23 Sept 2016
Court Ruling on Tariff Classification of Smartphone Cases Could Offer Significant Duty Savings
A 24 August appellate court ruling offers substantial duty savings and potential duty refunds for U.S. importers of protective cases for smartphones as well as the possibility of lower duties for protective cases of other types of devices. While the decision does not yet represent a final disposition to the case, U.S. companies importing such articles may file protests of any adverse classifications to preserve their rights to potential duty refunds as a result of this decision.
In its decision in Otter Products LLC v. U.S., the U.S. Court of Appeals for the Federal Circuit upheld a decision by the U.S. Court of International Trade that two models of cases used to protect smartphones are properly classified as other articles of plastics and other materials under HTSUS 3926.90.9980 (5.3 percent duty). U.S. Customs and Border Protection had classified the cases under HTSUS 4202.99.9000 (20 percent duty) as “similar containers” to those listed specifically listed in heading 4202 (e.g., trunks, carrying cases, tote bags).
Heading 4202 describes goods according to their specific name and the cases at issue are not named in that heading. The CAFC said the cases must therefore qualify as “similar containers” to be classified in heading 4202; i.e., they must be containers that possess the same essential characteristics or purposes that unite the listed exemplars, which the CAFC has previously held consist of organising, storing, protecting and carrying.
The CAFC has now established that while all four of these characteristics do not have to be met for an item to qualify as a “similar container” under heading 4202 they should be considered collectively. An item meeting only one characteristic would “almost certainly” not qualify, the court said; to rule otherwise “would, in almost all conceivable scenarios, render the scope of ‘similar containers’ so broad that it would lead to absurd results and make consistent application of the standard all but impossible.”
According to the CAFC, the CIT properly held that the cases at issue are not containers (which are not, as the government argued, merely “things in which material is held or carried”) and have only one of the four characteristics, that of protection. The CAFC found that the cases do not serve any organisational purpose because organisation requires at least the possibility of storing multiple items, thereby rejecting the government’s argument that simply containing items is a rudimentary form of organisation. The cases also do not store the phones, the CAFC said, because storing implies setting something aside for future use, whereas the cases allow the phones to remain fully functional in the present. Finally, although one model incorporated a belt clip, the CAFC affirmed that the cases add nothing to the carrying capability that the phones themselves already have; if anything, the court noted, the phones carry the cases.
The government now has 45 days to request a rehearing by a larger panel of the CAFC. In the meantime, protests may be filed for refunds on eligible entries of cases entered under the provisions of heading 4202.