Saving Money by Challenging CBP’s Tariff Classification Rulings

One of the best ways for an importer to save money is to reduce the duties it pays on imported merchandise to US Customs and Border Protection (CBP).  A company can save thousands or even millions of dollars by classifying its merchandise under a heading with a lowest duty rate possible under the Harmonized Tariff Schedule of the US (HTSUS).

Importers commonly request that CBP classify items using the binding ruling request process.  CBP publishes its rulings online (CBP’s Customs Rulings Online Search System or CROSS), an extraordinarily convenient and helpful service to the trade community, especially given the size of CBP’s electronic database (which consists of tens of thousands rulings).  However, often CBP’s classification rulings can read like perfunctory edicts with little or no rationale.  Sometimes rulings contradict each other, and it is not at all clear which ruling wins (although interested parties are allowed to report and challenge inconsistent rulings).  Importers are often left to guess at CBP’s logic, to seek a pattern, to argue the merits of a preferred tariff classification, and to hope for the best.
There is also an unstated but obvious clash of interests between importers and CBP.  Importers seek to classify their imported merchandise under HTSUS headings that impose the lowest duty rate possible.  CBP is generally motivated in the opposite direction and, as a result, it can produce rulings that do not always correspond to the clear intent of the HTSUS or court precedent.
 
What happens if you don’t like CBP’s classification ruling?  You can ask that CBP reconsider the ruling, but once you run out of administrative remedies, the question becomes:  should you sue, as is your right, in the Court of International Trade?

Bringing a lawsuit made a lot more sense after the US Supreme Court rendered in 2002 its decision in Mead Corporation vs. U.S.  The case is remarkable on many levels, including that the U.S. Supreme Court chose to hear an import/customs case, a true rarity.  Writing for the majority, Justice Souter said that the courts should not use the Chevron standard (which requires an appellate court to generally defer to the administrative agency) when deciding a tariff classification appeal.  Courts should instead use the watered-down standard of Skidmore vs. Swift.  

Justice Souter wrote:

Under Skidmore, a classification ruling receives a measure of deference proportional to its "power to persuade." That power to persuade depends on the thoroughness evident in the classification ruling, the validity of its reasoning, its consistency with earlier and later pronouncements, the formality attendant the particular ruling, and all those factors that give it power to persuade.  In addition, Customs' relative expertise in administering the tariff statute often lends further persuasiveness to a classification ruling, entitling the ruling to a greater measure of deference. While this court therefore recognizes its responsibility to accord a classification ruling the degree of deference commensurate with its power to persuade, this court also recognizes its independent responsibility to decide the legal issue regarding the proper meaning and scope of the HTSUS terms.  This court construes a tariff term according to its common and commercial meanings, which it presumes are the same. To discern the common meaning of a tariff term, this court consults dictionaries, scientific authorities, and other reliable information sources.

The Skidmore standard provides importers with an enhanced opportunity to challenge CBP’s tariff classifications. The federal courts give CBP’s tariff classifications only the “power of persuade” deference, reviewing the arguments and evidence nearly as if presented for the first time.  The importer, in essence, almost gets a mulligan or a do-over.  As a result, there is now a healthy compilation of written opinions on tariff classification from the federal courts applying the General Rules of Interpretation and other canons of construction.  These judicial edicts force greater transparency, logic, and predictability upon CBP’s tariff classification rulings.  Importers can hold CBP accountable for incorrect tariff classifications.

It is surprising how few importers actually challenge CBP’s tariff classifications in light of the potential savings. There is, of course, no guarantee that filing a lawsuit will produce the desired tariff classification, and the merits and prospects for success of each case vary widely, but clearly challenging CBP should clearly be a possibility that importers may want to explore.