A) A self-help group meeting.
B) Attorneys practicing their meeting and oral advocacy skills.
C) Office of Regulations and Rulings (OR&R) attorneys discussing a landmark ruling.

If you guessed "C," you're right. While talking about whether the bunny is a toy or a pillow may seem like frivolous conversation, the result of the discussion could have enormous economic impact on a specific importer and/or on a whole segment of the trade community.

Who gets rulings and why?
Rulings, and the subjects they address, are the linchpin of the importing process and can be extraordinarily complex. Rendering rulings, among other things, is the work of many attorneys and national import specialists in Customs and Border Protection's (CBP) Office of Regulations and Rulings (OR&R).

If an importer isn't sure how his goods may be classified, he may request a written ruling. If the subject of the ruling request is a tariff classification then the request goes to the national import specialists working in the National Commodity Specialist Division (NCSD) of OR&R in New York. This division issues a ruling which is usually very concise - not more than a page or two - determining how the goods will be treated. If the ruling request presents a novel issue or if ports are handling the commodity differently, i.e., classifying it under different tariff provisions, the division may forward the request to OR&R, in Washington, D.C., a.k.a. "Headquarters." An importer may also request a Headquarters' review of an NCSD decision. Headquarters rulings often contain a detailed legal rationale for a classification determination, with discussion of the laws, regulations and court decisions that apply. Ruling requests on other subjects such as valuation or carriers are sent directly to Headquarters.

Classification—simple term for a complex process
So what is this critical part of the process known as classification? Similar to biology, where organisms are classified into classes and phyla, so too, are commodities classified into categories. The "tariff treatment" or duty that is assigned is made up of several components: the appropriate classification under the Harmonized Tariff Schedule of the United States (HTSUS), the value, and the country of origin of the goods or products being imported.

The HTSUS provides the applicable tariff rates and statistical categories for all merchandise imported into the United States; it is based on the international Harmonized System, the global classification system used by more than 150 countries to describe imported goods. The HTSUS is divided into sections and chapters dealing with merchandise in broad product categories. The categories cover all commodities ranging from animal products, vegetable products, and products made from various materials such as, wood, textiles, plastics, rubber, steel, and metal products in all stages of manufacture to high-tech electronic goods. Vastly simplified, a product is assigned a number, which corresponds to the category that most closely describes the product. But often, more than one category describes the product, or worse yet, none seem to. Potentially, there are any number of factors which can complicate the process, and it's OR&R's job to figure out where it best fits.

Photo Credit: Gerald L. Nino

Attorneys Andrea Hopewell, Tom Beris, and Deborah Stern examine an automobile emergency kit, scooter, and a stuffed toy.

Classification of a commodity determines the rate of duty that will be levied on that product. Let's say an importer wants to import a glass container. Is the container for the conveyance or packing of goods, like a jar in which pickles are packaged for sale? Or is it better described as glassware of a kind used for table, kitchen, toilet, office, indoor decoration... like a decorative container for candy or cotton balls? Why does the importer care? If the container falls into the first category it may be free of duty; if it falls into the second, the duty rate can be anything from 5 to 30 percent. No duty or 30 percent? If you were an importer, which would you want to apply?

Consider a foot-propelled scooter. Is it a wheeled toy for children or a non-mechanically propelled vehicle? If it's a toy, it's free of duty. If it is classified as a vehicle, it carries a 3.2 percent duty rate. But it would be duty-free if, for instance, it were a product of Mexico, and meets the rules under the North American Free Trade Agreement (NAFTA).

Are you confused yet? Well, there's more!

Where is the commodity from?
Determining the country of origin sounds simple. Generally, the country of origin is where the good is produced. Establishing the country of origin is critical because international trade agreements provide exemptions from restrictions and provide special tariff treatment for goods meeting specialized country of origin rules.

Remember that scooter we're trying to import? What if some of the components are made in China and others in Russia or Israel, but it's assembled and painted in Canada before it is imported into the United States? Does assembly make it a product of Canada? Does this make it eligible for special treatment under NAFTA? Could the country of origin be China, Russia or Israel? If it's Israel, does the U.S.-Israel Free Trade Agreement apply? What if the scooter or some of its parts originated in Cuba, a country under a United States trade embargo?

And what is the value of the commodity?
Valuation is a complex and esoteric area of law applied to establish the appraised value of imported merchandise. As a general rule, the value is based on the price paid for the goods. Frequently, the duty rate is based on the proportional, or ad valorem, appraised value of the goods. Seems easy, right? No, not really. There are additions and adjustments that affect the appraised value. For example, royalties associated with the production and sale of the goods may in certain circumstances be added to the price. On the other hand, if the buyer pays an amount for post-importation assembly, the charges are not included in the appraised value. Finally, if the goods were not the subject of a sale at all, several other valuation methods exist to establish the appraised value.

Effect on trade
Tariffs increase transaction costs in the business of international trade, and the trade community, both foreign and domestic, make critical decisions based on these costs. Our government's trade negotiations also take transaction costs into consideration. The trade community wants and needs predictable information on which to base decisions. Rulings are a critical element in this process - serving to educate and inform the trade community and to provide transparency for its import transactions. In a highly competitive world, transparency and predictability are important elements for business success.

Getting answers when you need them
Spurred by the old but valid adage that "time is money," various trade constituencies were critical of the length of time that it took to receive a ruling. To reinforce his commitment to facilitate trade and foster cooperative trade relations, Commissioner Robert Bonner instructed OR&R to eliminate its backlog of rulings over 90 days old and issue all new rulings received within 90 days by the end of fiscal year 2002. Under the leadership of new OR&R Assistant Commissioner, Michael T. Schmitz, OR&R management and staff successfully met the Commissioner's mandate. The trade's enthusiastic reaction to OR&R's hitting the mark has been covered widely in the press and in trade conferences across the nation.

OR&R has increased the accessibility of rulings to the public. Rulings are available on the CBP Web site at www.cbp.gov and are published in the Customs Bulletin. The Commercial Rulings Online Search System (CROSS), a user-friendly comprehensive rulings database, was created to facilitate and improve the trade's access to rulings.

All of these sources of information make it relatively simple for members of the trade to stay informed. An importer or producer can research past rulings, review quota restrictions, and read trade agreement provisions. An efficient system for classifying commodities and generating rulings stimulates the flow of goods into our country. While the security of our borders is a top priority, a strong and vibrant trade economy is equally critical to the continued stability of our nation and our role as a leader in the world economy.

Did you know... that an item designed to look like a real fish mounted on a trophy board that moves its tail and sings a song might be considered a machine or a toy? Ultimately, it's a joke or novelty item that "puts the user at humorous disadvantage." that once you cut a piece of fabric into a specific size or shape, it is no longer a piece of fabric? It could become an "apparel accessory" like a scarf or some other type of apparel. that electric toothbrushes are not classified as toothbrushes, but as electromechanical domestic appliances?