SLIP OP. 08-60
UNITED STATES COURT OF IN'I'ERNATIONAL TRADE
UNITED STATES,
Plai“tifff BEFORE: ]UDGE GREcoRY W.
CARMAN
Court No. 04-00650
UPS CUSTOMHOUSE BROKERAGE, INC.,
Defendant.
[Held: after trial, the Court finds that Defendant rnisclassified the subject rnerchandise;
that such misclassifications under the circumstances of this case constitute multiple
failures to exercise responsible supervision and control in violation of section 641 of the
Tariff Act of 1930, as amended, 19 U.S.C. § 1641; and that the consequent fines imposed
by Plaintiff are fair and reasonable judgment for Plaintiff.]
Gregory G. Katsas, Acting Assistant Attorney General, |eanne E. Davidson, Director,
Patricia M. McCarthy, Assistant Director, Commercial Litigation Branch, Civil Division,
U.S. Department of ]ustice (Melinda D. Hart, Courtney E. Sheehan, and Nancy I1559934
1-22~00 5324)166710-5
000 110 2000 1-234)0 5324)166776»2
[Pr&pe"a"y N°"°°S] 20004196-300222 1-244)0 532-0168407-2
S"’P*°"‘b°' 261 2°°° 1-254)0 5824)16364€»5
[Pena|ty Notioes]
1-25~00 582~016364<.-'»9
1-234)0 5324)113091-7
2-2-00 5824)173307-1
20004196-300223
2-1 1430 5824)190127-3
2_154)0 5324)19341:»»9
_, 3-20~00 532~023585¢‘>9
3»244)0 5324)2423243
3»244)0 5324)242341-3
3-29-00 532»0248249-2
4_3-00 5824)2523914
4~€»00 5324)2583?9~4
,\00051 0_ 2000 2000-4196-300319 4-¢.=000 532-0253099~3
[P'e`pe"a"y N°"°es] 4-6~00 532-02535526
O°‘°"e' 19' 2°°° 4-7-00 5324)259972-5
[Penalty Notioes]
4-12-00 532-0266194-7
4-134)0 532-0266653-1
4-15-00 582-0212335-3
4-19-00 532-0273835-1
4-20-00 532-0275794-3
20004195-300320 4_20-00 532-0276456-5
4-21-00 532-0278391-5
Court No. 04-00650 - Page 9
4-21-00 582-0278099-4
4-21-00 582-0276683-`:'
4-25-00 582-0279974-7
5-3-00 582-0289733-5
5-3-00 582-0290367-9
5-4-00 582-0291357-9
5-4-00 582-0291150-8
5-4-00 582-0292552-4
5-4-00 582-0292853-6
8. The parties stipulated that there exists a factual dispute over whether the
following five entriess of merchandise, entered under 30.90, contained a CRT:
- 2- 1 7461-2
Ju|y11.2000 2000_4195_300221 116-00 58 0 5
[Pre-pena|ty Notloes]
Sepfember 26, 2000 2000_4196_300223 2-10-00 582-0188677-6
[Pena|ty Notioes]
AugUSi B, 2000 3-23-00 582-0245010-1
[P'e'pe"""¥ N°“°‘*S] 2000~419&300319
october 1 gi 2000 4-9-00 582-026'1 334-4
Penalty N°ti°°s] 5 9-00 532-0293393-5
2000-4196-300320 '
”Customs withdrew evidence pertaining to three entries since the supporting
documents were inadvertently not disclosed to UPS prior to trial. (Sg Tr. 277-82:7, 295-
97.) The entries are: entry number 582-0165996-7 [dated jan. 1, 2000, penalty action
2000-4196-300221]; entry number 582-0276226-5 [dated Apr. 20, 2000, penalty action
2000-4196-300320 ]; and entry number 582-0276220-8 [dated Apr. 20, 2000, penalty
action 2000-4196-300320 ]. (Exs. 19, 45, & 46.) Consequently, Customs did not meet its
burden to show that these three entries were misclassified,
Court No. 04-00650 Page 10
(PTO, Schedules C and C'; Tr. 34-35, 265-66; Exhibits (“Exs.”)’° 16, 27, 33, 40, & 59.)
IV. Findings of Fact
The Court makes the following findings of fact based on the testimony and
evidence presented at trial, and the Agreed Facts adopted by the parties:
1. UPS is an express consignment operator (“ECO")“’ responsible for preparing
and filing customs entry documents on behalf of its clients and has been a licensed
customs broker since 1985. (E First Am. Compl. 'jj 3; Answer ‘1[ 3; PTO, Schedule C, ‘][
1; Tr. 59:8-15, 671-72, 679-81.)
2. UPS operated at six different “hub” cities, with the largest hub being at
Louisville, Kentucky. (Tr. 498-99.)
