• The Court of International Trade Rejects Customs' Prior Rulings on Retail Sets in Reusable Containers
  • April 11, 2012 | Author: Karolien M. Vandenberghe
  • Law Firm: Thorp Reed & Armstrong, LLP - Philadelphia Office
  • Cosmetic Sets Return to the Essentials. The Court of International Trade Rejects Customs’ Prior Rulings on Retail Sets in Reusable Containers. Estée Lauder, Inc. v. United States, No. 07-00217 (Ct. Int’l Trade, Jan. 3, 2012).

    A recent opinion of The United States Court of International Trade clarified the rules related to the classification of articles imported as a “set” and took issue with an eight-year interpretation of the “set” rule by Customs, holding that the Agency’s interpretation was not in accordance with the plain letter of the law. The issue was raised when Estée Lauder challenged the classification of an article marketed for retail sale as a “Blockbuster” cosmetic set. The set contained several cosmetics (lipstick, gloss, nail polish, and blush) together with application tools (pencils, brushes, and applicator), imported in a zippered case which was capable of reuse. In classifying a set, the law directs that Customs apply the rate of duty to the entire set that is applicable to the article (or sub-set group of articles) within the set that imparts the set’s “essential character.”

    At the administrative level, Customs took the position that the “sets” rule did not apply to the “Blockbuster” cosmetic set and that each of the articles was to be separately classified. In litigation, Customs added the alternative argument that if the article was to be classified as a “set,” the “essential character” of the set was the carrying case, which, by no coincidence, carried the highest rate of duty (20% ad valorem). Estée Lauder took the fairly straightforward position that the “sets” rule did apply and that the essential character of the article was imparted by the cosmetics which were allowed duty-free entry.

    According to the Explanatory Notes (EN) to the HTSUS, which act as an interpretive aid, goods put up in sets for retail sale consist of articles put up together to meet a “particular need or carry out a specific activity.”

    The Government argued that the Estée Lauder position was incorrect for two reasons. First, it argued that the cosmetic products and the container were not “mutually complementary” and “were not adapted to be used together” as, in its view, was required to be shown. The cosmetic case had no loops or compartments to hold the items, or a built-in mirror for the purpose of applying make-up. Second, the government argued that a container of a set had to be specifically designed to hold the items of the set and that, in this case, the case was too large for the items of the set. The government pointed to Customs’ prior rulings with regard to retail sets in containers, and further argued that, by reason of its interpretation of the HTSUS and the EN in prior cases, its continued application here accorded the decision what is known as “Skidmore treatment.” Skidmore v. Swift & Co. 323 U.S. 134 (1944), cited by, and applied to Customs decisions in United States v. Mead Corp., 533 U.S. 218, 228 (2001). The Skidmore decision holds that the weight accorded to an administrative judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors that give it power to persuade.

    The Court held in favor of Estée Lauder. The Court held that the article was to be classified as a set and that the essential character of the set was the make-up, not the carrying case. While the Court agreed with Customs that goods in retail sets “must be so related as to be clearly intended for use together or in conjunction with one another for a single purpose or activity,” it held that the facts that the case was not specifically adapted to its contents and that it was larger than the cosmetics it contained were not determinative of its classification as retail set, declining to follow Customs’ prior rulings under Skidmore.

    The Court first agreed with Customs’ interpretation that goods in sets must be put together to meet a particular need or specific activity. The Estée Lauder cosmetic set met the definition of “retail set” provided for in GRI 3(b) and the EN. The retail set rule of GRI 3(b), which applies to “goods put up in sets for retail sale,” recognizes that imported retail sets are packaged and sold as units while containing multiple components. The EN to GRI 3(b) explain that the term “goods put up in sets for retail sale” shall mean goods that: a) consist of at least two different articles that are, prima facie, classifiable in different headings; b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and c) are put up in a manner suitable for sale directly to users without repacking.” Only the second condition was disputed before the Court. In this part of the judgment, the Court considered that Customs’ Informed Compliance Publication (ICP), on the Classification of Sets (2004), was convincing. The ICP stated that goods that are put together to meet a particular need or specific activity, “must be so related as to be clearly intended for use together or in conjunction with one another for a single purpose or activity.” The Court decided that the Estée Lauder cosmetic case consisted of “products or articles put up together to meet a particular need or carry out a specific activity,” i.e., applying make-up.

    Second, the “essential character rule” of GRI 3(b) had to be applied in order to determine under which single heading the retail set had to be classified. According to the EN, the factor that determines essential character will vary depending on the goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods. In this case, the Court decided that that the essential character of the cosmetic set derived from the make-up components of the set.

    Third, the Court rejected Customs’ interpretation that container and contents are “mutually complementary” and that a container’s size is “not appreciably larger than its contents” in order to decide that it is part of a set made out of “goods that are put together to meet a particular need or carry out a particular activity.” The Court considered Customs’ position to be fundamentally flawed with regard to containers of retail sets and, based on its analysis of the GRI 3 (b), the EN, and Customs’ prior rulings, the Court declined to follow Customs’ position. The Court pointed out that Customs had erroneously added a requirement for composite goods, the requirement of mutual complementariness, to retail sets in reusable containers. To the extent that Customs’ ICP stated that a container must be “specifically designed to hold” and “intended to be used together,” the Court decided that these requirements had no statutory basis. With regard to the ICP’s requirement that a container must not be appreciably larger than that required to hold or carry the accompanying articles, the Court ruled that that any size restriction lacked a rational basis in the language of the statute or the EN. The Court concluded that the only requirement that could apply to a container of a set was the requirement of being put together to “meet a particular need or carry out a particular activity.”

    Since the Court found that the eye make-up, and not the brushes, applicators or the case, gave the set its essential character, it decided that the proper classification for the entire set was under the duty-free provision of subheading 3304.20.000 covering eye make-up preparations. The facts that the case was not specifically adapted to its contents and that the case was larger than the cosmetics it contained were not determinative for its classification as retail set.

    An appeal was filed on March 8.