US Can’t Counterclaim CBP’s Classification of a Product to Increase Duty, Importer Argues

There is no statutory basis for the U.S. to counterclaim seeking reclassification of an importer’s products under a Harmonized Tariff Schedule heading with a higher rate than the one under which CBP liquidated them, that importer argued in an April 30 motion for judgment in a case that began in 2013 (see 2403140067) (BASF Corp. v. U.S., CIT Consol. # 13-00318).

BASF Corp. brought its case challenging the classification of its imported ethyl ester concentrates, used in its products Omevital 3322 EE, Omevital 400200 EE Mix Toc, Omevital 4510 EE and Omevital 3426 EE, as “chemical products and preparations” under the basket Harmonized Tariff Schedule heading 3824, with a 4.6% duty.

The importer argued its products are covered under the more specific HTS heading 1603 for fish extracts, which is duty-free, because they are rich in the omega-3 fatty acids derived from fish oil. But, in a counterclaim, the U.S. has claimed that the products should be classified under HTS heading 2106, which carries a 6.4% duty.

As a matter of law, the government can’t use counterclaims to challenge CBP’s classification decisions and increase the duty paid by an importer of record, BASF said. It argued that any classification changes should instead be made through the usual administrative avenues.

There is no statutory basis for the U.S. to counterclaim, it said. It said that 19 U.S.C. 1583, which gives CIT the jurisdiction to hear such claims, doesn’t give defendants a substantive cause of action to counterclaim. Neither does 19 U.S.C. 1202, as, according to the trade court itself, “[n]othing in the plain, unambiguous terms of Section 1202 permits the United States to challenge CBP’s classification via a counterclaim,” it said. It also discussed several other statutory provisions considered and rejected as bases for counterclaims by the court in the past.

BASF asked the Court of International Trade to either dismiss the counterclaim or merely treat it as an affirmative defense.

Even if it was a defense, DOJ's preferred heading, 2106, didn’t fit the importer’s concentrates, it said. That heading only covers food preparations “not elsewhere specified or included,” whereas BASF’s products are included under another provision -- heading 1603, it said.

BASF also argued in the brief that its products didn’t fit CBP’s original classification of them, either. The agency liquidated the merchandise under a basket heading for “chemical products and preparations,” but, again, heading 1603 was more specific and thus preferable, it said.

An “extract” it said, has been defined by CIT as “a preparation containing the essence of the substance from which it is derived”; another time, the court found that it “must maintain the essence of the main source.” In the first instance, krill oil was found to be an extract of krill, and in the second, a product that was roughly half shark fin cartilage and half dextrin was not considered an extract due to the presence of the latter, it said.

BASF’s imported ethyl esters concentrates were derived from crude fish oil, it said. Because fish oil is an extract of fish, it said, the concentrates “maintain the essence” of their aquatic source and are best classified under heading 2106.