A complaint filed in the United States Court of International Trade (“CIT”) late last week highlights the practical challenges and frustration that come from delayed resolutions and parallel proceedings between federal courts and agencies, such as US Customs and Border Protection (“CBP”). In the Complaint, One World Technologies, Inc. (“One World”), a manufacturer of garage door openers sought injunctive relief and declaratory judgment against CBP for its continued detention of One World’s products contrary to the CIT’s prior order.

This dispute originally began in July 2016, when another garage door manufacturer filed a complaint alleging that One World’s wireless garage door model infringed on their patents.  As part of the litigation that ensued, One World changed redesigned its garage door openers to resolve the infringement claims.  One World sent shipments of the redesigned products which CBP detained in light of the ongoing infringement dispute.

On December 14, 2018, the CIT entered an order in which it found that One World’s redesigned products did not infringe the patent at issue.  The CIT, however, declined to exercise jurisdiction over the pending protest before CBP in which One World sought approval to import the products. This left One World in a position where the CIT had determined that the products were not infringing, but the CBP proceedings had not yet progressed to their own determination.  The practical reality being that One World’s non-infringing products remain in CBP detention.  Accordingly, One World filed its new complaint urging the Court to intervene and direct CBP to release the products.

While the Court’s reluctance to interfere with administrative proceedings is certainly reasonable, the practical effect for companies can be frustrating.  Here, a federal court had made a determination as to the question of infringement, but the parallel proceeding before CBP rendered the CIT’s order all but ineffective. There is no simple resolution when these unfortunate systemic inefficiencies arise, but experienced counsel can help anticipate potential periods of delay and find the most efficient path forward – even if the path is fraught with frustration.

In a recent opinion, the US Court of International Trade (CIT) found that certain fabric covered pool floats should be classified as plastics — not textiles — for tariff purposes.  Despite the textile elements of the floats, the sequential application of the General Rules of Interpretation led the CIT to find that the air-filled plastic bladder which allowed the product to float in water gave the floats their “essential character.”

The products at issue are floats for a swimming pool which a generally designed with an outer perimeter containing a plastic bladder which is covered with fabric.  Inside the perimeter is a fabric mesh which “suspends” the user’s body at or just below the water’s surface.  The floats also contain a flexible steel rod around the perimeter which allowed the floats to be folded neatly for storage and then “sprung” into a usable position. US Customs and Border Protection (CBP) had classified the floats as textiles under subheading 6307.90.98 for “[o]ther made up articles, including dress patters: Other: Other” and subject to a 7% duty.  The producer of the floats asserted that the products should be classified under subheading 3926.90.75 for “[o]ther articles of plastics and articles of other materials of headings 3901 to 3914: Other: Pneumatic mattresses and other inflatable articles, not elsewhere specified or included” and subject to 4.2% duty.

At the core of the dispute was the intersection of the textile and plastic elements of the the products. The CIT began its analysis under General Rule of Interpretation (GRI) 1 and determined that neither proposed heading, 6307 or 3926, fully described the floats which contained significant components of both textile and plastic.  CBP argued that, like life jackets which are classified as textiles, the were no separate components to the textile floats which required evaluation beyond GRI 1. Nevertheless, the Court found the textile and plastic components to be distinct and, therefore, pursuant to GRI 2, the mixed-material products were to be evaluated in accordance with GRI 3. Under GRI 3(b), if a material or component of the imparts the “essential character” of the good, then product should be classified based on that defining material or component.

CBP argued that the product was entirely covered in textiles and, significantly, without the textile mesh which suspends the user, the float would not function as intended.  The CIT, however, determined that the air-filled plastic bladders around the perimeter where the component which gave the floats their essential character.  As the Court found, even if one conceded that the mesh component is necessary for proper function, without the bladders, the mesh would lack support to help the user float. Accordingly, the CIT determined that heading 3926 was the correct heading.

In a separate part of its opinion, the CIT declined to classify certain floats designed for babies as general exercise equipment in part because the packaging lauded the products ability to keep babies “comfortable and happy.”

 

On June 27, 2018, a coalition of U.S. steel users, the American Institute for International Steel (“AIIS”), and two steel trading companies filed a complaint in the United States Court of International Trade (“CIT”) challenging the Trump Administration’s imposition of a 25% tariff increase for steel products.  AIIS’ challenge, however, is not made to the scope of the tariff or the countries effected, but to the constitutionality of the tariff itself.

