CLA-2 OT:RR:CTF:TCM H241428 LWF
Mr. Lars-Erik A. Hjelm
Akin Gump Strauss Hauer & Feld LLP
1333 New Hampshire Avenue, N.W.
Washington, DC 20036-1564
RE: Revocation of New York Ruling Letter N239002, dated March 29, 2013; tariff classification of the Nike Studio Wrap Pack
Dear Mr. Hjelm:
This letter is to inform you that U.S. Customs and Border Protection (CBP) has reconsidered New York Ruling Letter (NY) N239002, issued to your client, Nike USA, Inc. (“Nike”) on March 29, 2013, concerning the tariff classification of a collection of footwear articles contained in Nike’s “Studio Wrap Pack” (Item #324734). In ruling letter NY N239002, CBP determined that the Studio Wrap Pack was not classifiable as “goods put up in sets for retail sale,” pursuant to General Rule of Interpretation (GRI) 3(b), and concluded that the component articles of the Studio Wrap Pack should be separately classified, pursuant to GRI 1, in their respective headings. Upon your request, dated April 30, 2013, CBP has reviewed NY N239002 and finds the ruling to be in error. Accordingly, for the reasons set forth below, CBP is revoking ruling letter NY N239002.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. §1625(c)(1)), as amended by section 623 of Title VI, notice of the proposed action was published in the Customs Bulletin, Vol. 50, No. 10, on March 9, 2016. No comments were received in response to the notice.
FACTS:
In ruling letter NY N239002, CBP described the Nike Studio Wrap Pack, Model No. 324734, as a collection of articles put up for sale together to provide a consumer with foot protection and traction during exercise activities. The Studio Wrap Pack is imported in a condition suitable for sale directly to users without repacking, and each Studio Wrap Pack consists of the following individual articles:
1 Pair of Foot Wraps: Each Foot Wrap is constructed of strips of knit textile that has been laminated with polyurethane cellular rubber. The strips are sewn together in a shape that wraps around the heel, lower ankle, and foot, while leaving the toes exposed. Synthetic traction dots are attached to the bottom of Foot Wrap, along slip soles that cover the heel and midfoot areas of the foot. The Foot Wraps account for 43.4% of the Studio Wrap Pack total cost.
Nike Studio Wrap Pack, the “Foot Wrap,”
The Foot Wraps are designed to provide a near-barefoot experience during exercise activities such as yoga, pilates, and barre, while also delivering foot protection and traction on studio and gym floor surfaces. The Foot Wrap is also intended to be worn in combination with the Strap and is designed to fit inside the slip-on Flats, allowing a user to travel to and from the studio or gym while wearing the Foot Wrap. However, as the Foot Wrap does not possess an outer sole or toe coverings, it would be impractical to wear the Foot Wrap outside, without the combined use of the Flats.
Nike states in its February 25, 2013 tariff classification ruling request that it intends to sell the Foot Wrap as part of the Studio Wrap Pack, and in the future, separately with the Straps.
2 Straps: Each Strap consists of a cellular rubber ribbon that is designed to be wrapped over the Foot Wrap and around the ankle. The Strap provides additional support to the foot and ankle and accessorizes the Foot Wrap’s fashion appearance. Use of the Straps with the Foot Wraps is optional.
Nike Studio Wrap Pack, the Foot Wrap with a tied “Strap” around the foot and ankle
1 Pair of slip-on Flats: The slip-on Flats consist of a textile-majority upper with a rubber/plastic outer sole. The Flats have no closure devices and are designed to be worn over the Foot Wraps or separately, without the Foot Wraps, in combination with the removable Insoles. Nike states that the Flats account for 32% of the Studio Wrap pack’s total cost.
Nike Studio Wrap Pack, the “Flat,” worn over a Foot Wrap with tied Strap
2 Insoles: The removable Insoles are designed to be optionally inserted into the Flats and are constructed of textile-covered foam. A consumer, when not wearing the Foot Wraps, can insert the Insoles into the Flats for additional cushioning while walking.
