All importers and exporters need to assign a statistical reporting number (harmonized tariff modified to reporting requirements of an overseeing agency) to their goods. In the case of imports, it is Harmonized Tariff Schedule Of The United States (HTSUS). For exports, it is Schedule B. While HTSUS and Schedule B are being administered by different offices, International Trade Commission and Census Bureau respectively, the determination guidelines for deriving appropriate statistical reporting number is the same – General Rules of Interpretation (GRIs). Census explicitly directs exporters to GRIs and section notes before attempting to locate the correct commodity number. (“The General and U.S. Rules of Interpretation and Definitions, as well as the notes appearing in the sections and chapters of Schedule B, should be reviewed before attempting to locate the correct commodity number.” (See Schedule B Introduction)
GRIs consist of six main points, with one additional US specific point for HTSUS. GRIs were designed to be applicable for any tangible product. The rules are broadly construed and reasonably prudent classifiers often disagree on assignment of reporting numbers for the same commodity. To deal with disagreements, CBP established a commodity specialist division (a.k.a. Office of Regulations and Rulings), whose main job focuses on clarifying the commodity classification through binding rulings. These rulings are presumed correct. Van Dale Industries v. United States, 50 F.3d 1012 (C.A.Fed.1995). CBP Headquarters and Court of International Trade bear further burden to resolve disagreements over application of GRIs.
Despite broad GRI construction, an experienced classifier can utilize information efficiently if she knows “necessary” information about the product. The term “necessary” usually means the product’s use and make, including manufacturing process and material component breakdown. However, once the classifier is deprived of “necessary” information, she is left without effective means to apply GRIs to determine the product classification.
The absence of “necessary” information can have a fatal classification outcome. Official HTSUS authority of first instance – CBP Office of Regulations and Rulings – declines to issue rulings if left without “necessary” means. (see NY E84253, where CBP refused to issue a ruling for a welded bolt due to insufficient knowledge with respect to material component breakdown; N027179, where CBP refused to provide classification for “joints and miscellaneous parts because of insufficient information”; NY 888333, where CBP declined the classification request for the yarn citing inadequacy of information). One may therefore conclude that, so long as the product information is inadequate, the GRIs may not be applied.
Once CBP admits that GRIs are useless, when the information is inadequate, then commodity classifier, if faced with insufficient product information, is put in a tough spot. Unlike CBP, a classifier may not be in position to refuse classification. Pressing clearing necessity, business model viability, overseas communication breakdown, and corporate pressures are but a few reasons why classifier is often left with no choice but to assign HTS number notwithstanding inadequacy of information.
Often, a classifier will be a CBP license holder (broker), who has additional duties to ensure that the product is classified properly. Under 19 CFR Sec. 111.32, a “broker must not file any document… known by such broker to be false.” The same section further reads that a broker “must not knowingly give, or solicit or procure the giving of, any false or misleading information or testimony in a matter pending before the DHS or any representative of the DHS.” While Sec. 111.32 limits false information to matters pending before CBP and the knowledge must be the actual knowledge, Sec. 111.39 imposes a requirement of “due diligence to ascertain the correctness of any information which he (broker) imparts to a client.”
What can a classifier do to meet “due diligence” in the absence of “necessary” information to make a definitive classification? Statutes are not very helpful. They impose a rigid obligation to make a “correct” determination and obtain the information necessary for that determination. 19 USC Sec. 1481(a), an invoicing statute, broadly imposes requirement of “detailed description of the merchandise.” The Reasonable Care Informed Compliance Publication (2004) suggests the “reliable procedures” to ensure correct tariff classification pursuant to 19 USC 1484. Sec. 1484, however, does not provide recommendation to situations where classifier does not have the necessary means to make a classification. A statistical enumeration part of the statute, Sec. 1484(f), simply requires an accurate statement in terms of detailed enumeration. The detailed enumeration leads back to HTSUS and Schedule B, which point you back to GRIs. The loop closes and the classifier is stuck with GRIs that she is not in position to apply.
Two CBP publications provide a classifier with a guideline that she may use to fulfill her duty of diligence and her responsibilities to a client: Importing into the United States and Reasonable Care ICP. The guideline is posed in form of a question: “Where merchandise description or tariff classification information is not immediately available, have you established a reliable procedure for providing that information, and is the procedure being followed?.” Thus, a classifier, needs to have a procedure for obtaining that information. The procedure must be reliable, and must be followed. CBP acknowledges that “the facts and circumstances surrounding every import transaction differ–from the experience of the importer to the nature of the imported articles.” (Reasonable Care ICP, 7 (2004)) A classifier may find herself in circumstances, where she has a limited ability to obtain the “necessary” information, timely or otherwise. Accordingly, that classifier needs to establish procedure that is reliable and is being followed within the constraints of her working environment. A classifier shall follow that procedure, even if others do not follow. The procedure must be reliable to the extent of enabling a classifier to make an accurate classification provided cooperation of other parties to the transaction ensues.
Classification Methodology Narrowly Tailored To Fit the Reasonable Care Requirement
In the course of developing procedure, a classifier with insufficient information on hand (and in no position to delay HTS assignment) may adopt a set of presumptions. The presumptions are designed to enable a classifier to classify within recognized framework of GRIs. Presumptions must be sufficiently explicit as to enable the party with information to either affirm or rebut the presumption employed. These presumptions must be communicated to a responsible party as a part of procedural framework.
Determination of Presumption
A classifier should develop a particular analysis for derivation of the presumption. The analysis should be consistently applied to all classifications, it must not be arbitrary, and have reasonable basis. One such approach is probabilistic and poses a question: If one was to pick a product from that category of products, what characteristics would that product be most likely to have? The sources for establishing probabilistic presumption can vary. One classifier may have a database that already has sufficient amount of data from which presumptions can be reasonably drawn, while another classifier may have no data. A classifier, may opt to build on the established success of Google® search algorithm which returns search results based on popularity (i.e. use frequency) of a web source. Input of a product in the Google® search engine will return the most popular products in that category. A classifier would use the characteristics of the most popular product for the product she needs classify presuming that product classified is more likely then not to have characteristics of the product which is most popular. While sources for probabilistic derivation vary based on circumstances, the methodology stays the same – the product that needs to be classified is presumed to have characteristics akin to the most commonly used product from the data set that classifier uses.
The legitimacy of probabilistic approach is backed by the U.S. Supreme Court jurisprudence that used notion of presumed impermissibility with respect to laws with racial classification (Suspect Classification Doctrine in later developed into Strict Scrutiny Doctrine). Doctrines presumed that all laws of racial classification were probably adopted due to racial antagonism, and therefore are deemed impermissible (shifting the burden on the government to prove that it had legitimate purpose, such as public emergency, safety, or remedial measures).
Application Of Presumption
Once presumption is determined, classifier would use that presumption to fill in the voids for the information necessary to adequately apply GRI principles. Then communicate the presumption (can be in the form of question) to the responsible party for affirmation or rebuttal. If the responsible party comes back with rebuttal, classifier has a duty to reapply GRIs based on new facts provided. If the responsible party fails to come back with the information, a classifier has fulfilled her reasonable care duties by informing the responsible party about set of presumptions and providing the opportunity to comment on factual presumptions for the product in question.