A Comparison of the Application of the Carborundum Factors in the Original Decision to Applications in Recent Decisions of the Court of International Trade and Court of Appeals for the Federal Circuit By Ieva Karklins O Rourke 1 When considering a principal use provision in tariff classification matters under the Harmonized Tariff Schedule of the United States (HTSUS), one must apply a Carborundum analysis. A review of the decision in which the Carborundum factors were first set forth, and a review of more recent decisions applying these factors, shows that the Carborundum analysis is not always easily replicated, and is not always gracefully or meticulously applied. The purpose of this paper is to compare how the Carborundum factors were applied in the original Court decision, and how they are applied more recently, and to identify whether all of the factors must be applied or met, and if not, how many, and finally to encourage consideration of the factors as originally applied. I. The Original Carborundum Decision In United States v. Carborundum Company, 63 CCPA 98, C.A.D. 1172, 536 F. 2d 373 (1976), cert. denied, 429 U.S. 979 (Carborundum), the Court set forth the analysis to be used when determining whether the imported merchandise is used in a manner 1 Ms. O Rourke is Chief of the Tariff Classification and Marking Branch in Regulations and Rulings, Office of International Trade, United States Customs and Border Protection. The views of this paper are her own and do not represent the views of the Government. 1
consistent with the claimed heading. In this case the heading text at issue was defined in a headnote. The merchandise at issue was an iron-silicon alloy powder, said to be imported as a special ferrosilicon for use in the heavy-media separation process. The headings at issue were Ferrosilicon and Alloy iron or steel powders, other than stainless steel powders. The Court found that the Ferrosilicon heading was limited by the headnote language that it is commonly used as raw material in the manufacture of ferrous metals. 536 F. 2d at 376. Applying then General Interpretive Rule 10(e)(i) which defined how use requirements (other than actual use) are to be construed 2, the Court set out to determine whether the imported iron-silicon alloy is of the same class or kind as that commonly used as raw material in the manufacture of ferrous metals. Id. at 376-377. The now familiar seven factors which the Court set out for consideration, based on precedent, were as follows: the general physical characteristics of the merchandise, the expectation of the ultimate purchasers, the channels, class or kind of trade in which the merchandise moves, the environment of the sale (i.e., accompanying accessories and the manner in which the merchandise is advertised and displayed, the use, if any, in the same manner as merchandise which defines the class, the economic practicality of so using the import the recognition in the trade of this use. 3 Id. at 377 (internal citations omitted). 2 (e) in the absence of special language or context which otherwise requires -- (i) a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of articles of that class or kind to which the imported articles belong, and the controlling use is the chief use, i.e., the use which exceeds all other uses (if any) combined;. 3 While these factors were developed under the Tariff Schedule of the United States (predecessor to the HTSUS), and the former General Interpretive Rule 10(e)(i), the courts have also applied them under the HTSUS and the current Additional U.S. Rule of Interpretation 1(a). See, e.g., Lenox Collections v. United States, 20 CIT 194 (1996); Essex Manufacturing, Inc. v. United States, 30 C.I.T.1 (2006). 2
In Carborundum, in considering the factors, the Court looked to how the imported merchandise stacked up as a material used as raw material in the manufacture of ferrous metals, and found it did not. It was apparent that the merchandise at issue was being compared to other material used as a raw material in the manufacture of ferrous metals. This appears to be a relatively simple analysis, and the Court only looked at one class of merchandise and found it did not fit. This seemed to be a nicely administrable process. II. More Recent Applications Of Carborundum A. The Goods Being Compared Another case in which Carborundum worked nicely is Essex Manufacturing, Inc. v. United.States., 30 C.I.T. 1 (2006) (Essex), applied to the HTSUS. In that case, the merchandise consisted of imitation leather jackets, and the competing provisions were subheadings 3926.20.60, HTSUS, which provided for Other articles of plastic and articles of other materials of headings 3901 to 3914: Articles of apparel and clothing accessories (including gloves): Other: Plastic rainwear, including jackets, coats, ponchos, parkas and slickers, featuring an outer shell of polyvinyl chloride plastic with or without attached hoods, valued not over $10 per unit and 3926.20.90, HTSUS, which provided for Other articles of plastic and articles of other materials of headings 3901 to 3914: Articles of apparel and clothing accessories (including gloves): Other: Other. 30 C.I.T. at 1-2. It was agreed that subheading 3926.20.60, HTSUS, is a use provision and the Court found that the term rainwear is properly read as plastic apparel used as 3
