CLA-2 RR:CR:GC 961973 PH
James L. Sawyer, Esq.
Katten, Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, IL 60661-3693
RE: Plastic garment hangers
Dear Mr. Sawyer:
This is in reference to your request on behalf of Sears, Roebuck and Co. to the Director, Customs National Commodity Specialist Division, New York, N.Y., dated April 28, 1998, for a ruling as to the classification under the Harmonized Tariff Schedule of the United States (HTSUS), of certain plastic garment hangers. Samples were provided. Your letter was referred to this office for reply. In the preparation of this ruling, consideration was given to representations made in a meeting with you and an officer of your client, as well as your supplemental representation of May 7, 1999. We regret the delay.
Your client has initiated a hanger recovery program in which, subsequent to use in their retail operations, hangers are forwarded to central locations and sorted as suitable or unsuitable for reuse. Those unsuitable for reuse are recycled into plastic pellets to be used in the manufacture of new hangers. The hangers suitable for reuse are generally more solid and durably constructed than others. The hangers which are identified for reuse are packed and coded with relevant hanger style information. They are forwarded to a hanger supply company which enters the hangers into its inventory and commingles them with newly manufactured hangers. The hangers (those identified for reuse and those newly manufactured) are sold to garment vendors to be used in the packing, shipping, and transportation of future apparel to retail stores. Your client estimates the useful life of the hangers under consideration to be 4 to 6 cycles; therefore, you state, a single hanger will likely be associated with various garments during its useful life.
The sample of the hangers stated to be "substantially identical" to the hangers which will be a part of the hanger recovery program consists of one piece of molded plastic with a metal "hook" to hang the hanger and garment. The plastic portion is of relatively thin plastic with a ridge around it approximately 3/8" thick (i.e., it is not a fully rounded closet-type hanger, but it is more substantial than a wire hanger).
You cite General Rule of Interpretation (GRI) 5(b) and Holly Stores, Inc. v. United States, 2 CIT 278, 534 F. Supp. 818 (1981), affirmed 1 Fed. Cir. (T.) 16, 69 F.2d 1387 (1982) , and other authorities. You contend that the hangers are suitable for reuse and should be classified separately from the garments which are packed with them, as articles for the conveyance or packing of goods of plastics, in subheading 3923.90.00, HTSUS. You cite several Customs rulings (Headquarters Ruling (HQ) 084068 dated July 21, 1989; New York Rulings (NYs) 898260 dated June 20, 1994, 813284 dated August 31, 1995, and 813637 dated September 1, 1995) interpreting Holly Stores and GRI 5(b) to demonstrate that it is Customs position that "reuse" of a hanger to display another garment in the internal operations of the store which initially received the hanger (with a different garment) was not "repetitive use in the practical, commercial sense as intended by GRI 5(b)" (April 28, 1998, letter, page 7). You contrast such internal use with your client’s hanger recovery program, in which you state that approximately one-third of the hangers imported which are eligible for the program are placed into the program and sold to a separate entity which sells them to your client or other domestic garment vendors. You contend that in such use "it is clear that [your client’s] recycled hangers are commercially treated as separate and distinct articles of commerce from the garments [with] which they were originally imported, and that they are an independent subject of trade and commerce" (April 28, 1998, letter, page 9).
You also contend that the phrase "clearly suitable for repetitive use" in GRI 5(b) is not a "principal use" provision (see Additional U.S. Rule of Interpretation 1(a)), and you cite Kerr, Maurer Company v. United States, 46 CCPA 110, C.A.D. 710 (1959), for a definition of the phrase "suitable for use" as "actually, practically, and commercially fit" for the use concerned, not necessarily "chief use" (the TSUS predecessor to "principal use"), but more than "... evidence of casual, incidental, exception, or possible use". You refer to HQ 114360 dated June 18, 1998, holding that clear plastic garment hangers processed in a program similar to that of your client qualify as instruments of international traffic under subheading 9803.00.50, HTSUS, and stating that "the hangers ... are of durable construction [and] are physically capable of, and suitable for, reuse, or repetitive use", as providing a precedent for the suitability for reuse of the hangers under consideration.
Whether the hangers are classified with the goods with which they are entered under GRI 5(b) or as articles for the conveyance or packing of goods, of plastics, in heading 3923, HTSUS, household articles and toilet articles, of plastics, in heading 3924, or other articles of plastics, in heading 3926, HTSUS.
LAW AND ANALYSIS:
Merchandise is classifiable under the Harmonized Tariff Schedule of the United States (HTSUS) in accordance with the General Rules of Interpretation (GRIs). GRI 1 states in part that for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes, and provided the headings or notes do not require otherwise, according to GRIs 2 through 6, taken in order.
