CIT Ruling Raises Questions about Importers' Ability to Challenge HTSUS Modifications

August 11, 2009

Last month, Judge Judith Barzilay of the U.S. Court of International Trade (CIT) ruled that modifications to the Harmonized Tariff Schedule of the U.S. (HTSUS), implemented through Presidential Proclamations, cannot be challenged in court, even if they were based on a faulty recommendation by the U.S. International Trade Commission (ITC).   The decision is being appealed.

The ruling was made in a legal challenge launched by Barnes/Richardson on behalf of Target Stores, Michael Simon Design, Inc., and others, regarding 2007 modifications to the HTSUS that were intended to implement nomenclature changes agreed upon by the World Customs Organization.   The modifications removed certain “utilitarian” holiday-themed products, including tableware, certain types of apparel and linens, from a list of products classified as “festive” articles that qualified for duty free treatment. As a result of the 2007 modifications, customs duties ranging from 3 to 30 percent ad valorem are now applied to these products.

Pursuant to 19 U.S.C. § 3005, the ITC must report on any proposed modifications to HTSUS nomenclature to ensure that any changes are “substantially rate neutral”, that is, do not result in substantial increases or decreases in tariff rates applicable to imported articles.  That report is essentially technical in nature, revising the structure of the HTSUS to accommodate the changes approved by the WCO.  Based on that study, the ITC recommends to the president what changes should be made, within the statutory stricture of “rate neutrality.”  The Commission’s recommended nomenclature, in this case, did not maintain the zero tariff treatment applied to these particular articles under prior court rulings and trade agreements.

However, in her ruling, Judge Barzilay wrote that the ITC’s recommendations are “consultative in nature” and the President has the sole authority to modify the HTSUS under 19 U.S.C. § 3006.    She continued to say that when the President has complete discretion in taking an action, “the courts are without the authority to review the validity of an agency recommendation to the president regarding such action.”

Ordinarily, when two statutes are interpreted together, they are interpreted so that both have meaning. With regard to 19 U.S.C. §§ 3005 and 3006, the President’s authority to modify the HTSUS under Section 3006 is dependent upon receiving a valid recommendation from the ITC under 19 U.S.C. § 3005.  The statutes can and should be interpreted to give validity to both, regardless of the non-reviewability of the President’s ultimate decision.

Alan Goggins, a partner in Barnes/Richardson’s NY office, indicated in an interview in the August 7 issue of   Inside U.S. Trade that   the firm will appeal to the Court of Appeals for the Federal Circuit on the basis that Judge Barzilay’s ruling effectively abrogates the requirements of 19 U.S.C. § 3005.  Importers that pay duty on utilitarian holiday products should continue to pursue duty refund claims on such articles, and should contact counsel immediately in order to determine the appropriate method to capture full potential refunds for duties paid on entries since the 2007 effective date.