HQ H264893
CLA-2 OT:RR:CTF:TCM HQ H264893 TSM
Port Director, Port of Los Angeles/Long Beach
U.S. Customs and Border Protection
301 E. Ocean Blvd.
Suite 1400
Long Beach, CA 90802
Attn: J. Nakamoto, Import Specialist
Re: Protest and Application for Further Review No: 2704-14-101602; Classification of cardboard pallet displays imported with footwear.
Dear Port Director:
The following is our decision regarding Protest and Application for Further Review No. 2704-14-101602, timely filed on November 3, 2014, on behalf of Eastman Footwear Group, Inc. (“Protestant”) regarding the tariff classification of cardboard pallet displays imported with footwear under the Harmonized Tariff Schedule of the United States (HTSUS). Pursuant to the Protestant’s request, a teleconference regarding this matter was held with members of my staff on March 9, 2016.
FACTS:
Protestant describes the merchandise as footwear displays. These pallet displays are cardboard packaging that serve both to transport the footwear from the manufacturer to warehouse clubs and retail stores, and to display the footwear for sale on the sales floor. The displays are pre-filled with multiple pairs of shoes that are individually boxed in shoeboxes. Then the pre-filled displays are loaded onto a pallet and prepared for shipment. The displays are the master shipping carton for the footwear. The displays are delivered to a wholesale club or retail location and either stored or prepared for placement on the sales floor.
The subject merchandise consists of two types of cardboard pallet displays. The first type, Type A, is a master carton formed by a cardboard base, sides, and lid that contains a series of vertical and horizontal cardboard separators between rows and columns of pairs of shoes individually packaged in shoeboxes. Some of these cardboard separators are corrugated in order to provide vertical and horizontal support to the multiple rows and columns of shoeboxes and to protect the shoeboxes from being crushed during transport and display. The master carton is placed on a pallet and the unitized load is secured for shipment with shrink wrap and plastic bands. It is imported and delivered in this condition to a warehouse club or retail location. After delivery, the unitized load may be stored or moved onto the sales floor. Prior to placement on the sales floor, the shrink-wrap, plastic bands, cardboard sides and lid are all removed, and then the stacked rows and columns of shoeboxes are ready for sale. The cardboard base, sides, lid, and vertical and horizontal separators are not reused. This type of display (not including the shoeboxes) ranges in cost between $33.00 and $36.00.
Protestant provided the following diagrams of the Type A display, attached as Exhibit A:
The second type, Type B, consists of a master carton formed by a cardboard base, sides, and a lid that contains twelve stacked and arranged rectangular cardboard cartons. Each carton is pre-filled with eight shoeboxes. The cartons are arranged on a pallet and the unitized load is secured for shipment with shrink wrap. It is imported and delivered on a pallet to a warehouse club or retail location. After delivery, the unitized load may be stored or moved onto the sales floor. Prior to placement on the sales floor, the shrink-wrap and cardboard sides and lid are removed and the stacked rows and columns of shoeboxes are ready for sale. Neither the cardboard cartons nor the cardboard separators are reused. The cost of this type of display (not including the shoeboxes) is approximately $88.00.
Protestant provided the following pictures of the Type B display attached as Exhibit C:
Protestant subsequently submitted the following pictures:
The subject merchandise was entered with the footwear of heading 6403, HTSUS, on June 25, 2013 and August 16, 2013, and liquidated between May 30, 2014 and August 8, 2014, under subheading 6403.99.60, HTSUS, which provides for “Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather: Other footwear: Other: Other: Other: Other: For men, youths and boys.” Protestant claims that the subject merchandise is not “ordinary packaging”, that is, it is not of a kind normally used for packing footwear. Protestant concludes that the subject merchandise should not be classified with the imported footwear. Instead, Protestant argues that the subject merchandise is classified separately, as other articles of paperboard, under subheading 4823.90.86, HTSUS, which provides for “Other paper, paperboard, cellulose wadding and webs of cellulose fibers, cut to size or shape; other articles of paper pulp, paper, paperboard, cellulose wadding or webs od cellulose fibers: Other: Other: Other: Other: Other.”
ISSUE:
Whether the footwear displays are classifiable with their contents in heading 6403, HTSUS, pursuant to General Rule of Interpretation (GRI) 5(b).
