ITC Issues Final Report on Proposed HTS Changes for January 1, 2007 (Part II)

This final report, entitled, Proposed Modifications to the Harmonized Tariff Schedule of the U.S., is part of ITC investigation number 1205-6 which was instituted in September 2004, in conjunction with the third review cycle of the International Convention on the Harmonized Commodity Description and Coding System (HS).

This is Part II of a multi-part series of summaries on the ITC's final report and discusses certain proposed modifications to bring the HTS into conformity with the HS nomenclature that generated comment. See future issues of ITT for additional summaries.

ITC Responds to Certain Comments Submitted in Response to Preliminary Report

In its final report, the ITC discusses certain proposed modifications that generated comment, including (see ITC report for complete details):

Imported toy sets; festive articles. The ITC received concerns from two parties about the effect of new note 1(v) to Chapter 95 on the classification of imported toys and, in particular, 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), the toy set itself might be ineligible for classification in Chapter 95. Among other things, the ITC states that new 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 note 1(v).

One of the commenters also noted the potential for product shifts arising from new note 1(v) to Chapter 95 might be inconsistent with certain existing Customs rulings concerning the classification of certain products now treated as "festive articles"¹ of HTS 9505. The concern was that many products now classifiable in Chapter 95 could be transferred to other chapters and classified according to their constituent material.

The ITC states that after discussions with CBP and the U.S. Trade Representative (USTR), and taking into account the trading community, it was decided that, with respect to goods of HTS 9505 that may be affected by note 1(v) to Chapter 95, the classification treatment resulting from judicial decisions and also from Customs' practice over the last 10 years should be reflected in new provisions that would appear in subchapter XVII of Chapter 98 of the HTS, a subchapter that contains various tariff provisions to ensure that appropriate treatment under trade agreements is continued. The ITC notes that Chapter 98 is a national-level chapter that is not part of the international nomenclature structure, and thus certain duty treatment that cuts across tariff chapters can most easily be reflected therein.

Hockey pants. One commenter raised concerns that new note 1(v) to Chapter 95, which specifically excludes apparel having a utilitarian function from Chapter 95, might contradict a recent U.S. Court decision which classified certain imported hockey pants as sports equipment under HTS 9506.99.25.

The ITC notes that it cannot change the text of note 1(v) since it was approved and adopted at the international level at the WCO and is not open to amendment at the national level. However, CBP will continue to classify such hockey pants in Chapter 95 regardless of new note 1(v). Thus, the ITC has not recommended any new breakouts for hockey pants. See ITT's Online Archives or 03/23/05 news, 05032320, for BP summary of the Court of Appeals for the Federal Circuit's ruling in Bauer Nike Hockey USA, Inc. v. U.S. See ITT's Online Archives or 05/20/05 news, 05052015, for CBP memorandum on classification in light of this decision.)

Multiplayer flooring panels. The ITC states that concerns were raised that the ITC's proposal to provide for multilayer flooring panels in new HTS 4418.72.90 at an 8% duty rate was not revenue neutral. One commenter noted that HSC had recently taken the decision to classify such flooring panels in existing HTS 4418.30 (duty-free), and that the new HTS 4418.82.90 should therefore also be free of duty.

The ITC responds that it has always interpreted "substantial rate neutrality" to mean the rate proposed under section 1205 should reflect established U.S. Customs practice. In this case, as U.S. Customs and Border Protection (CBP) would normally have classified the subject goods in HTS 4412.22.31 or 4412.29.36 (both 8%), the ITC has used the general rate from these subheadings for proposed new HTS 4418.72.90.

The ITC adds that any additional information it receives after issuance of this report could be considered during preparation of the 2007 HS implementing proclamation in consultation with CBP and the USTR.

proposed note 1(v) to Chapter 95 reads: 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 proposed note also contains a footnote which references proposed HTS 9817.95, which would provide for, among other things: (1) 9817.95.01: 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 (for example, Seder plates, blessing cups, menorahs, or kinaras), and (2) 9817.95.05: utilitarian articles in the form of a three-dimensional representation of a symbol or motif clearly associated with a specific holiday in the U.S. Both of these eight-digit HTS numbers would be duty-free.

Note 4 reads "subject to the provisions of Note 1 above, HTS 9503 applies, inter alia, 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.

(See ITT's Online Archives 06/08/06 news, 06060815, for Part I of BP summary of the ITC's final report on these proposed changes.)

(See ITT's Online Archives or 04/25/05 and 04/26/05 news, 05042505 and 05042610, for Parts I and II of BP summary on the ITC's preliminary report.

See ITT's Online Archives or 08/30/05 news, 05083005, for BP summary of ITC's request for proposals to amend the international HS in 2012.)

ITC Final Report (Inv. No. 1205-6 (Final), USITC Publication 3851, dated April 2006) available at http://hotdocs.usitc.gov/docs/tata/hts/Pub3851.pdf

BP Note

The Journal of Commerce indicates that the changes proposed for the 2007 HTS are greater than those that were implemented in 1996 and 2002, and importers should begin to make changes in their records now.

Among other prominent changes, a new subheading 8486 for semiconductor manufacturing equipment is proposed to be created. The JoC indicates that at present, such merchandise is scattered throughout the HS and is classified according to function within the manufacturing process.