3. UPS considered itself to be in a ”partnership" with Customs so that as issues
arose, both positive and negative, courtesy telephone calls would be generated at the
highest levels of management in order to address issues and devise appropriate
response plans in a spirit of cooperation. (Tr. 704-10, 733-35, 740-42, 809.)
gCustoms's trial exhibits are designated by numbers, whereas UPS’s trial exhibits
are designated by letter.
“’Customs regulations define an "express consignment operator or carrier" as "an
entity operating in any mode or intermodally moving cargo by special express
commercial service under closely integrated administrative control. Its services are
offered to the public under advertised, reliable timely delivery on a door-to-door basis.
An express consignment operator assumes liability to Customs for the articles in the
same manner as if it is the sole carrier." 19 C.F.R. § 128.1(a) (2006).
Court No. 04-00650 Page 11
4. ln the period january through May 2000, UPS made approximately
2,900-3,900 Customs entries per day at its Louisville facility totaling approximately
375,000 entries for this period. (Tr. 569-70, 569-70.)
5. During this same period, UPS made Customs entries of ”thousands” of
computer parts and accessories. (Tr. 633-34.)
6. Beginning around 1995, Customs instituted a compliance measurement
program in order to assess and improve Customs’s compliance figures as measured
against merchandise entry summaries. Entry summaries are filed by importers and
brokers ten days following the release of merchandise, when duties are deposited. (Tr.
94-97.)
'7. Customs headquarters determined that certain industries would be
designated as ”primary focus industries" pursuant to the compliance measurement
program. In Mr. Piedmont's commodity team, the communications industry was the
primary focus industry that was concentrated upon. (Tr. 95-100; 114.)
8. Particularly, Customs decided to narrow the focus on the communications
industry’s compliance rates for merchandise entered under HTSUS heading 8473.
Customs determined that subheading 8473.30.9000 had extremely low compliance rates.
In fact, merchandise classified with subheading 8473.30.9000 was classified “99% of the
time in error." (Tr. 171-72, 1'79, 207, 244; Ex. 114 at 5.) Customs partially attributed the
industry’s low compliance rate for subheading 8473.30.9000 to its use as a "convenience
Court No. 04-00650 Page 12
classification" or ”basket provision" in that through its use by brokers or irnporters, the
release of merchandise could be obtained from Customs without the broker
determining what in fact was the correct classification (Tr. 93-94, 114, 121-22, 125, 178-
80, 182, 207, 240-41, 243-44, 368-69, 854-57; Exs. 113, 114 at 5.)
9. Customs notified various members of the trade community, including UPS,
not to use convenience classifications. Particularly, on April 3, 1996, Customs issued a
memorandum to importers and brokers doing business at the port-called a ”port
pipeline” -notifying all interested parties that the use of convenience classifications was
prohibited. (Ex. 89; Tr. 91-94, 175-83, 850-57.)
10, Customs considers proper classification of merchandise important and not
limited to revenue purposes, but also for maintenance of accurate trade statistics. (Tr.
218-20, 923-14.) The rate of duty for 30.90 is ”free” or 0% ad valorem.
11. As part of its compliance efforts, Customs provided training sessions to the
industry. Particularly, between September 9 and 11, 1997, Customs at the Port of
Cleveland, provided training to UPS at a “Train-the-Tramer” program, where, in
addition to instruction, educational materials were distributed to all participants. (Exs.
A, 99-102, 108; Tr. 86-91, 128-35, 866-68.)
12. Customs presented a variety of topics at the ”Train-the-Trainer” program,
which was attended by UPS personnel, including instruction on section and chapter
Court No. 04-00650 Page 13
notes to Chapters 84 and 85 of the HTSUS and seven different tariff headings including
heading HTSUS 84'73. (Exs. A, 99-101; Tr. 86-91, 128-35, 187-88, 866-68.)
13. Specifically discussed at the "Trairi-the-Trairier” program were what
Customs termed “areas of concern" and ”discrepancies within particular HTS
numbers." (Ex. 106.)
14. Customs’s instructors and materials drew attention to I-ITSUS Chapter 84,
particularly 30.90. Participants were instructed that “[a]ll of the items under these
numbers must contain a cathode ray tube . . . . These numbers should almost never be
used. Using 8473.30.9000 sends up the red flag to Customs to look at that entry-it is
usually never correct!!!" (Ex. 108 p. 34 (emphasis in original); Tr. 136-38.)
15. UPS represented to Customs by letter that it had participated in the ”Train-
the-Trainer” program and received instruction on Customs’s areas of concern, including
HTSUS heading 8473. (Ex. 104.) Begirming in late September 1997 and continuing into
1998, UPS developed a compliance plan that featured the seven tariff headings
highlighted at the "Train-the-Trainer” program, including heading HTSUS 8473. (Ex. B;
Tr. 600-03.) UPS continued with these efforts over the subsequent months, which
manifested itself in the form of additional internal UPS compliance and commodity
training for classification personnel and the creation of a new position dedicated to
training (E'.xs. E, F,' Tr. 537, 600-03.)
