U.S. Customs has proposed to revoke two chemical product classification ruling letters that convey important chemical classification concepts. They particularly highlight the need to assess all possible tariff heading notes and explanatory notes and to monitor regular changes to the HTS, particularly if they increase the duty rate.
On the former issue, notes regarding the scope of the HTS can be very technical, and for that reason working with a scientist is often helpful or necessary! (Thanks to my scientist colleague at the firm Matt Harney for his input here.)
Customs will accept comments on these two ruling letter proposals through March 29, 2013.
Wetted Spherical Aluminum Powder
Customs plans to revoke Ruling N117455, which covers wetted spherical aluminum powder classified under 3824.90.92 (other foundry mold binders or chemicals), and any other rulings on this product. The product, according to that ruling, is a mixture of an aluminum metallic powder (over 80% of the total composition), other metals and a nonaromatic organic solvent that can be used as a metallic pigment, in rocket fuel and in electronics. The particular product was also passed through a 1mm sieve and was intended to be processed further into a paste for the manufacture of photovoltaric solar panels.
An interesting aspect of the proposed ruling (2/27/13 CBP Bulletin Page 29) is that numerous HTS headings were in the running, including headings 3212 on pigments, 3824 on binders for foundry molds, 7603 on aluminum powders and 8541 on parts of photovoltaic cells. In situations where there are several possible HTS classifications, it is particularly important to work your way through the terms of each classification very carefully and to consider the guidance provided in all chapter notes. There were too many to print here, but, by reviewing them methodically, Customs ruled out certain seemingly relevant headings by concluding that the product in its imported form did not have certain required characteristics – like it did not become a paste until it underwent domestic processing and that it was not dispersed in a nonaqueous media.
More complicated was the effort needed to sort through numerous HTS chapter headings to determine which were relevant. Customs ultimately concluded that Note 7 to Section XV of the HTS, and the corresponding World Customs Organization Explanatory Note, applied. Note 7 provides that:
“[P]roducts containing base metals and non-metals are to be treated as articles of the base metal which predominates by weight.”
The predominant content here being aluminum, Customs concludes that the product should be considered an aluminum powder, which would be covered by 7603. In addition, a Customs lab report indicated the powder has a spherical structure. It would, therefore, be covered by 7603.10.00, which describes aluminum powder with a non-lamellar structure.
The applicable duty rate would be 5%, the same as it was under the preexisting classification so there would generally not be a change in duties owed when the product itself is imported. Other adverse implications might exist, however, such as the possibility that the new classification could make an imported product that includes this input ineligible for certain free trade agreement duty preferences.
Bitrex, 25% in Propylene Glycol
Customs is proposing to revoke Ruling HQ 968018, which classified a solution of 25% bitrex and 75% propylene glycol under 3824.90.9190 (Other binders for foundry molds and chemicals). Bitrex is identified as the brand name for denatonium benzoate (“the bitterest compound known”!). It is further described as “an aromatic, cyclic amide indicated for use as a denaturant and bittering agent.”
The ruling to be revoked had originally explored the requirement of HTS Chapter 29 stating that chapter is restricted to “separate chemically defined organic compounds” unless an exception applies. The potentially applicable exception was that
Chapter 29 can cover separate chemical compounds dissolved in a solution “solely for reasons of safety or for transport and that the solvent does not render the product particularly suitable for specific use rather than for general use.”
It had been argued that propylene glycol was added as an anti-dusting agent for safety reasons, but Customs didn’t buy that reasoning, in large part, because the company’s own website said that propylene glycol was added to increase its compatibility with certain products like pharmaceuticals and cosmetics. The addition of the solvent, therefore would render the product suitable for specific uses rather than a general use and, thereby, exclude it from Chapter 29.
The purpose of the current proposal to revoke that ruling (2/27/13 CBP Bulletin Page 57) purportedly was to correct the eight-digit classification. The proposed ruling, however, omits the fact that the classification from the original ruling no longer exists and, thus, there was a need to assign a classification that does exist. Given that the solution contains more than five percent of an aromatic substance, Customs says it should be classified under 3824.90.28. This increased the duty rate from 5% to 6.5%.
There are two important lessons here. First, the exceptions to the requirement that Chapter 29 cover only separate compounds are quite narrow. Second, importers need to monitor the periodic changes to the HTS to ensure that codes they might have used historically do not go undetected!