LAW AND ANALYSIS:
Initially, we note that the matter protested is protestable under 19 U.S.C. §1514(a) (2) as a decision on classification. The protest was timely filed, within 180 days of liquidation of the entry. (Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2) (B) (ii), (iii) (codified as amended at 19 U.S.C. § 1514(c) (3) (2006)).
Further Review of Protest No. 4601-13-101620 is properly accorded to Protestant pursuant to 19 C.F.R. § 174.24 (a) because Protestant alleges that the decision against which the protest was filed is inconsistent with New York Ruling Letter (NY) N241091, dated May 22, 2013 and NY NL84861, dated June 2, 2005.
Merchandise imported into the United States is classified under HTSUS. Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context which 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 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The HTSUS provisions under consideration are as follows:
4823 Other paper, paperboard, cellulose wadding and webs of cellulose fibers, cut to size or shape; other articles of paper pulp, paper, paperboard, cellulose wadding or webs of cellulose fibers:
* * *
6403 Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather:
GRI 5(b), HTSUS, provides as follows:
Subject to the provisions of rule 5(a) above packing 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 packing materials or packing containers are clearly suitable for repetitive use.
In addition, in interpreting the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS at the international level. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
The EN to GRI 5 (b) provides, in pertinent part, as follows:
This rule governs the classification of packing materials and packing containers of a kind normally used for packing the goods to which they relate. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use…
There is no dispute that the cardboard displays were entered with the footwear of heading 6403, HTSUS. The classification of the contents of the cardboard displays, the footwear, in heading 6403, HTSUS, and subheading 6403.99.60, HTSUS, is also not in dispute.
Protestant argues that the cardboard displays are not packaging and are not packing containers. Protestant argues that the cardboard displays are not the ordinary packaging for footwear. Protestant explains that shoeboxes are the ordinary packaging for footwear, and that the cardboard displays are chiefly used to display the shoes.
The facts, including the diagrams and pictures submitted by Protestant, confirm that the displays are master cartons formed from cardboard cartons, separators, bases, sides, and lids. These constitute packing materials and packing containers within the meaning of GRI 5(b). Among the examples of disposable containers set forth in 19 CFR 134.24 are "paperboard boxes and similar containers."
The essence of GRI 5 (b) is that packing materials and packing containers are to be classified with the goods they transport, except when the materials or containers are clearly suitable for repetitive use. Packing materials and containers that are clearly suitable of repetitive use are classified separately from the goods they transport.
CBP has repeatedly adhered to the “clearly suitable for repetitive use” standard, holding that packing clearly suited for repetitive use is separately classified. See HQ 965573, dated August 28, 2002, HQ 964767, dated April 20, 2001 and HQ 889128, dated September 14, 1993. The term “suitable for use,” which is substantially similar to the GRI 5(b) term “suitable for repetitive use,” was addressed in Keer, Maurer Company v. United States, 46 CCPA 110, C.A.D. 710 (1959). The court therein held that the term “suitable for use” means “actually, practically, and commercially fit” for the use concerned. Therefore, “such suitability does not require that the merchandise be ‘chiefly’ used (the TSUS predecessor to “principal use”) for the stated purpose.” In HQ 961973, dated August 13, 1999, CBP cites to the analysis applied in Keer, i.e. that the language of GRI 5(b), “clearly suitable for repetitive use,” is not a “principal use” provision or an “actual use” provision, although the standard required to find suitability is greater than evidence of casual, incidental, exceptional or possible use. As pertains to the displays at issue, their suitability for repetitive use must be considered independently from the use to which they are actually put. If the displays are found to be suitable for repetitive use, they would not qualify as packing materials under GRI 5(b), even if they are not in fact reused. See also HQ 114360, dated June 18, 1998 (holding that hangers of durable construction were “physically capable of, and suitable for, reuse or repetitive use”).
