Lawfully Avoiding Duties & Fees For Your Medical Products: Nairobi Protocol Application
Demographic map of the United States is tilting toward a higher age median. The tilt is accompanied by the increased demand for medical appliances that assist many aging Americans in their daily activities. The appliances range from canes and walkers to bath seats and commodes. Much like other products, many medical appliances are made outside of the United State, and therefore must be imported. Medical imports may be subject to duties and almost always assessed a Merchandise Processing Fee, which is currently at 0.3464% or $495 per Customs Entry, whichever is lower. Naturally, importers do not wish to pay any duties or fees for their medical products. One way of avoiding such payments would be to invoke The Nairobi Protocol provisions. If The Nairobi Protocol applies to the importer’s product, that importer does not pay any duties or merchandise processing fees for the applicable product. See e.g. N044079 (2008) (“This merchandise is already duty free, but if you elect to claim the secondary classification in Chapter 98 of 9817.00.96 and meet the entry requirements, no merchandise processing fee will apply to those importations . . . . .”).
In 1950, The Agreement on Importation of Educational, scientific and Cultural Materials was adopted in Florence, Italy. The agreement was drafted by the United Nations Educational, Scientific, and Cultural Organization, also known as UNESCO, and came to be known as Florence Agreement. Florence Agreement provided for duty free treatment and the reduction of trade obstacles for imports of educational, scientific, and cultural materials in the interests of facilitating the international free flow of ideas and information. In 1976, UNESCO adopted the Nairobi Protocol to the Florence Agreement, which expanded the scope of products to include materials specially designed for handicapped persons. H148717 (2011). In 1982, Congress ratified The Nairobi Protocol to the Agreement on the Importation of Educational, Scientific, and Cultural Materials Act of 1982, and established the duty-free treatment for certain articles for the handicapped. H110795 (2011). Presidential Proclamation 5978 and Section 1121 of the Omnibus Trade and Competitive Act of 1988, provided for the implementation of the Nairobi Protocol into subheadings 9817.00.92, 9817.00.94, and 9817.00.96 of the United States Harmonized Tariff Schedule. In 1995, Presidential Proclamation 6821, adopted provision for “parts and accessories specially designed or adapted for goods that are specifically designed or adapted for use of physically or mentally handicapped persons.”
Subheadings 9817.0092-96 state the following:
Articles specially designed or adapted for the use or benefit of the blind or other physically or mentally handicapped persons; parts and accessories (except parts and accessories of braces and artificial limb prosthetics) that are specially designed or adapted for use in the foregoing articles:
- Articles for the blind:
- 9817.00.92: Books, music and pamphlets, in raised print, used exclusively by or for them . . . Rate of Duty Free
- 9817.00.94: Braille tablets, cubarithms, and special apparatus, machines, presses, and types for their use or benefit exclusively . . . Rate of Duty Free
- 9817.00.96: Other . . . Rate of Duty Free
Thus, in theory, importers of medical products can import their product free of duty and merchandise processing fee, so long as their products are “[a]rticles specially designed or adapted for the use or benefit of … physically … handicapped persons.” Of course, this provision, in itself, can be read broadly as to encompass every medical product conceivable. Normally, if the person is not handicapped, that person would not be looking for a medical product that importer has to offer. Sounds like a great deal! And it would be, but for the provisions under U.S. Note 4 to the Chapter 98, Subchapter XVII, which reads:
(a) For purposes of subheadings 9817.00.92, 9817.00.94 and 9817.00.96, the term “blind or other physically or mentally handicapped persons” includes any person suffering from a permanent or chronic physical or mental impairment which substantially limits one or more major life activities, such as caring for one’s self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, or working.
(b) Subheadings 9817.00.92, 9817.00.94 and 9817.00.96 do not cover —
- (i) articles for acute or transient disability;
- (ii) spectacles, dentures, and cosmetic articles for individuals not substantially disabled;
- (iii) therapeutic and diagnostic articles; or
- (iv) medicine or drugs.
If, after reading the above you begin thinking that the U.S. Note 4 spoils the party for U.S. importers of medical products, you are probably correct. Customs and Border Protection, subject to checks from the Judiciary and Legislative branches, was given an open-ended possibility to interpret U.S. Note 4 provisions as it deems appropriate (reasonable). Unless challenged and overturned by the U.S. judiciary, Customs interpretation would stand. See Jarvis Clark Co. v. US, 733 F.2d 873, 876 (Fed. Cir. 1984) (reaffirming that Customs is presumptively correct in the classification). Customs used the ambiguous language of the U.S. Note 4 to construct a doctrine that put a substantial burden on importing community to prove applicability of The Nairobi Protocol to their medical products. Not surprisingly, Customs focused on the most ambiguous provisions of the Note: the “permanent or chronic physical impairment” clause, as opposed to “acute or transient disability” clause.
Development of Permanent Physical Impairment Doctrine
From the outset, importers challenged Customs on the permanent physical impairment provision. Many argued that their medical products are designed for people suffering from disabilities that are permanent or chronic in nature. Of course, many medical devices could also be used by the people suffering from “acute or transient disability.” For example, a walker can be used by persons with sprained ankles as well by persons suffering from more permanent illnesses, such as Parkinson’s disease. The dilemma faced by Customs was where to draw the line. If Customs reads the “acute or transient disability” provision too broadly, then Customs can effectively negate the purpose of The Nairobi Protocol. However, the narrow reading of the clause may give too much leeway to savvy importers, deprive the U.S. Government of a much needed revenue collection, and would contradict the congressional intent of avoiding misuse. See H148717 (2011), citing Senate’s floor statements reflecting the concern that persons would misuse the tariff provision.