Court No. 04-00650 Page 14
16. In a letter dated October 8, 1997, Customs notified UPS of its compliance rate
for various tariff headings including heading _HTSUS 8473, which was 54.35%. (Ex. 103.)
One year later, Customs revised UPS's 1997 compliance rate for heading HTSUS 8473 to
59.52%. (E`.x. AA.) Additionally, Customs apprised UPS that heading I-ITSUS 84'73 was
receiving “heightened scrutiny" by the Bureau. (Exs. 103, AA.)
17. Subsequently, in a December 22, 1997 letter, UPS notified Customs of its
compliance training efforts, which ”emphasized the importance of the accurate use of
the tariff numbers under these headings,” and ”provided [approximately 100 of] its
rating group [personnel] with detailed information as to invoice requirements and the
need for customer follow-up when invoices are deficient." (Ex. 107.)
18. Again, on February 12, 1998, UPS informed Customs by letter of its
compliance training efforts, including further training and hiring additional compliance
personnel. (Ex. 109.)
19. Customs conducted an on-site visit to UPS's Louisville, Kentucky facility on
February 17-18, 1998 and among the issues discussed were UPS's ”compliance rates of
HTSUS 8471 and 8473." (Exs. 110-12.)
20. Notwithstanding efforts by UPS to improve its compliance rates through
training and other means, its niisclassification of merchandise under 30.90 continued.
(sxs. 34-86, 90; Tr. 251-56.)
Court No. 04-00650 Page 15
21. Between September 1997 and May 1998, Customs had notified UPS on
multiple occasions about the improper use of 30.90 through its training efforts, Notices
of Action (a.k.a. Customs Form 29 (CF-29)), and phone calls between its import
Specialists and UPS personnel. On May 6, 1998, Customs issued a warning letter to UPS
“strongly suggesting" that UPS review the types of merchandise classifiable under
30.90. Customs explained that UPS “consistently used this particular HTS[US] number
. . . when in fact, Customs has informed [UPS] that this HTS[US] number should rarely
be used, unless it is for ’parts of ADP“, incorporating a cathode ray tube.’” (Exs. 84-86,
90, 92-98, 100-01, 103-116, H, I; Tr. 247, 256-57, 878-79.)
'22. On or about May 19, 1998, UPS finally decided, on its own accord and as a
failsafe measure, to remove the tariff number 30.90 from UPS's electronic data file (the
"tariff tape"), which contained the entire HTSUS, in order to physically prevent its use
and thus eliminate potential misclassifications. (Ex. l; Tr. 477-78, 509-10.) Along with
personnel training endeavors, UPS substantially relied on the removal of tariff number
30.90 from the tariff tape as its principle means of maintaining compliance.
23. Tariff tape revisions were provided to UPS by Customs twice a
year-typically each january and july. Removal of the tariff number 30.90 from the
UPS tariff tape was conducted by UPS computer systems personnel and needed to
“An ”ADP" is an ”automated data processing machine," g a computer.
HTsUs heading 8471.
Court No. 04-00650 Page 16
occur each time a new tariff tape was issued, so long as UPS wanted to physically
prevent its employees from using the 30.90 tariff subheading. (Tr. 510-11, 521, 608-09.)
24. UPS continued to remove 30.90 from the tariff tape through the second half
of 1998 and continuously through 1999. UPS had informed Customs that it had
removed the 30.90 tariff number from its tariff tape so that its “classification specialist[s
could] . . . not use it without further investigation as to whether the merchandise
contains a [CRT] or not.” (Ex. CC.)
25. Though UPS had removed 30.90 from the tariff tape, it could nevertheless be
“manually” entered by a UPS classification specialist, following a review of the
commercial invoice and upon receiving the appropriate supervisory and technical
approvals. In the ”rare” case where the importer ”insisted" that 30.90 was the
appropriate subheading, following UPS supervisory scrutiny and vetting, UPS would
then manually enter it under this tariff number. (Tr. 513-14, 544-48, 555-56, 595-98.)
26. Through the first three quarters of FY 1998, UPS had improved its
compliance rate for heading HTSUS 8473 to an unweighted” 80.00%. (Ex. AA.) In FY
1998, the national average compliance rate for heading HTSUS 8473 for ECOS was 65%
(Ex. 113; Tr. 201-05.)
27. ln a December 3, 1998 letter, the Cleveland Port Director for Customs’s john
M. Regan, acknowledged to Norm Schenk, UPS, that UPS had participated in training
"That the reported compliance rate was ”unweighted” would only account for a
variance of 1-2% at most. (Tr. 212.)
Court No. 04-00650 Page 17
and problem solving sessions with Customs. The letter reflected upon the notion that
such participation improved the communications between UPS and Customs. (Ex. K;
Tr. 703-04.)