The tariff increase is was enacted in March 2018 under Presidential Proclamation 9705. The President has authority to make such proclamations pursuant to Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. 1862).  Section 232 directs the Secretary of Commerce, upon the application of any department, agency or interested party, to undertake an investigation of the effect of the importation of a product on national security.  The President then has 90 days to determine whether to concur with the finding of the Secretary with respect to the potential national security implications of a product.

AIIS alleges that Section 232 is an unconstitutional delegation of Congress’s exclusive authority to lay duties and regulate commerce with foreign nations under Article I of the U.S. Constitution.  Specifically, AIIS asserts that the broad definition of “national security” under Section 232 lacks an “intelligible principle” to circumscribe the President’s authority under the statute. Under Section 232, the President may consider the “close relation” of economic warfare and our national security, including the effect on domestic industries and the “weakening of our internal economy” in making a determination regarding the imposition of tariffs in the name of national security.

As evidence of the alleged lack of an intelligible principle, AIIS points to the fact that the President is not required consider, for example, the source of products (i.e., whether the products are imported from close allies), the specifications and use of the products as they relate to national security concerns (i.e., the fact that some steel imports are used to manufacture weapons or other products that aid national security), or the possible negative economic ramifications of protectionism on national security grounds (i.e., economic retaliation).  In addition, Section 232 does not contain any provision for judicial review of the President’s determination.

The government has not yet filed a response to the Complaint and whether the Court will entertain these constitutional challenges remains to be seen.  Nevertheless, as protectionist policies and threats of trade wars continue to mount, all industries must continually evaluate not only the effect of changes in relevant tariffs, but consider whether novel challenges such as those raised by AIIS may be necessary to protect the rights of industry members.

In a recent opinion, the Court of International Trade upheld the determination by U.S. Customs and Border Protection (CBP) that certain doorknobs imported by home-improvement retailer Home Depot are properly classified as locks and subject to a higher duty than other doorknobs.

In essence, the dispute came down to a question of whether a doorknob that locks is (i) a doorknob or (ii) a lock.

Doorknobs are classified heading 8302 of the Harmonized Tariff Schedule of the United States (HTSUS) which covers “[b]ase metal mountings, fittings and similar articles suitable for . . . doors . . . .”  The relevant Explanatory Notes clarify that heading 8302  “covers general purpose classes of base metal accessory fittings and mountings, such as are used on furniture, doors, windows, coachwork, etc”  and that the term “[m]ountings, fittings and similar articles suitable for buildings” includes “handles and knobs for doors, including those for locks and latches.” Doorknobs classified under heading 8302 are subject to 3.9% duty.

Locks, on the other hand, are classified under HTSUS heading 8301 which covers “[p]adlocks and locks (key, combination or electrically operated), of base metal.” Locks classified under heading 8301 are subject to a 5.7% duty.

Home Depot argued that its products, doorknob sets consisting of exterior and interior doorknobs with trim, a latch component, strike plate, keys, and installation hardware, were plainly doorknobs under heading 8302.  Home Depot argued that the products were an “improved” doorknob with a lock function. CBP argued that products were, first and foremost, locks to secure an exterior door, as evidenced by the “key-operated” nature of the products.  The Court agreed with CBP, finding that the doorknobs were part of the lock, specifically, they were the lever used to open the lock.  The Court also cited Home Depot’s testing and advertising of the knobs as locks.  The Court clarified that doorknobs without this locking function are still properly classified under heading 8302.

One take away from the Court’s decision was its rejection of Home Depot’s argument that the products at issue were similar to other knobs that had been classified under heading 8302.  The Court reiterated that HTSUS does not call for a comparison of articles under a giving heading, but rather that each article is to be compared to the wording of the tariff provisions.  As advocacy to CBP and the Court is often by done by analogy to similar articles, it is important to always remain focused on the language of the tariff provision itself.

The World Trade Organization (WTO) released new editions of its key statistical publications for 2015: International Trade Statistics, Trade Profiles, World Tariff Profiles and Services Profiles.

These publications provide data on world trade, including trends in world trade, trade policy measures, average tariffs imposed by individual economies, basic economic indicators, and key statistics on infrastructure services for approximately 200 economies.

The four publications are available in electronic form on the WTO website.  You can access and download the information regarding Trade Profiles here, and the other three publications here.

The printed versions will be available in mid-November.