CAFC Hears Oral Testimony on Tariff Classification of Material Used to Wrap Hay Bales

The U.S. Court of Appeals for the Federal Circuit conducted oral argument Dec. 6 on an appeal of a tariff classification case that ruled the wrapping, called “net wrap,” that certain farming machines use to package bales of hay were not considered agricultural equipment but rather textiles, carrying a higher duty (RKW Klerks v. U.S., Fed. Cir. # 23-1210).

The Court of International Trade ruled in October 2022 that net wraps for hay baling machines exported by RKW Klerks, a company that sells films to various industries, were classified under Harmonized Tariff Schedule heading 6005 for warp-knit fabrics. RKW says it should be classified as harvesting machinery under heading 8533 or “other” agricultural machinery under 8436.

The classification turned on whether net wraps could be considered a “part” of hay baling machines. CIT applied the incorrect legal standard when asking whether it was, RKW said in its appeal (see 2305090033).

CIT said the net wrap must meet two legal requirements to be considered a “part” of hay baling machines: first, that it be dedicated solely for use in the baling machine and, second, that it be integral to the functioning of the hay baling machine. CIT ruled net wraps met the first requirement but not the second.

RKW argued to the appeals court that the correct test, however, was whether the net wraps met one of the two requirements, not both. It also argued that even if the test was applied in both parts, the net wraps still passed. RKW argued that prior precedent defined parts “integral to functioning” as any part necessary to one, not necessarily all, of the functions of the machine, and said net wraps are integral to the packaging of hay bales with its products.

Judge Tiffany Cunningham asked how net wraps could be considered “integral” to hay baling machines if those machines could also use twine.

The judges asked if the net wraps were truly dedicated solely for use in the machines. They asked if the net wraps could be considered to be manufactured solely for use in hay baling machines if they continued in existence and use after being ejected from the machines.

RKW analogized net wraps to toner in a copying machine, as it said both toner and toner cartridges are considered “part” of their machines. Toner continued on as ink on a page after leaving a copying machine, it said.

The judges also discussed the part of CIT’s opinion that called the net wraps, along with the hay itself, consumable inputs that the machine then turned into wrapped hay bales. They asked whether the hay baling machines housed the net wraps in a way that the net wraps were integrated in some way into their mechanical workings.

RKW argued that the cardboard cores of the net wraps served that function, although it admitted there were no structural or mechanical interactions between the cardboard tubes and the machines. If net wraps weren't wrapped on cardboard tubes, RKW agreed, it wouldn't be considered “part” of the hay bale machines.

The court asked if RKW had argued before that the cardboard tubes served as part of the broader machine. A judge said he didn’t think it had, and questioned whether the argument could be admitted on appeal. DOJ contended in its turn it couldn't.

DOJ reiterated that it believes net wraps aren't part of a hay baling machine in the same way camera film isn't part of a camera. It said that the previous toner case invoked by RKW actually helped its own because that earlier case involved classification of both the toner and the toner cartridge together, whereas RKW could only argue for its net wraps, having forfeited any arguments about the net wraps' cardboard tubes, it said.

Prior courts haven't found twine used to bind hay bales to be considered parts of machines, DOJ said.