CLA-2 OT:RR:CTF:EMAIN H312118 NVF
U.S. Customs and Border Protection
Port of Detroit
2810 B West Fort Street
Detroit, MI 48216
Attn: Darryl Lockhart, Import Specialist, Automotive & Aerospace Center of Excellence
RE: Application for Further Review of Protest No. 3801-20-102544; Classification of Unfinished Engines
Dear Port Director:
This letter is in response to the Application for Further Review (“AFR”) of Protest No. 3801-20-102544, timely filed by Sidley Austin LLP on behalf of PSI Engines International Canada (“PSI”) on April 7, 2020. The protest pertains to the classification and liquidation by U.S. Customs and Border Protection of certain unfinished engines under statistical reporting number 8407.90.9080 of the Harmonized Tariff Schedule of the United States, Annotated (“HTSUSA”). Our decision takes into account the substance of our teleconference held with counsel to PSI on December 2, 2020 as well as the supplemental information provided to our office by counsel on April 23, 2021.
FACTS:
On July 7, 2019, PSI entered 2.4 liter industrial mobile engines without fuel systems under statistical reporting number 8407.90.9010, HTSUSA as gas (natural or liquid propane) engines. CBP liquidated the entry on October 10, 2019 under 8407.90.9080, HTSUSA as other spark-ignition reciprocating or rotary internal combustion piston engines.
The unfinished engines at issue are used primarily in forklifts. As imported, they are not fitted with a fuel system, but after importation they are fitted with a fuel system for one of the following fuels: liquid propane, gasoline, natural gas, or bi-fuel (either liquid propane or gasoline). PSI substantiated in its supplemental filing that all of the engines at issue are manufactured with hardened fuel valve seatings on the intake and exhaust valves. The hardened valve seatings are specially manufactured to withstand the higher fuel burning temperatures of burning liquid propane or natural gas.
ISSUE:
Whether the engines without fuel systems are classified as natural gas or liquid propane engines of statistical reporting number 8407.90.9010, HTSUSA, or as other spark-ignition engines of statistical reporting number 8407.90.9080, HTSUSA.
LAW AND ANALYSIS:
We observe as an initial matter that the matters protested are protestable under 19 U.S.C. § 1514(a)(2) as decisions on classification and amount of duties chargeable. The subject merchandise was entered by PSI on July 7, 2019. On October 10, 2019, CBP liquidated the entry. On April 7, 2020, PSI timely filed a protest and AFR, within 180 days of liquidation of the first 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 the protest is properly accorded to protestant pursuant to 19 C.F.R. § 174.24(b) because the decision against which the protest was filed is alleged to involve matters not previously ruled upon by CBP or by the Customs courts. Specifically, PSI states because the unfinished engines are capable of later becoming natural gas or liquid propane engines, they are properly classified as natural gas or liquid propane engines of statistical reporting number 8407.90.9010, HTSUSA.
Classification of goods under the HTSUS is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification 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.
In this case, there is no disagreement as to the 8-digit subheading under which the subject bearings are classified, i.e. subheading 8407.90.90, HTSUS. Rather, the issue is which 10-digit statistical reporting number applies. Thus, the HTSUSA 10-digit statistical reporting numbers under consideration are as follows:
8407 Spark-ignition reciprocating or rotary internal combustion piston engines:
8407.90 Other engines:
8407.90.90 Other . . .
* * *
8407.90.9010 Gas (natural or LP) engines.
* * *
Other:
8407.90.9080 Exceeding 18.65 kW.
GRI 2(a) states as follows:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or failing to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.
A determination as to “essential character” is driven by the particular facts of the case at hand. See, e.g., Alcan Food Packaging (Shelbyville) v. United States, 771 F.3d 1364, 1366 (Fed. Cir. 2014) (“The ‘essential character’ of merchandise is a fact-intensive issue.”); see also EN VIII to GRI 3(b) (“The factor which determines essential character will vary as between different kinds of goods.”). That said, essential character has traditionally been understood as “that which is indispensable to the structure, core or condition of the article, i.e., what it is” and as “the most outstanding and distinctive characteristic of the article.” Structural Indus. v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005).
It is well established that goods are classified in their condition as imported. See Worthington v. Robbins, 139 U.S. 337, 341 (1891). In determining the proper meaning of a tariff provision, the courts have held that where the HTSUS does not expressly define a term, “the correct meaning of the term is its common commercial meaning.” Arko Foods Int’l, Inc. v. United States, 654 F.3d 1361, 1364 (Fed. Cir. 2011). To determine the common commercial meaning, a court “may rely upon its own understanding of terms used and may consult standard lexicographic and scientific authorities.” Airflow Tech., Inc. v. United States, 524 F.3d 1287, 1291 (Fed. Cir. 2008).
Statistical reporting number 8407.90.9010 is an eo nomine provision that describes “Gas (natural or LP) engines.” The HTSUSA does not expressly provide a definition for a natural gas or liquid propane engine of statistical reporting number 8407.90.9010, so we turn to its common commercial meaning. Put simply, a natural gas or liquid propane engine is one that runs on natural gas or liquid propane. Therefore, an unfinished, incomplete or unassembled engine must have the essential character of a natural gas or liquid propane engine before it can be classified as a natural gas or liquid propane engine of statistical reporting number 8407.90.9010.
We agree that the unfinished engines with hardened intake and exhaust fuel valve seatings have the essential character of a natural gas or liquid propane engine of statistical reporting number 8407.90.9010, HTSUSA. Although the engines are not fitted with a fuel system, the hardened fuel valve seatings indicate that the engines are designed to run on liquid propane or natural gas. By contrast, engines with softer intake valve seatings can only operate on gasoline because they will corrode if they come into contact with liquid propane or natural gas, causing engine failure. Therefore, the engines with hardened intake and exhaust valve seatings have the essential character of a liquid propane or natural gas engine and are classified accordingly.
In light of the foregoing, we conclude that the subject unfinished engines with hardened intake and exhaust fuel valve seatings are described by statistical reporting number 8407.90.9010, HTSUSA as gas (natural or LP) engines.
HOLDING:
The protest is GRANTED.
By application of GRIs 1, 2(a), and 6, the unfinished engines with hardened fuel valve seatings are classified under under heading 8407, HTSUS, and specifically provided for under subheading 8407.90.90, HTSUS. The general, column one rate of duty for goods of subheading HTSUS 8407.90.90, HTSUS, is free. The subject unfinished engines are also described by statistical reporting number 8407.90.9010, HTSUSA which provides for “Spark-ignition reciprocating or rotary internal combustion piston engines: Other engines: Other: Gas (natural or LP) engines.”
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8407.90.90, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.02, in addition to subheading 8407.90.90, HTSUS, listed above.
Note 20(o)(14), Subchapter III, Chapter 99, HTSUS provides an exclusion for “Gas (natural or liquid propane (LP) engines each having a displacement of more than 2 liters but not more than 2.5 liters (described in statistical reporting number 8407.90.9910). The unfinished engines with hardened intake and exhaust valve seatings imported by PSI meet the terms of the exclusion language and therefore qualify for the claimed exclusion.
The HTSUS is subject to periodic amendment, so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 provision. For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, including information on exclusions and their effective dates, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china respectively.
Sixty days from the date of this decision, the Office of Trade, Regulations and Rulings, will make this decision available for CBP personnel, and to the public on the CBP Home Page at http://www.cbp.gov by means of the Freedom of Information Act, and other methods of publication.
Sincerely,
Craig T. Clark, Director
Commercial and Trade Facilitation Division