HQ H270925
CLA-2 OT:RR:CTF:TCM HQ H270925 TSM
Suzanne Lagay Kay
Franco Manufacturing Co., Inc.
555 Prospect Street
Metuchen, NJ 08840
Re: Request for binding ruling; Tariff Classification of PDQ display units imported with a “Hugger with Throw” product.
Dear Ms. Kay:
This is in response to your electronic ruling request (eRuling), on behalf of Franco Manufacturing Co., Inc., dated September 8, 2015, regarding the classification of PDQ display units, imported with “Hugger with Throw” products, under the Harmonized Tariff Schedule of the United States (“HTSUS”). In your request you advise that you have previously obtained a ruling, NY N252460, dated May 6, 2014, on the tariff classification of the “Hugger with Throw” product.
FACTS:
Franco Manufacturing Co., Inc. is importing a product, called the “Hugger with Throw” (“Hugger Throws” - blankets made from 100 percent polyester knit fleece fabric, accompanying a plush full-figured, three-dimensional depiction of a Minion from the movie “Despicable Me”), which is shipped to the retailer in a cardboard shipping carton that also serves as a PDQ display unit. A PDQ display unit is a point of sale display. The dimensions for the display units are 42”x 47”x 19”. The display unit functions as a cardboard shipping carton. When the “Hugger with Throw” products are shipped, the PDQ displays have protective cardboard-top sleeves on top and are placed on pallets. The protective cardboard sleeves are removed from the PDQ displays, after they are placed on the sales floor at the retail store and the product is ready for sale. The PDQ displays are made of corrugated cardboard featuring printed marketing information on the sides and display functionality with cutouts to enable the consumer to reach the product.
You provided the following images of the PDQ displays at issue:
ISSUE:
Whether the PDQ display units are classifiable with their contents pursuant to General Rule of Interpretation (GRI) 5(b).
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRIs). 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.
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…
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
6301 Blankets and traveling rugs
9503 Tricycles, scooters, pedal cars and similar wheeled toys; dolls' carriages; dolls, other toys; reduced-scale (“scale?) models and similar recreational models, working or not; puzzles of all kinds; parts and accessories thereof
The facts, including the images that you submitted, confirm that the PDQ displays are 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 for 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 PDQ 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 PDQ display units at issue are the shipping cartons formed from cardboard cartons and bases, and are of a temporary nature, and are not suitable for repetitive use, commercial or otherwise. 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 PDQ displays similar to the ones under consideration are very common and widely used in the marketplace. The protective top portions of the displays, as shown in one of the images above, are clearly the kind of standard cardboard packaging utilized as shipping cartons for numerous imported goods today. We have searched the internet and found that one of the most popular forms of displays are temporary, corrugated pallet displays. We have found that pallet displays are manufactured and sold by a number of packaging companies. See http://cactus1and1.webpublishing.com/; www.pack-design.com; www.creativedisplaysnow.com; www.meridiandisplay.com; www.grandfly.com; www.customboxesandpackaging.com; and www.chicagodisplay.com. Moreover, we have found that products virtually identical to the throws displayed for sale in PDQ displays at issue, are sold in the marketplace in precisely the same manner. See http://www.frugalhotspot.com/2015/04/little-miracles-hug-snug-sherpa-blanket-plush/; http://costcocouple.com/calvin-klein-blanket/; and http://costcocouple.com/jungle-animal-chairs/.
In a high volume, high traffic warehouse store, such as Costco or Sam’s Club, a PDQ unit keeps such formless products contained and eliminates the need for excess packaging. Additionally, the printed outer surfaces of the PDQ unit serve as advertising for the product within. We also note that GRI 5(b) does not reference only packaging used for immediate packaging of the imported items; it also covers shipping cartons, and the PDQ unit does function as a shipping carton. PDQ units are a newer form of packaging designed specifically for this warehouse retail environment. They are designed for placement on the retail floor by forklift, and require minimal inventory and stocking maintenance. The unit is placed on the floor, its top is removed, and the goods are ready for sale without shelf stocking. When the unit is empty, the cardboard is broken down for recycling and disposed. Such units are not refilled. Effectively, the product is a modified shipping carton that conveniently also functions as a display in such a retail environment.
In your request, you argue that the PDQ display unit meets the requirement of GRI 5(b) that the container be “clearly suitable for repetitive use” since it is refilled by the retailer. We disagree. First, the very nature of the imported shipping carton contradicts the suggestion that it is refilled. The PDQ unit is the shipping carton for the Hugger Throws products. Second, the unit appears to be made of nothing more than single-wall cardboard. The above images show that the sides of the PDQ unit are bowing outward under the pressure of its contents. This is not the type of construction that we believe GRI 5(b) intended as being “clearly suitable for repetitive use.”
Therefore, we find that the PDQ displays at issue are of a kind “normally” used for packaging and marketing a line of goods, where the selling potential is increased by displaying the good itself. This concept is consistent with past CBP rulings such as HQ 962709, dated December 6, 1999 (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 PDQ displays at issue are of a kind normally used for packing goods. 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). See also HQ H264893, dated May 18, 2016 (cardboard pallet displays that serve to transport footwear from the manufacturer to warehouse clubs and retail stores, and to display it for sale on the sales floor, are classified with the footwear).
Finally, you argue that the subject PDQ display units are classified in 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 of cellulose fibers: Other: Other: Other: Other: Other.” You argue that this classification is consistent with NY N241091, dated May 22, 2013, in which 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. Unlike the displays in NY N241091, the subject PDQ displays are the packing containers normally used to ship the goods from the manufacturer to the retailer.
Accordingly, pursuant to GRI 5(b), the PDQ displays are classified with their contents.
HOLDING:
By application of GRI 1, 5(b), and 6, the PDQ displays entered with the “Hugger with Throws” products are classified together with their contents.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Ieva K. O’Rourke, Chief Tariff Classification and Marking Branch