Unclear statutory language left Customs in a tough spot of deciding on where to draw the line. In order to deal with ambiguities, Customs adopted a safe approach of applying The Nairobi Protocol benefits on case by case basis. Treasury Decision 92-77, 26 Cust. B. & Dec. 35 (Aug. 3 1992). Accordingly, Customs with assistance from courts and international trade community, began weaving a Permanent Physical Impairment Doctrine under “Specially Designed or Adapted” clause.
“Specially Designed or Adapted” Clause
The statutory language requires that medical product be “specially designed or adapted for the use or benefit of … physically … handicapped persons.” Whether the article is in fact “specially designed or adapted” is a case-by-case inquiry. Treasury Decision 92-77, 26 Cust. B. & Dec. 35 (Aug. 3 1992). The inquiry analysis is made within a framework of five factors. This is great news for the importers, because many of these factors, can be argued from both sides, unless there is a clear precedent to the contrary.
Factor No. 1. What is the probability of general public use? Treasury Decision 92-77 recommends to analyze this factor from the standpoint of convenience. If the medical product would be inconvenient for non-handicapped individuals to use, then the factor favors The Nairobi Protocol applicability.
Factor No. 2. Is the medical product easily distinguishable, by properties of the design and the corresponding use specific to the design, from articles useful to non-handicapped individuals? When drafting a persuasive argument, asking Customs to find that your product is in fact distinguishable, consider structuring your statements within the framework of Americans with Disabilities Act of 1990 (ADA). ADA provides guidance on standards, and focuses with relative specificity on certain items (e.g. Segway, wheelchair, etc.). ADA has been considered by Customs in the past. See e.g. H055815 (2010).
Factor No. 3. Is the medical product recognized or proven to be involved in the class or kind of articles for the handicapped? One may find helpful the use of authoritative literature. One example is The American Medical Association Encyclopedia of Medicine, used by Customs in HQ 559120 (1995).
Factor No. 4. Is the medical product sold in specialty store which serve handicapped individuals? This one is a difficult argument in contemporary state of economy, because of the trend for many retailers to enter into product areas they historically stayed away from. One, however, may use this trend to their advantage. It may be useful to point out that this factor has been marginalized since the time when Treasury Decision 92-77 came out in 1992. Since 1992, Amazon came to being and evolved from online book seller to everything seller. Costco, traditionally offering day-to day consumer goods, is now offering funeral caskets. In the modern marketplace of retail expansion, the limitation of handicapped articles to specialty stores seems to be a weak argument at best. Yet, if marketing and distribution chain is in one’s favor, it should be mentioned. Of specific importance are the sales to long-term care facilities, which typically cater to chronically impaired patients; it is a strong evidence favoring inference for The Nairobi Protocol applicability. See e.g. H074876 (2009) discussion of marketing chain.
Factor No. 5. Is the medical product imported in condition that indicates that the article is for handicapped? This is a fall back provision, usually covered in the discussion of other elements. If one, however, imports unassembled medical products pursuant to GRI 2(a), or parts thereof, the analysis of specific design and utility may tip the balance in importer’s favor.
Evolution of Permanent Physical Impairment Doctrine
Importers continue to bring to Customs attention more and more products. As greater number of products is covered, an element of conclusive presumption with respect to certain products begins to evolve. One such product is the rolling walker, which is conclusively treated by Customs as The Nairobi Protocol eligible. See e.g. HQ 556995 (1993). Unfortunately, some Customs Import Specialists arbitrarily apply conclusive presumption methodology. Recently, one Customs Import Specialist rejected a protest for patient lifts used by patients in hospitals and other care giving facilities, solely based on the fact that a similar ruling – N092699 – did not discuss The Nairobi Protocol treatment in the opinion. Well, the fact that it was not discussed does not necessarily mean that The Nairobi Protocol is not applicable. It could have been the case that the person requesting the ruling simply did not make Nairobi inquiry. No such methodology application, to the knowledge of LawCustoms editor, is known to officially exist in Customs or the Courts. It seems that the best thing that importer can do in order to guard against arbitrary decision making is to request a further review when doing a protest. Provided that further review prerequisites are made, Customs officer may be more inclined to state the basis of the decision making process in writing. The writing, in turn, imposes an additional layer of accountability for the government apparatus. Another vehicle available at importer’s disposal is the request to void the denial of protest.
Request to Void the Denial of Protest
The request is available to importers pursuant to 19 U.S.C. §1515(d). It is made in the free letter form with a heading “Request to Void a Denial of Protest No. ____” in the subject line. Usually the request is limited to things overlooked by Customs (i.e. ” denied contrary to proper instructions”). Since lack of explanatory statement may be interpreted as an omission (where as CBP 19 instructs to provide a narrative on the form), 19 U.S.C. §1515(d) may be an useful tool toward inviting Customs to a greater degree of transparency in their decision making process.
Note on form ITA-362P
This form was required to be filed with Customs and Commerce by importers claiming The Nairobi Protocol applicability. Not any more. The Form ITA-362P requirement became moot after the Department of Commerce’s International Trade Administration discontinued the use of the form as of May 31, 2010. Commerce notified the public on June 1, 2010 through the publication in the Federal Register. 75 Fed. Reg. 30,373 (2010). While this ITA-362P elimination is a public knowledge, not all Customs officials are aware of it, and may reject your Nairobi Protocol request solely on that basis. Therefore, a short reminder statement about this action may help importer to resolve the matter more quickly. If protest was filed and rejected for ITA-363P failure to file reason, then 19 U.S.C. §1515(d) is probably a useful instrument to remind Customs about 75 Fed. Reg. 30,373 (2010).