Indirect Injury Not Enough to Challenge CBP Ruling, Says CAFC in Reversal
Companies can’t challenge CBP classification decisions on behalf of the manufacturers that use their products as inputs, even if they may suffer indirect injury in the form of lost sales, ruled the U.S. Court of Appeals for the Federal Circuit on Feb. 3 in an seesawing case on yarn made by Best Key (here). Instead, they must have suffered direct injury to themselves in order to challenge CBP classification decisions in court, said CAFC as it reversed a February decision from the Court of International Trade.
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The case stems from a 2011 CBP ruling on Best Key’s yarn that found its polyester yarn with metal nanoparticles to be metalized yarn under subheading 5605.00.90. Although the 13.2% duty on metalized yarn is higher than the 8% rate for polyester yarn, Best Key did not intend to import the yarn. Rather, garments would be made from the yarn and exported to the U.S. The ruling was a boon for Best Key, because knit pullovers made from metalized yarn are classifiable under subheading 6105.90.8030 as “men’s shirts of other textile materials,” dutiable at 5.6%, while men’s shirts made of polyester under subheading 6110.30.3053 carry a 32% duty.
But when Best Key asked for a ruling on its “johnny collar” pullovers made from the apparently metalized yarn, CBP found the amount of metal negligible and classified the shirts under the higher-tariff subheading for polyester shirts. When Best Key requested reconsideration, CBP revoked its ruling on the yarn, reclassifying it as polyester yarn (see 13042908).
Best Key filed suit at CIT to challenge the rulings, alleging CBP misconduct played a role in that the agency was influenced by its contact with protectionist textile groups. In its first crack at the case, CIT dismissed the challenge (13121317, finding Best Key could only challenge a ruling on a product that it imports. Because the company actually got a more favorable rate on the yarn it produces, it had no basis for a challenge, said CIT. But the trade court partially reversed itself after Best Key moved for reconsideration. It reluctantly decided to “presume” it could hear the case given that Best Key’s product is at issue, although it ended up siding with CBP on the classification of the yarn.
On appeal, CAFC found CIT’s first thought was the correct one. With CIT’s jurisdiction provision for challenges of rulings (28 USC 1581(h)) unavailable because the ruling on the yarn itself was actually favorable to Best Key, CIT had reviewed the case under 28 USC 1581(i), the “residual” jurisdiction for trade cases when no other avenue is available. But here, another avenue was available because importers of garments made by Best Key could file protests and challenge them under 28 USC 1581(a) jurisdiction upon denial. “Here, Best Key sought to have the CIT reverse the Revocation, favorable to Best Key, the effect of which would be to increase Best Key’s own duty rate while benefiting manufacturers of products made from Best Key’s yarn,” said Circuit Judge Evan Wallach, who authored the opinion. “The statute does not provide jurisdiction over such requests.”
(Best Key Textiles Co., Ltd. v. U.S., Fed. Cir. #2014-1327, dated 02/03/15, Judges Dyk O’Malley and Wallach)
(Attorneys: John Peterson of Neville Peterson for plaintiff-appellant Best Key; Beverly Farrell for defendant-appellee U.S. government)