In considering the type of repetitive use to which the displays may be put, it must be determined if that use is of a commercial nature. The leading case addressing the issue of commercial reuse is 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). In Holly Stores, the CIT found that the stipulation that GRI 5(b) is inapplicable when the packing materials or containers are “clearly suitable for repetitive use” applies only to reuse in the commercial sense, i.e. measured by commercial practices. To distinguish between commercial use and use considered to be incidental or fugitive, the court considered several factors, holding that the reuse is considered commercial if it is for a transportation or shipping purpose, a reuse in the general course of standard acceptable commercial practice in the industry, or reuse in a manner consistent both as to substance and degree with the original use. In considering the above factors, the court examined the price of the packing material, the physical characteristics that make it capable of reuse and the way in which the packing material is used.
Based on the material design and construction features, we conclude that the master cartons formed from cardboard cartons, bases, sides and lids, and corrugated paperboard separators are of a temporary nature, and are not suitable for repetitive use, commercial or otherwise. In the Type A display, as the boxes of shoes are sold, the corrugated paperboard separators are discarded or recycled by the retail sales or warehouse club. In the Type B display, as the boxes of shoes are sold, the cartons and separators are also discarded or recycled. Accordingly, we must determine whether the displays are of a kind “normally” used for packing goods such as those with which they are imported.
GRI 5(b), HTSUS, is the successor provision to General Headnote and Rule of Interpretation 6(b)(i) of the prior tariff, the Tariff Schedules of the United States (TSUS), which concerned "containers of usual types ordinarily sold at retail with their contents." In Crystal Clear Industries v. United States, United States Court of International Trade, Slip Op. 94-15, the Court treated GRI 5(b), HTSUS, and General Headnote and Rule of Interpretation 6(b)(i), TSUS, as largely analogous provisions. In that decision, the Court cited with approval the legislative history relating to General Headnote and Rule of Interpretation 6(b)(i), TSUS:
The concept of "usual" containers includes a variety of containers such as plastic envelopes for carrying rainwear when not in use, cases designed for electric shavers, and tobacco tins, which may continue to be used by the purchaser to "house" the original contents but which, when that purpose has been fulfilled, are usually discarded because of their lack of durability or their general unsuitability for other uses. On the other hand, this concept does not include containers, even though sold at retail with their contents, if such containers are designed to have significant uses quite apart from their original contents. For example, humidors filled with tobacco, miniature cedar chests containing cigars or candy, and doll houses filled with confections would not be regarded as "usual" containers.
Citing H.R. Rep. No. 342, 89th Cong., 1st Sess., at 5.
Thus "usual" packing (or packing "of a kind normally used for packing" under the HTSUS) is generally discarded as it is insubstantial or is unsuitable for other uses. On the other hand, "unusual" packing is suitable for other uses and may be retained by the purchaser after its original purpose has been fulfilled. See. HQ 956186 dated September 29, 1994.
In Crystal Clear Industries, the CIT applied GRI 5(b) to determine the classification of gift boxes for glassware. The Court concluded that: “Just because the gift boxes were an alternative marketing device from the plain corrugated paper does not and did not make them “unusual” in the market described by the witnesses.” Id. In regard to the reference to an “alternative marketing device,” the Court had earlier noted arguments that “gift boxes were ordered during a trend, were much more expensive than plain boxes, were highly decorated, and increased the salability of the glassware.” Id. at 50. The Court noted “[t]his style of packaging and advertising was common during the period in question and not unusual in the same sense that a four-foot high wine bottle sold for marketing purposes is different from a normal 750 milliliter bottle [and] [s]imilarly, in contrast to a cigar box or a steel drum, the packaging was not valuable or reusable in its own right.” Id. at 54. (The reference to the four-foot high wine bottle in the preceding quotation is from Fontana Hollywood Corp. v. United States, 64 Cust. Ct. 204, C.D. 3981 (1970), in which the Court held that such a bottle was “unusual” and not classifiable with its contents).
Similarly, in this case, the displays are “an alternative marketing device” that are not unusual in the current marketplace. In fact, the cardboard pallet displays similar to the ones under consideration are very common and widely used in the footwear marketplace. We have found the following statement about footwear retail packaging displays on the internet: “One of the most popular forms of footwear displays are temporary, corrugated pallet displays, used extensively in warehouse clubs like Costco, Sam’s Club and BJ’s.” This statement can be found on the company website of TPH Global Solutions – a retail packaging and displays company, available at http://www.tphinc.com/wordpress/blog/index.php/footwear-retail-packaging-displays/. We have also searched the internet and found that similar pallet displays are designed, manufactured, and sold by a number of packaging companies. See www.pack-design.com, www.creativedisplaysnow.com, www.pinterest.com, www.meridiandisplay.com, www.shopventory.com, www.grandfly.com, www.customboxesandpackaging.com, and www.chicagodisplay.com.
