An importer praying for levy of higher amount of customs duty makes for a very good yarn. The case Best Key Textiles Ltd v. United States may not have settled the issue for once and for all as to what is metallised yarn but it provides an interesting insight into arriving at a classification and whether it can be argued that levy of lower customs duty is a trade rather than revenue tool.
Briefly, the plaintiff had submitted samples of yarn which was initially classified under 5605.00.90, Harmonized Tariff Schedule of the United States (HTSUS), which provides for metalized yarn, whether or not gimped, being textile yarn, combined with metal in the form of thread, strip, or powder or covered with metal; Other. However Customs authorities later revoked this ruling and classified the same under Heading 5402 holding that the yarn was of polyester which attracted a lesser rate of duty. This somehow inconvenienced the plaintiff since garments using metallised yarn were subject to lesser rate of duty and made its ‘polyester’ yarn unattractive.
Apart from the issue of classification the case has also witnessed a number of challenges on account of procedural lapse, insufficient notice of revocation to the plaintiff following a shutdown in US government and so on. However, two aspects of the challenge are very interesting, the classification per se (for various combinations of arguments) and the plaint that the revocation was arbitrary and capricious.
The element of metal present in the product – how material
The process to produce the yarn was described as melting polyester chips into a slurry to which aluminium or zinc powder and titanium dioxide (a delusterant which reduced the sheen of the fabric) and then firing the slurry through a spinneret to produce the yarn. The plaintiff argued that the presence of metal in howsoever small the quantity, since no threshold was prescribed, would entail classification of the yarn as metallised. However, Customs held that ‘combined with metal’ required more than mere presence of metal along with the textile yarn. It also laid emphasis on the fact that the state in which the product is imported rather than how it was manufactured would determine classification.
When Explanatory Notes provide for specific exclusions
Referring to the explanatory notes (EN), it held that not every mix of yarn and metal would automatically qualify for classification under Heading 5602 since the EN refers to use for lace and trimmings. Thus, metallised yarn was used for decorative purposes and as commercially understood had visible metallic appearance. The court was persuaded by the argument that though the Heading 5602 was clear, in view of the specific exclusion in the EN to items like yarn reinforced with metal thread, not all forms of metal-yarn combination would fall under 5602.
Introducing metal in the process to prepare yarn is sufficient…
The plain reading of Heading 5602 did not seem to help the importer much. Seeking to bring the product with 5602, the plaintiff put forth an argument that Heading 5602 encompassed both decorative and non-decorative properties . Hence, addition of nanometals to the slurry, of which some residue remained and which imparted certain qualities like ultraviolet protection, would be sufficient to constitute metallised yarn. However, this argument too fell short since, such addition in quality was not measurable and it stretched the scope of the heading way beyond legislature’s intent.
For instance, in a previous ruling, Customs had not held a yarn to be metallised merely because there was some metal content. A fabric comprised of 45% cotton, 47% polyester and 8% steel which imparted protection from microwave radiation, it was not classified under 5602. There the reasoning was that combining textile and steel fibre would not make for metallised yarn. This perhaps spoke for consistency in the reasoning of the authorities that ‘combined with metal’ and satisfying the EN was essential for a product to qualify under 5602.
The court however, refused to go into the real reading of the heading. Being a judicial review of revocation ruling the court adhered to what is called the Skidmore deference and examined the ruling for consistency of customs’ approach and whether the ruling had the power to persuade.
Combined – state of being combined or process of combining
Another point of dispute was whether ‘combined with metal ‘referred to state of product or process of manufacture. While it was conceded that new methods of manufacture of yarn may still be evolved and newly developed products could still qualify under 5602, the nature of the product and not the new methods of producing the same was held to be important. In its finding Customs recorded that what was understood as metallised yarn was either textile coated with metal or metal sandwiched between layers of plastic, etc., which served a decorative purpose.
Consultation with commerce bodies, experts arbitrary
The plaintiff then attacked the consultations by Customs with various bodies, domestic industry, etc. It wanted to impress upon the court that such consultation with competitors and others who did not employ similar processes had influenced the ruling. However, it was obviously difficult to prove that only lobbyists and competitors had been consulted and they had influenced the decision. The Court concluded that Customs could seek assistance of experts or domestic industry to arrive at the classification.