP summary of the CAFC's ruling in Bauer.)

Toys put up in sets - Concerns were expressed about the effect of proposed note 1(v) to HTS Chapter 95 on the classification of imported toys put up in sets. Specifically, the concern was that if a toy set contained a component that was excluded from classification in Chapter 95 by virtue of note 1(v), that toy set itself might be ineligible for classification in Chapter 95.

CBP stated that the intent of proposed note 1(v) was not to alter the classification of toys, but to reflect the existing scope of Chapter 95, and that articles principally for the amusement of children or adults will continue to be classified as toys in Chapter 95. The ITC adds that proposed note 4 to Chapter 95 is intended to facilitate the classification of toy sets in Chapter 95, assuming that such sets retain the essential character of toys, even if they contain one or more components covered by proposed note 1(v).

'Festive article' table linen, tableware, kitchenware, rugs, flimsy costumes, etc. - A commenter was concerned that products now classifiable in Chapter 95 as 'festive articles' could be transferred to other chapters and classified according to their constituent material as a result of proposed note 1(v) to Chapter 95.

CBP acknowledged that certain limited classes of merchandise may be affected by the proposed note. Regarding Midwest of Cannon Falls, Inc. v. U.S., CBP suggested that substantial rate neutrality for the subject articles (i.e., certain decorative tableware and kitchenware having a utilitarian function and decorated with representations of accepted symbols for a recognized holiday) might be ensured with appropriate breakouts for them in chapters covering tableware and kitchenware. (See ITT's 08/23/97 news, (Ref:97082254), for BP summary of the CAFC's ruling in Midwest.)

CBP also indicated that the merchandise at issue in Rubie's Costume Company v. U.S. was not affected by proposed note 1(v) as the court ruled that the merchandise...was not "wearing apparel." Regarding Park B. Smith, Ltd. v. U.S., CBP indicated that it was premature to suggest any changes to the tariff, as the case was on remand to the Court of International Trade (CIT) and was not final. (See ITT's Online Archives or 08/11/03 and 10/24/03 news, 03081105 and 03102405, for BP summaries of CAFC's rulings in Rubie's and Park B. Smith, respectively.)

The ITC adds that it met with two trade groups to discuss these issues, with both groups agreeing to submit further comments to USTR by the end of March 2005 outlining specific product groups that might be shifted out of Chapter 95 (where they are now duty-free) and into other chapters where they may become dutiable in 2007 as a result of implementing proposed notes 1(v) and 4 to Chapter 95.

(According to Appendix B of the ITC's preliminary report, proposed note 1(v) to Chapter 95 would indicate that Chapter 95 does not cover 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).

Proposed note 4 to Chapter 95 would state that, subject to the provisions of Chapter 95, Note 1, HTS 9503 applies, among other things, to articles of this heading combined with one or more items, which cannot be considered as sets under the terms of General Interpretative Rule 3(b), and which, if presented separately, would be classified in other headings, provided the articles are put up together for retail sale and the combinations have the essential character of toys.)

Issues Raised in Comments Received from CBP

In its preliminary report, the ITC also provides a summary of the main areas of concern in comments it received from CBP regarding modifications proposed by the HSC which are counter to established U.S. Customs practices or court rulings:

Drilled or notched lumber. CBP indicated that drilled or notched lumber studs had been classified by the HSC as builders' joinery in HTS 4418, whereas Customs practice was to classify such products in HTS 4407. In order to conform to the decision, CBP asked that an additional U.S. note be inserted in the HTS to provide a legal basis for classification in HTS 4418, and that a separate rate line for drilled or notched lumber studs be inserted in HTS 4418 to carry over the established duty treatment from HTS 4407.

Safety seats for infants and toddlers. As indicated by CBP, the HSC had classified certain child safety seats not as "seats of a kind used for motor vehicles" in HTS 9401.20.00, but rather as "other seats" in HTS 9401.80. Therefore, CBP requested an additional U.S. note to provide legal clarification of this classification. Given that the duty rate involved is free in either case, CBP did not ask for a separate rate line for child safety seats under HTS 9401.80, but did ask that the statistical annotation for such seats under present HTS 9401.20 be maintained in the 2007 HTS under HTS 9401.80.

Certain hygienic articles of plastics. Given that the HSC had agreed that hygienic articles of plastics should be classified together in HTS 3924, certain hygienic articles traditionally classified by CBP in HTS 3926 would be transferred after January 1, 2007.

To reflect these transfers, CBP requested a new subheading for "nursing nipples and finger cots" under HTS 3924, as well as amendments to the article descriptions for existing HTS 3926.90.15 and 3926.90.20. The ITC states that these subheadings will be renumbered in 2007 to indicate a change in their scope.

CBP also noted that "crutch tips and grips" in existing HTS 3926.90.20 were more properly classifiable in HTS 9021. The ITC states that it has not proposed a separate subheading for these products in HTS 9021, but has indicated the transfer by renumbering the basket HTS 9021.90.80 as HTS 9021.90.81 to reflect a change in scope of that subheading.

Multilayer parquet panels. The HSC classified certain multilayer flooring panels, consisting of 2 or 3 layers, the face layer being finished wood measuring 4 mm in thickness as builders' joinery in HTS 4418, despite the U.S. argument that they met the criteria for veneered or laminated wood panels of HTS 4412.

The ITC states that the established Customs practice of classifying these products in HTS 4412 was consistent with Boen Hardwood Flooring Inc. v. U.S. Therefore, in order to have a legal basis for following the HSC decision in this regard, CBP asked for a new Additional U.S. Note 4 to Chapter 44, as well as new rate lines in HTS 4418 to cover the products in question. (See ITT's Online Archives or 03/11/04 news, 04031140, for BP summary of the CAFC's ruling in Boen.)

Photo frame albums. CBP states that although it has a long history of classifying photo albums of plastics as household articles of HTS 3924, the HSC recently classified two different samples of such albums in HTS 3926 as other articles of plastics. Therefore, CBP requested an Additional U.S. Note to Chapter 39 and a new rate line for photo albums in HTS 3926 in order to provide a sufficient legal basis for classifying these goods in that heading.

¹ In September 2004, the ITC instituted this investigation and at that time sought comments on its draft preliminary report. (See ITT's Online Archives or 09/23/04 news, 04092315, for a BP update on the draft preliminary report.)

ITC report (Publication 3764, Inv. No. 1205-6, dated March 2005), including Appendices A-J and WCO Background Document available at http://www.usitc.gov/tata/hts/other/rel_doc/fr/index.htm