United States Court of International Trade

Pet Carriers are Not Classified under Heading 4202

In Quaker Pet Group LLC v. United States, Slip Op. 18-9, Court No. 13-0093 (February 12, 2108), plaintiffs challenged Customs denial of an administrative protest, and classification of imported pet carrier bags.  Customs found that the pet carriers were classifiable under “HTSUS heading 4202, which covers travel, sports, and similar bags, and carries a 17.6 percent duty rate.” Id. at 2. Plaintiffs argued “that pets are not personal effects and therefore the pet carriers — cloth and mesh carrying bags used for transporting pets — are classifiable under … heading 6307, carrying a duty rate of seven percent” Id. For the following reasons the Court agreed with plaintiffs that the pet carriers were not classifiable under heading 4202. The Court also found that there was not enough evidence to decide if heading 6307 was the proper classification.

The first issue was whether the Government was correct in classifying the pet carriers under heading 4202. “Tariff classification is determined according to the General Rules of Interpretation.” Id. at 8. Under GRI 1, “classification shall be determined according to the terms of the headings and any relative section or chapter notes.” Id. at 8. The Court of Appeals for the Federal Circuit, has developed a test for determining if an article is included in language of Heading 4202, that the “the common characteristic or unifying purpose of the goods in heading 4202 consist[s] of organizing, storing, protecting, and carrying various items.” Id. at 13. The Court determined that because pets are living things they do not fit into the definition of items as is used in the HTSUS; therefore heading 4202 was not applicable. The next issue was if the plaintiffs proposed classification under 6307 was correct.  The Court said “the undisputed facts contained in the pleadings do not provide sufficient information … for the court to determine whether the pet carriers are properly classifiable under HTSUS heading 6307 or another heading.” Id. at 16.  The Court has a duty to determine the correct classification for the goods, and will do so in the future.

Court Sustained Commerce’s Determination in CORE Products case

In Nucor Corporation and Accelormittal USA LLC et al., v. United States, Slip Op. 18-7, Court No. 16-164 (Published February 14, 2018), Nucor and Plaintiff-Intervenors challenged as contrary to law, arbitrary and capricious, and unsupported by substantial evidence Commerce’s determinations: (1) that the Government of Korea’s (“GOK”) price-setting method or standard pricing mechanism for electricity did not confer a benefit; and (2) not to apply an adverse inference that state intervention by the GOK results in electricity prices that are inconsistent with market principles.  This motion for judgment on the agency record challenged U.S. Department of Commerce’s (“Commerce”) final determination in the countervailing duty investigation of certain corrosion-resistant steel (“CORE”) products from the Republic of Korea.

For a subsidy to be countervailable, Commerce must determine that an authority provides a subsidy that is specific and constitutes a financial contribution, by which a benefit is conferred. See 19 U.S.C. § 1677(5), (5A). A benefit is conferred “where goods or services are provided, if such goods or services are provided for less than adequate remuneration.” 19 U.S.C. § 1677(5)(E)(iv).

Commerce’s regulations provide that the agency shall measure the adequacy of remuneration by comparing the government price to a multi-tiered series of benchmark prices. See 19 C.F.R. § 351.511(a)(2)(i)–(iii). Generally, Commerce “will normally seek to measure the adequacy of remuneration by comparing the government price to a market-determined price for the good or service resulting from actual transactions in the country in question,” (i.e., a tier one benchmark). 19 C.F.R. § 351.511(a)(2)(i).

Commerce recognized “what constitutes adequate remuneration depends on the nature of the marketplace, and where the marketplace is a government-controlled monopoly, there is a role for a preferentiality based test.” Slip Op., pg. 15. Commerce only uses the tier three benchmark analysis when market prices outside of the government controlled market are not available. Further, plaintiffs argued that Commerce’s methodology did not evaluate a benefit because it compared the Korea Electric and Power Corporation’s (“KEPCO”) electricity rates to themselves rather than to benchmark, market determined rates. However, Commerce found that the relevant price for KEPCO’s industrial tariff schedule is the price KEPCO pays for the electricity through the Korea Power Exchange (“KPX”).  Given the statutory and regulatory language, the Court found Commerce’s methodology to be reasonable and upheld the determination that no benefit was conferred.

As for prices paid, Commerce focused on prices KEPCO paid on the KPX and determined that KEPCO fully covered its cost for the industry tariff applicable to respondents. Thus, Commerce’s determination that KEPCO’s electricity prices are consistent with market principles was supported by substantial evidence.  Moreover, Commerce identified flaws in the alternative calculations proposed by plaintiffs and the Court declined to reweigh the evidence based on the alternative calculations.

Finally, AFA is not warranted where GOK submitted timely and complete responses to Commerce’s questionnaires.

For all these reasons, Commerce’s determinations were sustained.