28. Between mid-1998 through the end of 1999, there were no entries made by
UPS that were the subject of any Customs Notices of Action involving the use of 30.90.
(Tr. 927-28.) However, there were several entries during this period that had been
improperly classified utilizing the tariff number 30.90. (Exs. 86-88; Tr. 258-59.)
29. On September 21, 1999, Customs announced a new nationwide initiative
directed at ECOs, called the Multi-port Approach to Raise Compliance, or ”MARC
2000." Customs noted that ECOs generally had maintained a 65% compliance rate for
heading 8473 in 1999, and set as its goal 89% compliance by 2000, and 95% by 2004.
30. Customs conducted formal training under the aegis of MARC 2000, as well
as other informal sessions. Again, UPS participated and was instructed on the proper
use of 30.90, which is to say, UPS was instructed not to use it. (Exs. 91, 110-14, M, O; Tr.
85-87, 623-24, 872-74.)
31. Testimony by Messrs. Welch and Woods explained that though UPS had, by
plan, been removing 30.90 from its tariff tape, with the latest revision in the HTSUS in
january 2000, UPS had failed to execute the removal of 30.90 from the tariff tape, and
continued not to do so until at least the end of May 2000. (Tr. 520-22, 544-56, 560-61,
563-65, 603-13.)
Court No. 04-00650 Page 18
32. On january 31, 2000, Customs issued a second warning letter to UPS
concerning the misuse of 30.90, stressing that “Customs is paying close attention to
those filers/importers who do not fulfill their legal obligations in the preparation,
research and submission of Customs entries, Frequent or repetitive errors . . . will be
met with appropriate action." (Ex. 91 ; Tr. 884-85.)
33. UPS never communicated to Customs that 30.90 was confusing or
ambiguous, nor sought a binding ruling regarding this subheading, nor filed a protest.
(Tr. 727-735, 820-21, 883-84.) UPS now claims, however, that it did not agree with
Customs’s interpretation of 30.90. The company maintains that it did not file a protest
because of its "gentlemen’s agreement,” that existed between UPS and Customs
whereby UPS orally agreed that it would not file a protest where there was no duty or
where the duty was $100 or less. (Tr. 730-33, 735.)
34. Between january 10, 2000 and May 10, 2000, UPS filed 60 entries in the Port
of Louisville under 30.90 that formed the subject of several Notices of Action. (Agreed
Facts, 'jj 4.)
35. UPS has stipulated that all but 8 of the 45 entries in this lawsuit did not
contain a CRT. (L Charts 1 & 2, Lipr_a; Tr. 268.) Following Customs’s withdrawal of
evidence pertaining to 3 entries, there remained a factual dispute as to whether the
remaining 5 entries (s_ee Chart 2) contained CRTs.
Court No. 04-00650 Page 19
36. Customs import Specialist Moosebrugger testified that, based his experience
and familiarity with these imported electronic goods, the disputed remaining 5 entries
did not contain CRTs. This Court finds Moosebrugger a highly credible witness and
along with the documentary evidence, finds, by a preponderance of the evidence, that:
a. Entry 582-0157461-2 did not contain a CRT. This entry is for a UP 2030
stencil printer that is used to print solder paste onto printed circuit boards
in assemblies when manufacturing them. The UP 2030 printer is neither a
part nor accessory of an automated data processing machine, nor does it
contain a CRT. (Ex. 16; Tr. 271-75.)
b. Entry 582-0188677-6 did not contain a CRT. This entry is for security
key swiping equipment which is neither a part nor accessory of an ADP,
nor does it contain a CRT. (Ex. 27; Tr. 283-88.)
c. Entry 582-0245010-1 did not contain a CRT. This entry is for an
industrial computer with a liquid crystal display (”LCD”) unit. An LCD
unit does not contain a CRT. This merchandise, while an ADP, is neither a
part nor accessory containing a CRT. (Ex. 33; Tr. 289-93.)
d. Entry 582-0261334-4 did not contain a CRT. This entry is for an
industrial computer with a flat panel LCD display unit, which does not
contain a CRT. (Ex. 40; Tr. 293-94.)
e. Entry 582-0298398-6 did not contain a CRT. The entry documents
vaguely describe the item at issue as a ”computer accessory." However,
the entry quantity on the commercial invoice states 80 units, and the unit
cost per item is $2.60. The stated cost for this quantity and weight “would
not be consistent with normal practices or cost practices” for a CRT. (Ex.
59; Tr. 297-301.]
37. Customs decided that, as customs broker, UPS was responsible for the
misclassifications, as opposed to the various importers of record, since UPS had been
warned before and subsequently received training with respect to 30.90. (Tr. 886-91.)
Court No. 04~00650 Page 20
38. The pre-penalty notices for all eight penalty actions each alleged violations of
the responsible supervision and control provision of the broker statute as a result of the
erroneous classification of particular entries of merchandise specified in each prepenalty
notice. (Exs. 60, 61, 63, 65, 67, 69, 71 and 73; Tr. 960.)