1 Mesh Bag: The Mesh Bag is constructed of synthetic fibers and is large enough to hold the Foot Wraps and Straps. It is designed to provide the consumer with a protective bag in which to launder the Foot Wraps and Straps. The design of the Mesh Bag allows water and detergent to rinse and clean the Foot Wraps and Straps, while simultaneously protecting the items from damage during the washing cycle.
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ISSUE:
Whether the Nike Studio Wrap Pack is properly classified, pursuant to General Rule of Interpretation (GRI) 3(b), as goods put up in sets for retail sale, or whether the individual components of the Studio Wrap Pack should be separately classified, by application of GRI 1, in their respective headings.
LAW AND ANALYSIS:
Merchandise imported into the United States is classified under the HTSUS. Tariff classification is governed by the principals set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context with requires otherwise, by the Additional U.S. Rules of Interpretation. The GRIs and the Additional U.S. Rules of Interpretation are part of the HTSUS and are to be considered statutory provisions of law for all purposes.
GRI 1 requires that classification be determine first according to the terms of the headings of the tariff schedule and any relative section or chapter notes and, unless otherwise required, according to the remaining GRIs taken in their appropriate order.
The HTSUS provisions under consideration in this case are as follows:
6402 Other footwear with outer soles and uppers of rubber or plastics
6404 Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials
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The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System at the international level. While not legally binding, the ENs provide a commentary on the scope of each heading of the HS and are thus useful in ascertaining the proper classification of merchandise. It is CBP’s practice to follow, whenever possible, the terms of the ENs when interpreting the HTSUS. See T.D. 89-90, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
As an initial matter, CBP observes that the Nike Studio Wrap Pack consists of a variety of individual articles (the Foot Wraps, Flats, Straps, Insoles, and Mesh Bag), packaged together for retail sale, that are, prima facie, classifiable in two or more headings. Specifically, there is no dispute that the Foot Wraps are described by heading 6402, HTSUS; the Flats are described by heading 6404, HTSUS; the Straps are described by heading 6307, HTSUS; the Insoles are described by heading 6406, HTSUS; and that the Mesh Bag is described by heading 6307, HTSUS.
Consequently, because the Nike Studio Wrap Pack is, prima facie, classifiable under two or more headings, classification shall be effected by application of GRI 3—specifically GRI 3(b), which directs that “[g]oods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character.”
For purposes of tariff classification under GRI 3(b), the term “sets for retail sale” carries a specific meaning that is defined in detail by EN (X) to GRI 3(b). Specifically, EN (X) to GRI 3(b) states:
(X) For the purpose of this Rule, the term 'goods put up in sets for retail sale' shall be taken to mean goods which:
(a) consist of at least two different articles which 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 (e.g., in boxes or cases or on boards).
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Upon consideration of whether the component articles of the Nike Studio Wrap Pack are properly classifiable as a “set” under GRI 3, there is no dispute that the merchandise is described by criteria (a) and (c), as set forth in EN (X) to GRI 3(b). Consistent with EN (X)(a) and (c) to GRI 3(b), the individual component articles of the Studio Wrap Pack are, prima facie, classifiable in different headings; likewise, the articles are packaged together in a retail box that is suitable for sale directly to users without repacking. Consequently, because the Nike Studio Wrap Pack satisfies criterion (a) and (c) of the EN (X) to GRI 3(b), the determination as to whether the Studio Wrap Pack is classifiable as “goods put up in sets for retail sale” turns on whether the merchandise is also described by EN(X)(b), which states that “sets” must consist of products or articles put up “to meet a particular need or carry out a specific activity.”
