On June 2, 2010, in Honda of America Mfg., Inc. v. United States, the Federal Circuit shed light on a question that occasionally stumps those in the trade community, namely: When should a part be classified under the HTSUS independently, and when should it be classified as a part of a larger item for which it is intended to be used?
The court’s answer, as is often the case, was grounded in the provisions of the Chapter and Section Notes of the HTSUS. In Honda, the classification dispute concerned oil bolts, an auto part that is used to connect fluid lines to master brake cylinders or transmission cases. The bolt is hollow, allowing fluid to flow through.
The oil bolts, per General Rule of Interpretation 1, were classifiable as “screws, bolts nuts . . . and similar articles” under 7318.15.80, HTSUS, at 8.5% duty. However, they also facially met the provisions of headings 8708 and 8714, which cover “parts and accessories” of vehicle power trains, vehicle brakes and servo brakes, and motorcycles.
The decision in the case turned on whether the parts were excluded from 8708 and 8714 by the Section Notes, which provided that “parts and accessories” under those headings could not be “parts of general use,” which include articles of heading 7318. The importer argued, unpersuasively, that the Explanatory Notes should change the result. For those unacquainted with the ENs, the court has repeatedly held that these notes, which are an interpretative aid to the tariff schedule published by the World Customs Organization, are “not legally binding or dispositive,” but “may be consulted for guidance and are generally indicative of the proper interpretation of various HTSUS provisions.” Many brokers do not have a copy of the ENs at hand when they make classifications, but it is always good to check them when classification becomes a close question. The ENs, in the court’s view in this case, stood for the proposition that, even if a part for general use were to be specialized for use with a particular item, such as “springs specialized for motor cars,” the “article’s specialization for vehicles does not preclude its classification as a part of general use.”
In conclusion, the court found that an oil bolt, despite its being designed to function as a part of a vehicle’s power train, and despite its unusual ability to allow fluid to pass through, was still a “part of general use” which, per the Section Notes, was properly classified under 7318.15.80, HTSUS, and excluded from classification in the importer’s preferred headings. Of course, the HTSUS’s Chapter and Section Notes, as well as the ENs, can lead to different results depending upon the goods at issue, and each classification is unique. There is no substitute to working with counsel to obtain a binding Customs ruling when a classification is in doubt. In fact, a ruling request is an opportunity for advocacy, wherein an importer may cite to Customs rulings and advance arguments based upon the HTSUS and ENs to seek its preferred classification and duty rate. At the very least, when faced with a difficult classification, research should be undertaken and the HTSUS and ENs consulted, with findings memorialized in writing, to evidence the fact that due care was used in making a determination, thereby lessening the chance of a Section 592 penalty down the line.