As an “alternative marketing device”, footwear pallet displays increase the salability of the footwear. In both the “A” and “B” types of pallet displays, footwear product names and product logos, are clearly visible to the consumer. The pallet displays draw attention to the footwear, and allow the consumer to hold, feel, and inspect the footwear. The pallet displays also provide an additional location for product advertising and logos. For example, the side panels of the Type B display are printed with the same footwear brand name and logo printed on the individual shoe boxes. The Type B display can be assembled or arranged in such a way that the sides of the cardboard cartons placed adjacent to one another, will provide a stronger visual image that will appeal to the consumer’s instincts to look at, inspect, and feel the shoes and ultimately purchase the shoes.
Protestant argues that the usual packaging for footwear is the shoebox. Protestant argues that the price of the Type A display (not including the shoe boxes) ranges from $33.00-$36.00, and that the unit price of the Type B display (not including the shoe boxes) is approximately $88.00. The displays may be more expensive or decorative than shoe boxes. However, this does not make them “unusual” in the same sense as the four-foot high wine bottle of Fontana, supra. Nor do they have “significant” uses quite apart from their original contents, such as humidors filled with tobacco, miniature cedar chests containing cigars or candy, and dollhouses filled with confections (legislative history quoted from Crystal Clear, supra). The pallet displays are of a kind “normally” used for packaging and marketing a line of goods, e.g., footwear, where the selling potential is increased by displaying the good itself. This concept is consistent with past CBP rulings such as HQ 962709, supra, (fancy glass bottles for oils and vinegars held to be usual packaging within GRI 5(b)); HQ 086874 dated June 28, 1990 (a metal liquor box considered “premium packaging” held to be a packing container within GRI 5(b)); and HQ 082955 dated May 29, 1992 (a ceramic flagon containing scotch whiskey held to be “a container ‘of a kind normally used for packing’ premium whiskies”).
Based on the above, we conclude that the pallet displays at issue are of a kind normally used for packing footwear. We note that this is consistent with prior CBP decisions that recognized innovations within the packing industry, such as the placement of UPC bar codes on products, which in many cases replaced product information previously printed in text on a packing container. See NY F84396, dated March 31, 2000 (UPC bar code recognized as packing materials).
Finally, Protestant argues that the protest decision is inconsistent with New York Ruling Letter (NY) L84861, dated June 2, 2005, and NY N241091, dated May 22, 2013. In NY L84861, ruled that a paperboard display unit was classified separately from the merchandise held within it, since it was not by itself adequate to protect merchandise during shipping and storage, was not of a kind normally used to pack merchandise and functioned essentially as a display rather than a packing container, and was also suitable for repetitive use. Similarly, in NY N241091, CBP ruled that a paperboard display unit was classified separately from the merchandise held within it, since it functioned essentially as a display rather than as a packing container, was placed into another carton or cardboard sleeve since it was not by itself adequate to protect the merchandise during shipping and storage, and was also suitable for repetitive use. Although the Protestant argued that the display units under consideration here are similar to those at issue in NY L84861 and NY N241091, and should therefore also be classified separately from the shoes contained within them, we disagree. The subject pallet displays are the master shipping cartons for the footwear. Unlike the displays in NY L84861 and NY N241091, the subject displays are the packing containers normally used to ship shoeboxes. The subject displays, just like a master shipping carton serve to transport the shoeboxes from the manufacturer to the retailer. This is a function that distinguishes the subject displays from those at issue in NY L84861 and NY N241091.
Accordingly, pursuant to GRI 5(b), the pallet displays are classified with their contents, in this case, the footwear of heading 6403, HTSUS.
HOLDING:
By application of GRI 1, 5(b), and 6, the Type A and Type B cardboard pallet displays entered with footwear are classified with the footwear in heading 6403, HTSUS, and specifically in subheading 6403.99.60, HTSUS, which provides for “Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather: Other footwear: Other: Other: Other: Other: For men, youths and boys,”
You are instructed to DENY the protest.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP website at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division