The courts have provided guidance on the meaning of “products or articles put up together to meet a particular need or carry out a specific activity” for purposes of classification pursuant to GRI 3(b). See Estee Lauder, Inc. v. United States, 815 F. Supp. 2d 1287, 1294 (Ct. Int’l Trade 2012). In Estee Lauder, the Court of International Trade (CIT) considered the classification of several cosmetic items put up together for retail sale, and concluded that because each item was specifically related to makeup and possessed an identifiable, individual function that was intended for use together or in conjunction with one another for the single activity of putting on makeup, the cosmetic items met the particular need of makeup application and were therefore, properly classified pursuant to GRI 3(b). Id. at 1295-96. Noting that each of the exemplars provided in the ENs consist of individual components that are used together or in conjunction with another for a single purpose or activity, the CIT agreed that “for goods put up together to meet the ‘particular need’ or ‘specific activity’ requirement and thereby be deemed a set, they must be so related as to be clearly intended for use together or in conjunction with one another for a single purpose or activity.” Id. (citing with approval CBP’s Informed Compliance Publication, “Classification of Sets”, 12 (2004)).
Consistent with the courts’ interpretation of the terms “particular need” and “specific activity” in EN (X)(b) to GRI 3(b), CBP finds that the individual component articles of the Nike Studio Wrap Pack are put up together for use in a single purpose or activity. Specifically, they are designed for use in conjunction with one another to provide foot protection and floor traction during yoga, pilates, and barre exercise activities.
Moreover, CBP notes that the complementary design of the individual component articles makes it such that a consumer would not purchase the Studio Wrap Pack to use the Foot Wraps or Flats without the other. That the Flats may be used as conventional footwear, independent of the Foot Wraps, does not negate the fact that the Flats are put up with the other component articles for the particular activity of exercising. Consequently, upon consideration of the character and use of the Foot Wraps, Straps, Flats, Insoles, and Mesh Bag with one another, CBP concludes that the Studio Wrap Pack is fully described by EN(X)(b) to GRI 3, because the merchandise is put up together to provide foot protection and floor traction during yoga, pilates, and barre exercise activities.
With respect to the Mesh Bag included with the Studio Wrap Pack to transport, store, and wash the Foot Wraps and Straps, CBP notes that in Estee Lauder, the CIT repeatedly referred to cases and containers, suitable for general use and classifiable elsewhere in the Nomenclature, as non-functional set components contemplated under GRI 3(b). Estee Lauder, 815 F. Supp. 2d at 1299-1300 (citing EN (X) to GRI3(b)). In each example, the inclusion of a case or container with a set, although suitable for general use, did not negate the set’s qualification under GRI 3(b). Id.
Used in conjunction with the Studio Wrap Pack, the Mesh Bag facilitates the transport, storage, and care of the Foot Wraps and Straps which enable the Studio Wrap Pack to fulfill the specific activity that makes it a set. The fact that the Mesh Bag is suitable for other general uses or is designed for the ancillary care and transport of only some of the set components does not negate a finding that the Mesh Bag, when considered together with the functional articles of the Studio Wrap Pack, forms part of a set that is put up together to provide a person with foot protection and traction during exercise activities.
Pursuant to the text of GRI 3(b), goods put up in sets for retail sale must be classified as if they consisted of the material or component which “gives them their essential character.” The phrase “essential character” carries specific meaning in the context of tariff classification, and the courts have defined “essential character” as, “that which is indispensable to the structure, core or condition of the article, i.e., what it is.” Structural Industries v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005).
EN VIII to GRI 3(b) explains that “[t]he factor which determines essential character will vary as between different kinds of goods,” and may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of the constituent material in relation to the use of the goods. See EN VIII to GRI 3(b). However, among those factors identified in EN VIII to GRI 3(b), recent court decisions concerning “essential character” analysis under GRI 3(b) have primarily focused on the role of the constituent material in relation to the use of the goods. See Estee Lauder, 815 F. Supp. 2d at 1296; see also Structural Industries, 360 F. Supp. 2d 1330; Conair Corp. v. United States, 29 C.I.T. 888 (2005); Home Depot USA, Inc. v. United States, 427 F. Supp. 2d 1278 (Ct. Int’l Trade 2006), aff’d 491 F.3d 1334 (Fed. Cir. 2007).
