REJECTION OF U.S. CUSTOMS' RECENT APPLICATION OF ACTUAL USE PROVISIONS
By:
Preston Brown
Washington D.C.
Kevin Keenan
Houston
A product's classification under the Harmonized Tariff Schedule of the United States ("HTS") determines the rate at which it is taxed upon entry. Imported products under the HTS are classified either by actual use, chief use, or an eo nomine designation. Actual use provisions are designed to enable an importer to take advantage of lower tariff rates in exchange for a prospective obligation to certify as to the product's actual use after entry. Thus, actual use provisions are a means by which an importer can decrease its tariff exposure so long as it can later demonstrate entitlement to the favorable tariff treatment. To be taxed under an actual use provision, an importer must elect to be so taxed at the time of importation. Chief use provisions classify products by the principal use to which such products are put. Unlike actual use provisions, however, chief use provisions are not designed to provide tariff relief and are not dependent upon an importer's election to be subject thereto. Eo nomine provisions describe a commodity by a specific name, usually one well known to commerce. Chief use and eo nomine provisions generally carry higher tariffs than actual use provisions, thus providing the incentive to elect and later certify. There are exceptions to the general rule, however.
As a result of one such exception, the United States Customs Service ("U.S. Customs") recently began requesting Certificates of Actual Use ("Certificates") for certain petrochemical products imported under eo nomine provisions. The exception occurs where naphthas imported under an actual use provision as "motor fuel or motor fuel blending stock" are subject to a tariff five times higher than naphthas imported under the applicable eo nomine provision: "naphthas (except motor fuel or motor fuel blending stock)." Because actual use provisions are designed to decrease tariffs, this anomaly raised questions as to whether an importer must prove non-use as a motor fuel or motor fuel blending stock in order to take advantage of the lower tariff applicable to eo nomine naphthas, or whether eo nomine tariff treatment is automatic in the absence of an actual use election. Not surprisingly, U.S. Customs argued that the actual use provision for "motor fuel or motor fuel blending stock" is the applicable HTS provision even if an importer declines to elect and later certify. To escape its purview and the application of the higher tariff, claimed U.S. Customs, an importer must establish non-use as a "motor fuel or motor fuel blending stock." The Court of International Trade, however, recently rejected this argument. In Clarendon Marketing, Inc. v. United States, 955 F. Supp. 1501 (Ct. Int'l Trade 1997), the court held that the "raison d'être" of actual use provisions is to grant more favorable rates of duty for preferred uses of merchandise. If an importer exercises its prerogative not to elect and later certify, it is entitled to entry under the applicable eo nomine HTS classification, which provides, in the case of naphthas, for significantly lower tariff rates. On appeal, the decision of the Court of International Trade was affirmed by the Court of Appeals for the Federal Circuit. Clarendon Marketing, Inc. v. United States, 1998 WL 257225 (Fed. Cir.).
Though the general rule requires that an eo nomine provision yield, when in direct competition, to a provision in which a product's "use" is determinative of its tariff rate (e.g. chief use provisions), Clarendon firmly established that this rule does not apply when the "use" provision in question is an "actual use" provision. Because actual use provisions function essentially to reduce tariffs, their application to the detriment of importers would be counter to their purpose. The Clarendon decision clearly supports this position, holding that an importer has an incentive to satisfy an actual use provision only when that classification affords a lower rate of duty and that the Government is not entitled to classify an entry under an actual use provision absent the requisite election any more than an importer is entitled to actual use classification without providing the required Certificates. Thus, electing to be taxed under an actual use provision is entirely voluntary and any response to a request for Certificates should include a statement disclaiming an election to come under the purview of an actual use provision if such an election would result in a higher tariff for the importer.