39. Prior to the May 15, 2000 penalty actions, UPS had not been the subject of
any penalty action involving an alleged failure to exercise responsible supervision and
control in over 15 years of operation as a licensed customs broker. (Tr. 828.)
40. Every entry that comprised penalty case numbers 2000-4196-300221, -300222,
-300223, -300319, and -300320, had been filed by UPS between january 10, 2000 and May
10, 2000 at the Port of Louisville, l(entucky. (Agreed Facts, ‘][ 4.)
41. Customs at the Port of Louisville, Kentucky packaged and shipped the entry
papers to the Area Port of Cleveland, Ohio for an import specialist review to determine
whether the classification employed by UPS was used correctly. Due to what this Court
will term ”bureaucratic lag," the Port of Cleveland did not receive these entry papers
for nearly 11/& to 2 months following entry of the merchandise, (Tr. 995-97.)
42. Customs’s Import Specialist Team at the Port of Cleveland decided that each
time a misclassified entry by UPS was discovered, it would be collected, and when
Customs collected five misclassified entries, the entries would be bundled together, and
referred to Customs’s Office of Fines, Penalties and Forfeitures (”FP&F"), which then
Court No. 04-00650 Page 21
would issue a single administrative penalty notice to UPS.B (Tr. 995-96, 892-93, 901,
940-41, 962-63, 1000-01, 1006.]
43. An FP&F supervisor, along with input from the Import Specialist Team, had
devised a plan: for the initial penalties, the penalty notices would be issued at $5,000
each based upon relevant sections of the mitigation guidelines (see generally 19 C.F.R.
Pt. 171, App. C.). The recommended penalty amount would then be increased to
'$10,000 for subsequent referrals. (Tr. 886-93, 899-907, 1004-05, 1009-10, 1013-14.)
44. Customs’s plan with respect to UPS, described above, as devised and
executed was not intended to circumvent the statutory cap of $30,000 for each penalty,
per 19 U.s.c. § is»ii(d)(z)(A). (Tr. 1009-1018.)
45. In executing this plan, Customs issued, on May 15, 2000, three pre-penalty
notices of $5,000 each, which were each separately based upon five misclassified entries
received seriatim, as filed by UPS under 30.90:
May 15, 2000 2000-4196-300217 $5.000 Fine paid by UPS
[Pre-pena|ty Notioes]
2000-4196-300218 $5.000 Fine paid by UPS
September 15, 2000
[pena|ty Notiges] 2000-4196-300219 $5.000 Fine paid by UPS
“The broker statute requires that Customs notify a broker prior to enforcing a
penalty against it for a violation of the statute. 19 U.S.C. § 1641(d)(2)(A).
Court No. 04-00650 Page 22
After considering UPS's pre-penalty response, Customs issued three penalty notices,
assessing a $5,000 fine in each penalty action. These fines were paid and are not a part
of this action. (Exs. 60, 61 ; Tr. 6-7, 266-67.)
46. On july 11, 2000, Customs initiated three additional $5,000 penalty actions
and on August 8, 2000, two $30,000 penalty actions were initiated:
2000-4196-300221 $5.000 Not Paid; Subj'ecl of Amended
Jujy 11, 2000 C°"‘P'a‘“*
[P"""°"a"’ N°t'°°s] 2000-4196-300222 $5.000 wet Peia; subjeer efAmendea
september 20, 2000 C°'"°'a'"'
[P°"a'*¥ N°"°°~°'l 2000_4196_300223 $5.000 Net Peid; subject ef Amendee
Complaint
august a, 2000 200041 913-300310 $30,000 Net Pejd; subject efAmendee
[Pre-pena|ty Notioes] Comp|aint
october 10, 2000 2000~4106-300320 $30,000 wet Peid; subject er Ameneeu
[Pena|ty Notices] CONP|SiI'lT
(Exs. 65, 67, 69, 71, 73.) Each $5,000 penalty action was based upon five misclassified
entries, as they accumulated, following which each $30,000 penalty case was based on
fifteen misclassified entries, as they thereafter accumulated. (Ld.; l Agreed Facts
‘][ 5; PTO, Schedule C’; Charts 1-4, _s_t_ipr_a.) After considering UPS's pre-penalty
responses, Customs issued penalty notices dated September 26, 2000 and October 19,
2000, respectively, for a total amount of $75,000 in penalties. (Exs. 66, 68, 70, 72, 74.)
47. UPS failed to remit the $75,000 in penalties imposed by the September 26 and
October 19, 2000, penalty notices. On December 17, 2004, Customs commenced this
Court No. 04-00650 Page 23
action against UPS seeking to enforce the monetary penalties Customs imposed on UPS.
(Amd. Compl. ‘]j‘]l 14, 21, 24, 27, 30, 33.)
