CIT Dismisses Best Key Lawsuit on Yarn Classification, Says Only Direct Importer Can Challenge Rulings
Best Key’s challenge to CBP’s reclassification of its metallic yarn ended on a technicality, as the Court of International Trade on Dec. 13 dismissed the case because if found the Chinese yarn company has no basis to challenge CBP’s ruling. Best Key claimed the ruling would harm its business interests because reclassification as polyester instead of metallic yarn would allow CBP to collect higher duties on garments made from the yarn. But Best Key is a yarn manufacturer, and CIT found that legally Best Key is only able to challenge a ruling based on a product it would import -- the yarn itself, and not the garments made from it. The court found Best Key had no basis to challenge the reclassification, because it actually resulted in a lower duty rate for the yarn.
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The case had its genesis in a 2011 CBP ruling that found Best Key’s monofilament yarn with metal nanoparticles to be metallic yarn under tariff heading 5605, dutiable at 13.2%. Then Best Key asked for a ruling on a “johnny collar” shirt made from the yarn to cement the duty benefits from the metallized yarn. In 2012, CBP classified the garment as made from polyester yarn -- not metallic -- and said it was dutiable at 32%. According to Best Key, the apparent contradiction was the result of misconduct by CBP officials that misreported the results of a lab test that proved the yarn was metallized (see 13061418). “Without ascribing motivations, it is clear that, at a minimum, this behavior by Customs personnel is extremely disturbing and calls into question the integrity of the rulings process and of the conduct of the customs laboratory,” said Best Key in comments later submitted to CBP.
Then, in April 2013, CBP proposed to revoke its ruling on the monofilament yarn and reclassify it as polyester yarn under heading 5402 (see 13042908). The duty rate on Beat Key's yarn would drop to 8%. But the reclassification would also allow CBP to continue to classify shirts made from the yarn as being made from polyester, correcting CBP’s earlier contradiction. That would result in a 32% duty on shirts made from the yarn, instead of the 6% duty on shirts if the yarn were classified as metallic. CBP finalized its reclassification in October, and Best Key filed suit. After a kerfuffle over the ruling’s effective date caused in part by the federal government shutdown (see 13110522), the court turned to the merits.
But before it could get there, CIT found Best Key’s challenge didn’t meet the requirements for lawsuits against CBP rulings. The law defining CIT’s jurisdiction says at 28 USC 1581(h) that ruling must “irreparably harm” the potential importer. Best Key had argued that it was injured by the ruling because garment manufacturers wouldn’t purchase the yarn without the duty savings conferred by its metal content. That wasn’t good enough for the court. “The proper consideration here is the ‘harm’ that flows from the Revocation Ruling to a direct importation of the yarn versus importation under the Yarn Ruling,” said CIT.
Any importer is free to import a shirt made from Best Key’s yarn and then challenge the classification, CIT said. But under Section 1581(h), irreparable harm can only be claimed to challenge specific, identifiable importations of merchandise directly impacted by a ruling. In this case, the court agreed with the government that Best Key sought to litigate on behalf of garment importers, which CIT said is not provided for under the statute. As a yarn manufacturer challenging a CBP ruling on classification of its yarn, Best Key can only claim harm to potential yarn imports, CIT said. Because CBP’s ruling lowered the duty rate on Best Key’s yarn, the court found it did not harm Best Key for the purposes of a ruling lawsuit, and dismissed the lawsuit as having “no case or controversy.”
(Best Key Textiles Co. v. U.S., Slip Op. 13-148, dated 12/13/13, Judge Musgrave)
(Attorneys: John Peterson of Neville Peterson for plaintiff Best Key Textiles Co., Ltd.; Marcella Powell for defendant U.S. government)