Nutricia Says CBP Ruling Would Make Sick Kids' Parents Pay More for Medical Foods
Importer Nutricia North America told the U.S. Court of Appeals for the Federal Circuit that classifying its substances used to "treat life-threatening diseases in young children" as food preparations "not elsewhere specified" as opposed to "medicaments" or items "for the use or benefit" of handicapped people would lead to the "parents of very ill children" paying higher prices for these substances. In its opening brief on April 30, Nutricia said that this isn't the result Congress intended and that the Harmonized Tariff Schedule "can and should be interpreted to avoid that result" (Nutricia North America v. United States, Fed. Cir. # 24-1436).
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The suit concerns four branded types of the substances -- MSUD Lophlex LQ, Periflex Infant, Periflex Junior and Ketocal Liquid -- all of which the importer said are used to treat individuals with disabilities. The products are "designed, produced, marketed, prescribed by medical practitioners, and sold to treat infants and children" to reverse or mitigate neurological, metabolic and gastrointestinal diseases, the company said.
The Court of International Trade in December said that the goods should be classified as food and not as pharmaceutical products, imposing a 6.4% duty on the goods under HTS heading 2106 (see 2312050028).
On appeal, Nutricia said the trade court committed four legal errors in its ruling, the first of which is that it "bypassed the plain text of heading 3004," along with "over 100 years of appeals court precedent that confirms that substances with therapeutic uses" are "medicaments prima facie classifiable under heading 3004." CIT instead used exclusionary note 1(a) to "redefine the terms of heading 3004" and say that nutritional substances can't fit under this heading "even if they are used to treat diseases," the brief said.
Heading 3004 specifically covers "medicaments consisting of mixed and unmixed products for therapeutic or prophylactic uses." Nutricia argued that its goods plainly fall under this heading since "they are principally used to treat diseases." The company walked the court through the seven "Carborundum factors," which are used to find whether an import falls within the "class or kind" of goods in a tariff provision. For instance, Nutricia said its products are "used as medicaments," "have physical characteristics similar to medicaments" and "are recognized in the trade as medicaments," among other things.
The company said that despite this analysis, the trade court said its goods don't fit under heading 3004 since they are made of "nutritional substances," looking to note 1(a) for support. The note says that Chapter 30 doesn't include foods or beverages including "dietetic, diabetic or fortified foods" or food supplements.
The importer argued that CIT erred by applying this note before finding that the good was prima facie classifiable under a heading in that chapter and also by finding that medicaments can't be made of nutritional substances. "Note 1(a) does not explicitly or implicitly state that Chapter 30 excludes all products made from nutritional substances; indeed, it does not define any terms in the Chapter, but merely describes a limited set of goods that cannot be classified there," the brief said. If Congress wanted to exclude all nutritional substances from Chapter 30, it could have done so, the company said.
The second legal error the court made was in using note 1(a) "to exclude what all agree are therapeutic products from classification under Chapter 30." The note only addressed dietetic, diabetic and supplemental food products, which merely modify or add to a normal diet. Nutricia's medicaments, on the other hand, "are used solely to treat, and often are the only treatment for, rare and incurable diseases in children," the brief said. "They mostly or fully replace a normal diet, and they are designed to be used under medical supervision."
The court's third error was wrongly placing the products at issue under heading 2106, a "residual basket provision for 'food preparations not elsewhere specified or included,' even though that heading excludes products classified elsewhere and is far less specific than heading 3004."
The fourth error was declining to use subheading 9817.00.96, which covers goods meant for use by handicapped individuals, as an alternative, the court said. Children who need the products supplied by the importer are disabled under the Americans with Disabilities Act. Congress enacted this subheading to give effect to the Nairobi Protocol to the Florence Agreement on the Importation of Educational, Scientific, and Cultural Materials -- a protocol that was meant to afford duty-free treatment to all articles for handicapped individuals. As a result, Congress meant to apply the subheading broadly, the brief said.