V. Conclusions of Law“
A. Classification linder HTSUS subheading 8473.30.9000 (”30.90")
Because the justification by Customs for the penalties it issued to UPS was that
the company continually misclassified merchandise by improperly using subheading
30.90, the first question of law presented by the case is whether UPS, in fact,
misclassified merchandise that formed the basis for the challenged penalties by
Customs.“ As Customs concedes, if UPS did not rnisclassify the entries at issue then
there would be no basis for the penalty claims in this case. (Tr. 960-61.) (L Agreed
Facts ‘][ 7; Finding of Facts ‘j[ 37.)
Customs’s classification decisions are reviewed through a two-step
analysis-first construing the relevant tariff headings, then determining under which of
those headings the merchandise at issue is properly classified. Bausch & Lomb Inc. v.
United States 148 F.3d 1363, 1365 (Fed. Cir. 1998) ( citing Universal E'.lecs., Inc. v. United
“If any of these Conclusions of Law shall more properly be Findings of Fact, they
shall be deemed to be so.
“"The Court, in classification cases, has an independent obligation to ascertain the
proper classification of merchandise in dispute. _S_e;e jarvis Clark Co. v. United States,
733 F.2d 873, 876 (Fed. Cir. 1984); Simon Mktg., Inc. v. United States, 29 CIT _, _, 395
F. Supp. 2d 1280, 1286 (2005). ”[T]he Court must determine ‘whether the govemment's
classification is correct, both independently and in comparison with the [broker’s]
alternative."' Cargill, Inc. v. United States, 28 CIT 401, 408, 318 F. Supp. 2d 1279, 1287
(2004) (guoting |arvis Clark, 733 F.2d. at 878).
Court No. 04-00650 Page 24
1 112 F.3d 488, 491 (Fed. Cir. 1997)). Determining the proper meaning of the
relevant tariff headings is a question of law, while application of the terms to the
merchandise is a question of fact. I;d.
When construing tariff terms, the Court may look to common and commercial
meanings if such construction would not contravene legislative intent. |YC Co. of Am.
v. United States 234 F.3d 1348, 1352 (Fed. Cir. 2000). To ascertain the common meaning
of a tariff terrn, the Court may refer to dictionaries, scientific authorities, and similarly
reliable resources. Mead Corp. v. United States, 283 F.3d 1342, 1346 (Fed. Cir. 2002).
The Court may also look to the explanatory notes for guidance. Motorola Inc. v.
United States 436 F.3d 1357, 1361 (Fed. Cir. 2006) (noting that explanatory notes are
“instructive, but not binding").
”The HTSUS scheme is organized by headings, each of which has one or more
subheadings; the headings set forth general categories of merchandise, and the
subheadings provide a more particularized segregation of the goods within each
category." Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed. Cir. 1998).
“A classification analysis begins, as it must, with the language of the headings.” L:L at
1440.
In pertinent part, the HTSUS General Rule of interpretation (”GRI") 1 states that
”classification shall be determined according to the terms of the headings and any
relative section or chapter notes." GRI 1, HTSUS (2000). In fact, ”Section and Chapter
Court No. 04-00650 Page 25
Notes are not optional interpretive rules, but are statutory law, codified at 19 U.S.C.
§ 1202." Park B. Smith, Ltd. v. United States. 347 F.3d 922, 926 (Fed. Cir. 2003) (citing
Libas, Ltd. v. United States, 193 F.3d 1361, 1364 (Fed. Cir. 1999)). The GRIs are applied
in numerical order. § ABB Inc. v. United States 421 F.3d 1274, 1276 n.4 (Fed. Cir.
2005) (citing Carl Zeiss, Inc. v. United States, 195 F.3d 1375, 1379 (Fed. Cir. 1999)).
To apply GRI 1, the Court must construe ”the language of the heading, and any
section or chapter notes in question, to determine whether the product at issue is
classifiable under the heading." Orlando Food 140 F.3d at 1440. The Court must
identify the proper heading or headings in which an article is classifiable before it can
determine the subheading that provides the classification for the item. I;d.
As explained below this Court holds as a matter of law that, by operation of GRI
1, for merchandise to be classified under HTSUS subheading 8473.30.9000, the imported
article must contain a CRT. This Court grounds its conclusion in the text of the tariff, its
organization, and from the plain meaning of the tariff language. §§ Pillowtex Corp. v.
United States 171 F.3d 1370, 1373 (Fed. Cir. 1999) (”It is a general rule of statutory
construction that where Congress has clearly stated its intent in the language of a
statute, a court should not inquire further into the meaning of the statute.") (citation
omitted).