rainwear. Id. at 4. Under the Additional U.S. Rules of Interpretation (AUSRI) 1(a) 4 the Court had to decide if the jackets belong to the class or kind of goods principally used as rainwear. Id at 4-5. Here the Court analyzed how the jackets performed in rain and how they were sold, and were perceived. It was apparent that the jackets were being compared to jackets that one would purchase to wear in the rain. Jumping to more recent decisions, the application of the Carborundum factors is more difficult when two principal use provisions are under consideration. In two recent decisions the competing HTSUS provisions were headings 7010 and 7013, HTSUS. Heading 7010, HTSUS, provides for "Carboys, bottles, flasks, jars, pots, vials, ampoules and other containers, of glass, of a kind used for the conveyance or packing of goods; preserving jars of glass; stopper, lids and other closures, of glass. Heading 7013, HTSUS, provides for "Glassware of a kind used for table, kitchen, toilet, office, indoor decoration or similar purposes (other than that of heading 7010 or 7018). In addition, in 2012, in Aromont USA Inc. v. United States., 671 F.3d 1310 (Fed. Cir. 2012) (Aromont), the Court of Appeals for the Federal Circuit approved the consideration of actual use of the imported merchandise in application of the Carborundum factors. 5 The Court clarified that of the Carborundum factors, the factor the use, if any, in the same manner as merchandise which defines the class allows consideration of the actual use. 671 F.3d at 1313. 4 1. In the absence of special language or context which otherwise requires- (a) a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use. 5 In Aromont, the imported merchandise was a finished flavoring product, and the principal use heading at issue was 2104, HTSUS, which provides for Soups and broths and preparations therefor. 4
In Dependable Packaging Solutions, Inc. v. United States, No. 10-00330, LEXIS 28 at *1(Ct. Int l Trade 2013), aff d, 757 F.3d 1374 (Fed. Cir. 2014) (Dependable) the Court had to decide whether the principal use of the glass articles imported for filling with flowers for sale was that of containers for the conveyance of goods (7010, HTSUS) or decorative household articles of glass (7013, HTSUS). Both headings were agreed to be principal use provisions, LEXIS at *11, and the Court of International Trade applied the Carborundum factors. While the Court acknowledged that a principal use determination calls for a determination as to the group of goods that are commercially fungible with the imported goods, Id. at *12, the exact group of goods or class or kind of merchandise was not explicitly defined at the beginning of the analysis. The introductory sentence of the principal use analysis concludes that the group or class or kind is other clear glass vases that are primarily used for decorative purposes. Id. at *18. However, where any comparison was made to a class or kind of good, the analysis focused on comparing the articles at issue to other vases and not to any articles for the conveyance of goods. The articles were compared to other vases in the analysis of five factors- physical characteristics, expectations of ultimate purchase, channels of trade, use in the same manner which defines the class, and economic practicality. The articles were not compared to articles for the conveyance of goods under any of the analyses. This is particularly interesting in light of the fact that heading 7013, HTSUS, excludes glassware of heading 7010, HTSUS. Thus there was no initial determination that the goods were not precluded from classification in heading 7013, HTSUS. 6 6 The Court did state in a footnote that a good can only have one principal use, and that the parenthetical exclusionary language in heading 7013, HTSUS, plays no role where competing principal use provisions are at issue. Id. at *15. 5
In Latitudes International Fragrance, Inc. v. United States, 931 F. Supp. 2d 1247 (Ct. Int l Trade 2013) (Latitudes), decided a few months after Dependable, the Court had to decide in which one of two principal use provisions a reed diffuser bottle is classified. The competing headings were again 7010 and 7013, HTSUS. 931 F. Supp at 1249-1250. Both headings were agreed to be principal use provisions, and the Court said that the case depends on whether the Carborundum factors indicate that the bottles are of the class or kind of good principally used to commercially convey oils, or of the class or kind whose principal use is as indoor decoration. Id. at 1252-53. Thereby the Court clearly set out what are the class or kinds of goods with which the imported goods are being compared. However the analysis seems to be whether this particular bottle is more a bottle for conveyance or packing or more a decorative glassware. Yes, that is ultimately the question, as it cannot be principally used as both, however there is not a clear analysis of how the bottle compares to the class or kind of bottles used for conveyance or packing of goods. 7 The physical characteristics analysis does not discuss decorative glassware other than the arguments made by the Defendant. Id. at 1254. The expectations of the ultimate purchaser analysis, does not discuss decorative glassware other than some statements made by the witnesses, which are found not to be probative. The analysis instead focuses on the value of the bottle compared to that of the oil, which is a misplaced essential character analysis, for bottles that are imported 7 Granted, that based on the exclusion of goods of heading 7010, HTSUS from 7013, HTSUS, upon finding that the goods are principally used for the conveyance of goods, under General Rule of Interpretation 1, no determination needs to be made whether the article is principally used as a decorative glass article. However, if a Carborundum analysis establishes that it is not an article for conveyance or packing, the analysis would need to be made under heading 7013, HTSUS. 6