Consistent with the guidance provided by the courts and the ENs to GRI 3, CBP evaluates the functional components of a set when determining what article or component imparts a set with its essential character. Relevant to the classification of the instant merchandise, CBP has previously found that the essential character of sets consisting of footwear sold in combination with a bag or pouch is often imparted by the functional article of footwear. See Headquarters ruling letter (“HQ”) H008845, October 3, 2008 (finding that a pair of bowling shoes imparted the essential character of a set consisting of bowling shoes, a plastic slip-on shoe cover for one of the shoes, a fabric shoe bag, and a smaller "sole and heel" bag containing four interchangeable soles and four interchangeable heels ); NY N239273, dated April 2, 2013 (finding that the articles of footwear imparted the essential character of a set consisting of a pair of slip-on dance shoes and a polyester carrying pouch).
Here, the essential character of the Nike Studio Wrap Pack is imparted by the functional items used to provide foot protection and traction for exercise activities, namely the Foot Wraps and Flats. CBP finds that the Insoles, Straps, and Mesh Bag serve supporting roles in providing foot protection and traction for purchasers. The role of the Insoles is to provide additional cushioning for the foot when used in the Flats and is not essential to the use of the Studio Wrap Pack. Similarly, the relative low bulk and value of the Straps and Mesh Bag, combined with the fact that the components do not provide foot protection or traction when used independently of the Foot Wraps and Flats, are evidence of the components’ supportive role in facilitating the use and care of the items that enable the Studio Wrap Pack to fulfill the specific activity that makes it a set. Accordingly, CBP finds that the Insoles, Straps, and Mesh Bag do not impart the Studio Wrap Pack with its essential character.
By contrast, it is apparent upon first impression that the Foot Wraps and Flats are functional items of the Studio Wrap Pack. The Foot Wraps and Flats provide foot protection and traction and are necessary for the particular activity of the set. Without either component, a purchaser could not protect his or her feet or gain additional traction as compared to barefoot exercise.
In determining whether the Foot Wraps or Flats impart the Studio Wrap Pack with its essential character, CBP observes that the Foot Wraps and Flats are designed to be used, separately or in combination with one another, to provide foot protection and traction for exercise activities. Accordingly, CBP finds that the articles share equal importance in fulfilling the particular need or specific activity associated with the Studio Wrap Pack. See EN(X), GRI 3(b). Similarly, the Foot Wraps and Flats share similar individual unit production costs; the Foot Wraps and Flats account for 43.4% and 32%, respectively, of the total production cost of the Studio Wrap Pack. Consequently, because the specific role, function, and unit production cost of the Foot Wraps and Flats do not distinguish either article as uniquely indispensable to the “structure, core, or condition” of the Studio Wrap Pack, CBP cannot determine whether the Foot Wraps or Flats impart the merchandise with its essential character. See Structural Industries v. United States, 360 F. Supp. 2d at 1336.
When goods cannot be classified by reference to GRI 3(a) or 3(b), GRI (c) instructs that they shall be classified “under the heading which occurs last in numerical order among those which equally merit consideration.” Here, CBP has determined that the Foot Wraps and Flats are equally important to the essential character of the Studio Wrap Pack. The Foot Wraps are classifiable in heading 6402, HTSUS; and the Flats are classifiable in heading 6404, HTSUS. Accordingly, by application of GRI 3(c), CBP finds that the Nike Studio Wrap Pack is classifiable in heading 6404, HTSUS, which provides for, “Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials.”
HOLDING:
By application of GRI 3(c), the Nike Studio Wrap Pack is classified in heading 6404, HTSUS, specifically subheading 6404.19.39, HTSUS, which provides for “Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials: Footwear with outer soles of rubber or plastics: Other: Footwear with open toes or open heels; footwear of the slip-on type, that is held to the foot without the use of laces or buckles or other fasteners, the foregoing except footwear of subheading 6404.19.20 and except footwear having a foxing or foxing-like band wholly or almost wholly of rubber or plastics applied or molded at the sole and overlapping the upper: Other: Other.” The column one, general rate of duty under this provision is 37.5%, ad valorem.
Duty rates are provided for convenience only and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web at http://www.usitc.gov.
EFFECT ON OTHER RULINGS:
In accordance with the above analysis, NY N239002, dated March 29, 2013, is hereby REVOKED.
In accordance with 19 U.S.C. §1625(c), this ruling will become effective 60 days after publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division