The Court first looks to the terms of the heading. Heading 8473 covers "[p]arts
and accessories" of certain “machines of headings 8469 to 8472,” which are defined
Court No. 04-00650 Page 26
elsewhere in the tariff code. HTSUS 8473 (2000). Heading 8469 covers "[t]ypewriters
other than printers." HTSUS 8469 (2000). Heading 8470 covers ”[c]alculating machines
and pocket-size data recording, reproducing and displaying machines with calculating
functions; accounting machines, postage-franking machines, ticket-issuing machines
and similar machines, incorporating a calculating device; cash registers." HTSUS 8470
(2000). Heading 8471 covers ”[a]utomatic data processing machines . . . ; magnetic or
optical readers, machines for transcribing data onto data media in coded form and
machines for processing such data." HTSUS 8471 (2000). Finally, heading 8472 covers
”[o]ther office machines (for example, hectograph or stencil duplicating machines,
addressing machines, automatic banknote dispensers, coin-sorting machines, coin-
counting or wrapping machines, pencil-sharpening machines, perforating or stapling
machines)." HTSUS 8472 (2000).
The scope of heading 8473 as such, is a ”parts and accessories” provision; it does
not pertain to the wholly assembled articles. Specifically, heading 8473 pertains to the
parts and accessories of typewriters, calculating machines, office machines and
computers, but not the computers themselves, as they are classifiable under the more
specific tariff heading 8471. This interpretation is supported by the plain language and
structure of the tariff schedule for heading 8473. Specific characteristics or qualities of
merchandise are described under the tariff schedule label “article description."
Court No. 04-00650 Page 27
Subheading 8473.30 is specifically reserved for “[p]arts and accessories of the
machines of heading 8471." As stated above, heading 8471 covers ”[a]utomatic data
processing machines" (”ADPs")-L, computers.“’ Thus, in order for merchandise to be
classified under subheading 8473.30, the item would have to meet three requirements:
(i) that the item is a part or accessory (ii) of an ADP, as defined by 8471 and note 5,
Chapter 84 HTSUS, and (iii) that the item is either a part or accessory of an ADP.
Subheading 8473.30 breaks out further into additional differentiated
subcategories:
8473.30 Parts and accessories of the machines of heading 8471:
Not incorporating a cathode ray tube:
8473.30.1000 Printed circuit assemblies
8473.30.2000 Parts and accessories, including face plates and lock
latches, of printed circuit assemblies
847.30.3000 Other parts for printers, specified in additional U.S. note
2 to this chapter
8473.30.5000 Other
_ Other:
8473.30.6000 Other parts for printers, specified in additional U.S. note
2 to this chapter
8473.30.9000 Other
The articles described in subheadings 8473.30.1000 through 8473.30.5000 can not
contain CR'i"s, as CRTs are explicitly excluded by the language ”[n]ot incorporating a
cathode ray tube."
“’I-leadmg 8471 is for ”[a]utomatic data processing machines ["ADPs”] and units
thereof,~ magnetic or optical readers, machines for transcribing data onto data media in
coded form and machines for processing such data, not elsewhere specified or
included.” HTSUS 8471 (2000).
Court No. 04-00650 Page 28
Conversely, articles described in subheadings 8473.30.6000 and
8473.30.9000-which subheadings fall under the “[o]ther" article description-must
contain a CRT. Provisions such as subheadings 8473.30.6000 and 8473.30.9000 are
known as “basket" or "residual” provisions. See, e.g., EM Indus. Inc. v. United States
22 CIT 156, 165, 999 I~`. Supp. 1473, 1480 (1998) (“’Basket’ or residual provisions of
HTSUS l-Ieadings . . . are intended as a broad catch-all to encompass the classification of
articles for which there is no more specifically applicable subheading."). As such, these
residual subheadings encompass all “[o]ther” articles that fall within subheading
8473.30, but which are not classifiable under the more specific provision, E, ADP parts
incorporating a CRT. Specifically, subheading 8473.30.6000 is reserved for pr'mter
parts" that contain a CRT and 8473.30.9000 is reserved for ADP parts that contain a
CRT.
Customs argues that in order for merchandise to be classified under subheading
8473.30.9000, the items must be: (i) parts or accessories; (ii) of an ADP; (iii) that contain a
CRT. Should an article fail to meet any of these perquisites, it could not be classified
"Subheadings 8473.30.3000 and 8473.30.6000 are reserved for ”[o]ther parts for
printers" that are specified in Additional U.S. note 2 to Chapter 84. Additional note 2,
Chapter 84, lists an array of printer parts of ADP machines described in subheading
8471.60. Subheading 8471.60 describes ”[i]nput or output units" of ADP machines, @,
stand-alone printers, Subheading 8471.60 breaks out this tariff, in part, by whether it
has a CRT or not. Thus, based on the structure and the language of this tariff, the
drafters clearly contemplated that there were parts of printers that contained CRTs.
Court No. 04-00650 Page 29
under subheading 0473.30.9000. (s><.i 17; Tr. 223-22a 410-11, 414, 427-2a rife rest-Trial
Br. 2 ¢jje.)