empty. Id. at 1254-1255. Likewise, in the analyses of channels of trade, economic practicality, and recognition in the trade, there was much discussion on how the bottle is sold and used with oil, but no analyses comparing it with either decorative glassware or bottles for conveyance. Id. at 1255 1257. Under Aromont discussion of how the bottle is used is appropriate under the use in the same manner as merchandise which defines the class factor. In both Dependable and Latitudes, in channels of trade for example, there could have been consideration of how the empty containers are marketed and sold. This does not seem to be limited to an ultimate purchaser analysis. For economic practicality, under Carborundum there could have been a comparison of the price of the articles to decorative glassware and containers for conveyance. 8 The focus could be on the article as imported and not the manner in which it is finally sold, if there is a difference. Carborundum is clearly not always easy to apply, but if the necessary evidence is lacking, it shouldn t be substituted by only actual use evidence. Although Aromont supports consideration of actual use, it is not the only factor, rather perhaps one of the more important of the Carborundum factors, 671 F.3d at 1313, and must be considered in the context of merchandise which defines the class. In Carborundum itself, as discussed below, only three of the seven factors were considered. The fact that two different principal use provisions are under consideration, should not be a basis for foregoing the class or kind analysis. The Carborundum factors were also applied in Roche Vitamins, Inc. v. United States, 922 F. Supp. 2d 1353 (Ct. Int l Trade 2013), affd. 772 F.3d 728 (Fed.Cir 2014) (Roche). 8 It is interesting to note that the price of the bud vase in Dependable Packaging was no more than $0.30, (LEXIS at *3,) and the price of the bottle in Latitudes was $.30 -.50 (931 F. Supp 2d at 1256). 7
In that case the government took the position that the imported Beta Tab was classified in heading 2106, HTSUS, which provides for Food preparations not elsewhere specified or included. The Plaintiff claimed the imported goods were classified in heading 3204, HTSUS, as Synthetic organic coloring matter, whether or not chemically defined; preparations as specified in note 3 to this chapter based on synthetic organic coloring matter; synthetic organic products of a kind used as fluorescent brightening agents or as luminophores, whether or not chemically defined, or in the alternative under heading 2936, HTSUS, as Provitamins and vitamins, natural or reproduced by synthesis (including natural concentrates), derivatives thereof used primarily as vitamins, and intermixtures of the foregoing, whether or not in any solvent. As heading 2106, HTSUS, contains the not elsewhere specified or included language, before considering classification in heading 2106, HTSUS, the Court of International Trade had to first determine whether the goods could be classified in either heading 2936 or 3204, HTSUS. In its analysis, the Court treated both 2936, HTSUS and 3204, HTSUS as principal use provisions. 922 F.Supp. 2d at 1358 1360. However, in the actual analysis only in the examination of the general physical characteristics was there any comparison of the imported good to either goods used as colorants or goods used as a vitamin source. Id. at 1360-1361. In the economic practicality examination there was some comparison to Roche s other nutritional products but no comparison to goods used as colorants. Id. at 1361. In the expectation of ultimate purchasers, there was no comparison of the imported goods and other colorants or vitamin sources. Id. In the channels of trade and recognition of use analysis, there was no comparison to the class or kind of goods used as colorants or those used as vitamin sources, rather just an 8
examination of the product at issue. Id. Similarly in the environment of sale analysis only the merchandise at issue was considered. Id. at 1361-1362. A true Carborundum analysis requires that both provisions be analyzed with a thorough examination of the class or kind of goods used as colorants or as vitamin sources. In Aromont, in which consideration of the actual use was acknowledged, there was only a comparison of the imported merchandise to the class or kind of goods that are preparations for soups and broths in the physical characteristics, economic practicality, and channels of trade factor analyses, whereas actual use should be only but one of the seven factors. 671 F.3d 1314 1316. B. How Many Factors Are Applied And Need To Be Met The Carborundum factors are as follows: 1) the general physical characteristics of the merchandise; 2) the expectation of the ultimate purchasers; 3) the channels, class or kind of trade in which the merchandise moves; 4) the environment of the sale (i.e., accompanying accessories and the manner in which the merchandise is advertised and displayed; 5) the use, if any, in the same manner as merchandise which defines the class; 6) the economic practicality of so using the import; 7) the recognition in the trade of this use. In Carborundum, the Court found that many of the pertinent factors are present, and that all show the import is not of a class or kind commonly used as a raw material in 9