The ENs constitute the official interpretation of the Harmonized System. While not legally binding on the contracting parties, and therefore not dispositive, the ENs provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the System. Customs believes the ENs should always be consulted. See T.D. 8980, published in the Federal Register August 23, 1989 (54 FR 35127, 35128).
The HTSUS headings under consideration are as follows:
3923 Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other closures, of plastics
3924 Tableware, kitchenware, other household articles and toilet articles, of plastics
3926 Other articles of plastics and articles of other materials of headings 3901 to 3914
GRI 5(b) provides:
5. In addition to the foregoing provisions [i.e., the preceding GRIs], the following rules shall apply in respect of the goods referred to therein:
. . .
(b) . . . [P]acking materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such materials or packing containers are clearly suitable for repetitive use. [Emphasis added.]
The EN for GRI 5(b) states "[t]his rule governs the classification of packing materials and packing containers of a kind normally used for packing the goods to which they relate[;] [h]owever, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use, for example, certain metal drums or containers of iron or steel for compressed or liquefied gas [and because] [t]his Rule is subject to Rule 5(a) ... the classification of cases, boxes and similar containers of the kind mentioned in Rule 5(a) shall be determined by the application of that rule."
As you state, the leading Court case on this issue is Holly Stores, supra. Although Holly Stores involved the applicability of the tariff schedule preceding the HTSUS, the Tariff Schedules of the United States (TSUS), Customs has taken the position that the interpretation in Holly Stores of the provision in the TSUS which corresponds to GRI 5(b) of the HTSUS is applicable to GRI 5(b). That is, in HQ 084068, cited above, we stated:
We believe the Court’s interpretation of "reuse" in Holly Stores applies to the interpretation of "repetitive use" in GRI 5(b) and the correct application of that Rule of Interpretation. "Clearly suitable for repetitive use" as used in GRI 5(b) is taken to mean repetitive use in the practical, commercial use. This interpretation follows the case law as reflected in Holly Stores and other various container cases [citations omitted].
The hangers in Holly Stores were of two types, an all-plastic hanger and a wire hanger coated with plastic. The Court upheld Customs classification of the hangers with the garments with which they were imported, finding that they were "... not designed for, or capable of, reuse in the commercial sense" (2 CIT at 288). The Court stated that the reuse alleged by the plaintiff in Holly Stores was not the reuse contemplated by General Headnote 6(b), TSUS, because "[i]n the first place, the hanger itself does not enter the mainstream of commerce nor does it become a separate item of commerce" (2 CIT at 289). The Court went on to make clear its distinction between internal use and commercial use, stating "[i]t is evident that witness [name omitted] contemplated a reuse of the plastic hanger only in the limited sense that K-Mart would internally reuse it without reference to reuse in the commercial sense" (2 CIT at 290). Other evidence, according to the Court, supported limited, incidental reuse so that the hanger could not be separately dutiable (i.e., "... there was testimony to the effect that [the] hangers are reused to return damaged or recalled merchandise to the distribution center [but] [u]pon cross-examination it was estimated that under one (1) percent of the total merchandise shipped to the retail store is returned to the distribution center" (2 CIT at 290)).
The Court of Appeals for the Federal Circuit (CAFC) affirmed the CIT decision in Holly Stores (supra), stating that "’[r]euse’ in this context has been consistently interpreted to mean practical, commercial reuse, not incidental reuse" (1 Fed. Cir. (T) at 17). The CAFC held "... that the uses of these hangers beyond shipping them once from overseas to the United States were purely incidental ... [that] [e]ach holder, in virtually every case, was associated only with one piece of clothing during its entire useful life [and] [t]he hangers were never commercially treated as ‘separate and distinct’ from the articles of clothing hung on them" (1 Fed. Cir. (T) at 17).
From these authorities, we conclude that the caveat in GRI 5(b) that the provision requiring packing materials and packing containers entered with the goods therein to be classified with the goods "... is not binding when such packing materials or packing containers are clearly suitable for repetitive use" is neither a "principal use" provision (Additional U.S. Rule of Interpretation 1(a)) nor an "actual use" provision (see 19 CFR 10.131 through 10.139). See, in this regard, Kerr, Maurer Company v. United States, supra, and HQ 114360, referred to above. Both the CIT and the CAFC in Holly Stores considered the particular reuse of the hangers, and did not use a "principal [then chief] use" analysis. E.g., "the controversy centers abut the degree of the reuse and whether plaintiff’s reuse of the hangers in issue is sufficient to be considered reuse in the commercial sense as contemplated by the statute" (2 CIT at 285, emphasis added); "Plaintiff’s reuse of the K-10 hanger is not the commercial reuse contemplated under General Headnote 6(b)" (2 CIT at 288, emphasis added); "[W]e hold that the uses of these hangers beyond shipping them once from overseas to the United States were purely incidental" (1 Fed. Cir. (T.) at 17, emphasis added); "Each holder, in virtually every case, was associated only with one piece of clothing during its entire useful life. The hangers were never commercially treated as ‘separate and distinct’ from the articles of clothing hung on them" (1 Fed. Cir. (T.) at 17, emphasis added).