UPS argues that the lirnitation under subheading 8473.30 ”[n]ot incorporating a
CRT” only applies to the ADP machine defined under heading 8471, and not the
individual part. Therefore, they argue, that the parts and accessories imported under
subheadings 8473.30.6000 and 8473.30.9000 need not themselves contain CR'l`s, but
merely the assembled whole need contain CRTs. (Exs.117, NN; Tr.415, 427-28; Def.’s
Post-Trial Br. 3 ‘][4.) The nub of UPS's textual argument is that under subheading
8473.30, the phrase “[n]ot incorporating a cathode ray tube” immediately follows after
the phrase ”machines of heading 8471." Therefore “it is appropriate to read these
phrases together, rather than read ‘not incorporating a cathode ray tube’ as modifying
’parts and accessories,' which appears earlier in 8473.30.” (Def.'s Post-Trial Br. 3 ‘][4(a);
Tr. 775-781.)
UPS's preferred construction of the tariff, however, is in conflict with the plain
language, grammar, punctuation, and organization of subheading 8473.30.9000.“’ First,
as stated above, key among the factors to consider is that heading 8473 is a 1
provision-the articles described thereunder are parts and accessories of ADP
machines, and not the machines themselves. ADP machines are provided for under a
“‘In construing tariff terms, ”the court may rely upon its own understanding,
dictionaries and other reliable sources." Medline lndus.. Inc. v. United States, 62 F.3d
1407, 1409 (Fed. Cir. 1995) (ci_ting Marubeni Am. Corp. v. United States, 35 F.3d 530
(Fed. Cir. 1994)).
Court No. 04-00650 Page 30
different tariff heading: 8471. Therefore, when a characteristic is listed that subdivides
articles preliminarily falling into the “parts and accessories" heading, we would expect
that the characteristic would refer to the ”part or accessory,” not the machine that the
part goes into. Second, UPS is essentially advocating the use of the ”last antecedent
rule” to buttress its preferred interpretation. Under the last antecedent rule, ”a lirniting
clause or phrase . . . should ordinarily be read as modifying only the noun or phrase
that it immediately follows." Barnhart v. Thomas 540 U.S. 20, 26 (2003). I-iowever, to
read the tariff text as UPS urges, belies both common sense and grammar.” The main
clause of subheading 8473.30 provides: ”Parts and accessories of the machines of
heading 8471." immediately following this phrase, on the next line (and indented), is
the text ”[n]ot incorporating a cathode ray tube." Returning to the first line of text, the
prepositional phrase ”of the machines of heading 8471 [@, ADPs]" modifies ”[p]arts
and accessories." The phrase ”[n]ot incorporating a cathode ray tube” cannot be read
coherently to modify ”machines of heading 8471 [ADPs]” since it is set off on a separate
line and indented. lt is unreasonable to employ the ”last antecedent rule" as UPS
advocates because, if the phrase ”[n]ot incorporating a cathode ray tube" were
modifying ADP machines, the phrases would not be offset by paragraph structure or
separated by punctuation. Customs’s interpretation is therefore more reasonable in
mg 2 LAWRENCE ]. BooARo, Customs LAw se AoMrNIsrRAnoN § 32.5, at ‘][ 211
(3d ed. 2007) (”The grammatical rule of construction that a qualifying clause modifies
only its immediate antecedent has been held inapplicable where such a construction
would not be reasonable or in accord with legislative intent.").
Court No. 04-00650 Page 31
light of the plain language and structure of the text. Finally, Congress drafted
subheading 8473.30.9000 employing the use of colons.z° Under subheading
8473.30.9000, the colon introduces the categorical list of the ADP parts classifiable under
it according to whether those parts and accessories either incorporate a CRT (L,§g,
HTSUS 8473.30.6000) or do not incorporate a CRT (Ye;,g;gl HTSUS 8473.30.1000). g
Bruckman v. United States, 435 F. Supp. 1219, 1222 (Cust. Ct. 1977) (”The colon of the
superior heading clearly represents, through punctuation, an attempt to show that each
provision under it is intended to be a specific elaboration of the superior headiiig."),
rev'd. on other grounds, 582 F.2d 622 (C.C.P.A. 1978). The interpretation advocated by
UPS makes no sense grammatically and would render the punctuation here useless.”
As such, UPS's construction is untenable.
Therefore, this Court holds that, as a matter of law, for articles to be properly
classifiable under subheading 8473.30.9000 the articles must: (i) be parts or accessories;
(ii) of an ADP machine; and (iii) those parts or accessories must incorporate a CRT.
2°__5@ THE CHICAGO MANUAL OF STYLE 'j[ 6.63 (15th ed. 2003) ("A colon introduces
an element or a series of elements illustrating or amplifying what has preceded the
colon.").
”The Court presumes all statutory language serves a purpose, se__e Bailey v.
United States 516 U.S. 137, 145 (1995) (”'judges should hesitate . . . to treat [as
surplusage] statutory terms in any setting. . . ."’) (bracl