the manufacture of ferrous metals. 536 F.2d at 377. In Carborundum, the three factors considered were expectation of ultimate purchasers, economic practicality, and physical characteristics. Id. at 377-378. Therefore evidence of all seven was not needed, but of the three factors considered, all indicated that the merchandise was not of the class or kind of good at issue. In sum, three factors were enough to determine classification, where none of the three supported principal use. In Essex, the Court laid out the seven factors above. 30 C.I.T. at 6-10. The Court found the jackets did not meet the factors as rainwear for general physical characteristics, expectation of the ultimate purchasers, channels of trade, environment of sale, and recognition in the trade. Id. With respect to the use, if any, in the same manner as merchandise which defines the class, and the economic practicality of so using the import, the Court found that these factors supported principal use as rainwear. Id. at 9-10. With respect to the channels of trade and environment of sale factors, the Court found that those factors did not support the principal use of the jackets as rainwear, but did not find that the factors were not met, as it did with the other factors. Id. So it could be said these factors were neutral. The Court concluded, that on the basis of the application of the Carborundum factors it is apparent they do not indicate that the jackets use which exceeds any other single use is to keep the wearer dry. Id. at 10, emphasis supplied. Therefore a conclusion was reached with the application of all seven factors, in which five were not met and two were. In Dependable, the Court analyzed all seven Carborundum factors, and found that five weighed in favor of classification as vases in heading 7013, HTSUS, and that two, 10
expectations of ultimate purchasers and recognition in the trade were not probative. LEXIS at *18-28. In Latitudes the Court laid out the seven factors, and addressed each one. 931 F. Supp at 1253 1257. The Court found that only the recognition in the trade factor did not provide any support for the principal use of the bottle, and under the remaining six factors found the evidence supported the classification of the bottles as bottles for the conveyance of goods. However as discussed above, in both Dependable and Latitudes, the evidence considered and the resulting analysis did not really follow the path outlined in Carborundum, and followed in Essex. Carborundum allows the flexibility to not consider all factors if the evidence is not presented, and does not require resort to an analysis of evidence which only consists of actual use and the actual imported product, without consideration of the class or kind of goods. The analyses applied in Dependable and Latitudes could be the result of the facts and analyses presented to the Courts by the parties. Although without the benefit of seeing all of the evidence and argument presented that is not clear. However for proper application of the Carborundum factors, where two principal use provisions are at issue the article at issue should be compared to the class or kind of goods under each HTSUS provision under consideration. In Roche Vitamins, Inc. v. U.S., a third example where two principal use provisions were at issue, six of the seven factors were considered, use in the same manner as merchandise which defines the class, not clearly considered. The commercial 11
practicality, and expectations of ultimate purchasers were determined not to be probative. This left general physical characteristics, channels of trade, environment of sale and recognition of the use in the trade weighing in favor of use as a vitamin source. Thus a total of four factors was sufficient to determine that the goods were principally used as a vitamin source. In Aromont, discussed briefly above, the six factors were specifically discussed, and the seventh factor, the use, if any, in the same manner as merchandise which defines the class, seemed to flow over into the discussion of the other six factors. The factors that the Court was able to rely upon to determine that the imported good was not a preparation for soups and broths, were physical characteristics, economic practicality, expectations of ultimate purchasers, and the use, if any, in the same manner which defines the class. The channels of trade and environment of sale factors were found to not be probative, and recognition in the trade was found to support use as a preparation for soups and broths. Therefore, a determination was made on the basis of four factors, with the fifth factor going against the other four. This is further support for the proposition that not all of the Carborundum factors are required and that not all must be met. III. Conclusion This brief survey of the application of the Carborundum factors provides us with two issues for consideration. When applying the Carborundum factors, the class or kind of good or goods to which the import is being compared should be well defined, and consideration of the class or kind of good or goods to which the import is being compared should be included even when there are two principal use provisions at issue. The survey also shows that even if there is not probative evidence on all of the factors, 12
and even if one or more factors are not in support of the ultimate classification, such classification can still be supported. 13