Accordingly, we must consider whether the reuse of the hangers under consideration is sufficient to be considered reuse in the commercial sense as contemplated by the statute (see above, 2 CIT at 285). The statute (GRI 5(b)) requires that the hangers be "clearly suitable for repetitive use." The hanger recovery program is a reuse in the commercial sense, as described in Holly Stores (i.e., the very limited reuse in that case was emphasized by the Court to be by the importer’s own enterprise; in this case, a very substantial proportion of the hanger styles under consideration (approximately one-third, versus 1% in Holly Stores) is reused, and that reuse is such that the hangers are treated as separate and distinct articles of commerce (i.e., the hangers are forwarded to a hanger supply company which enters the hangers into its inventory and commingles them with new hangers, selling them to domestic and international garment vendors; compare to Holly Stores, in which "[t]he reuse demonstrated is strictly limited to the operation of K-mart’s own enterprise and then, at best, the reuse is shown only to be incidental and fugitive and relative to K-Mart’s own scale of operations" (2 CIT at 288)).
The CIT in Holly Stores indicated that use of a hanger "to rehang heavier garments that originally arrive on wire color-coded hangers" may be more substantial than the other reuses described (2 CIT at 290). The Court went on to state that "it cannot anticipate that such reuse would be of such magnitude relative to K-Mart’s entire hangwear operation that it would indicate that the K-10 [hanger] is reusable in the commercial sense" (ibid.). In this case, the reuse (transferring the hangers to another company which sells them to other garment vendors) is clearly more substantial than rehanging heavier garments of the importer on the hangers and, unlike in Holly Stores, the magnitude of reuse is clearly described (see above).
We conclude that the hangers under consideration "are clearly suitable for repetitive use" and, therefore, that they are not classifiable with the goods with which they are entered. This conclusion is limited to the facts under consideration, in which:
1. The hangers are of relatively substantial construction;
2. A substantial proportion of the styles suitable for reuse is forwarded to another company which commingles them with new hangers and sells them to garment vendors (which may include the original importer) for use in packing, shipping, and transportation of garments.
This conclusion is distinguished from HQ 084068 dated July 21, 1989, in which the reuse was limited to hanging other garments in the importer’s stores and, consequently, the "reuse" was not sufficient to be considered reuse in the commercial sense under Holly Stores. Our conclusion is consistent with HQ 114360 dated June 18, 1998, finding certain hangers "durable and capable of reuse" and holding them to be "substantial holders" within the meaning of subheading 9803.00.50, HTSUS. These hangers were similar to those under consideration and they were processed in a program similar to that under consideration (i.e., they were clear plastic, relatively substantial hangers acquired by an entity which sorts, sanitizes, packages, and exports them to various foreign garment manufacturers for use in packaging garments).
Inasmuch as the hangers are "clearly suitable for repetitive use" and are not required to be classified with the goods with which they are entered, they must be classified in heading 3923, 3924, or 3926, HTSUS. The hangers are not "rounded" or "shouldered", as plastic hangers which are used in the household often are; as the available information demonstrates (i.e., the facts you have provided, Holly Stores, and HQs 084068 and 114360 (referred to above), the hangers are of the kind used commercially. Therefore, we conclude that they may not be classified as household articles in heading 3924, HTSUS. Insofar as classification in heading 3923, HTSUS, is concerned, it is Customs position that the articles of that heading are "to be used primarily as temporary packaging for the merchandise contained therein [and] [o]nce the purchase was made, the [articles] would be discarded" (HQ 960218 dated October 22, 1997; see also HQ 961092 dated March 24, 1998, and NY 871719 dated February 26, 1992). Although the hangers are of the kind used commercially, as established above, they are clearly intended for reuse. Accordingly, they may not be classified as articles for the conveyance or packing of goods of plastics in heading 3923, HTSUS. The hangers are classified as other articles of plastics, in subheading 3926.90.98, HTSUS.
The hangers are "clearly suitable for repetitive use" and, accordingly, are classifiable separately from the garments with which they are entered under GRI 5(b), provided that : (1) they are of relatively substantial construction; and (2) a substantial proportion of which is forwarded to another company which commingles them with new hangers and sells them to garment vendors (which may include the original importer) for use in packing, shipping, and transportation of garments. They are classified as other articles of plastics in subheading 3926.90.98, HTSUS.
John Durant, Director
Commercial Rulings Division