CIT Reverses Course on Ability to Hear Best Key Case on Metallized Yarn Ruling, But Upholds Revocation

Best Key Alleges Ruling Revocation the Fruit of CBP Misconduct

To make its yarn, Best Key mixes “nanometal powders” of aluminum and zinc into a polyester slurry, then extrudes the yarn. It says the nanometals give the yarn antibacterial, antimicrobial, and anti-ultraviolet properties. In 2011, CBP issued a ruling that found Best Key’s monofilament yarn with metal nanoparticles to be metallic yarn under tariff heading 5605, dutiable at 13.2%. Then Best Key asked for a ruling on a “johnny collar” shirt made from the yarn to cement the duty benefits from the metallized yarn. The shirt would have been dutiable at 6% if found to be made of metallic yarn. But CBP classified the garment as made from polyester yarn -- not metallic -- and said it was dutiable at 32%. According to Best Key, the apparent contradiction was the result of misconduct by CBP officials that misreported the results of a lab test that proved the yarn was metallized (see 13061418).

Then, in April 2013, CBP proposed to revoke its ruling on the monofilament yarn and reclassify it as polyester yarn under heading 5402 (see 13042908). The duty rate on Beat Key's yarn would drop to 8%. But the reclassification would also allow CBP to continue to classify shirts made from the yarn as being made from polyester. Best Key alleged the revocation was the fruit of improper collaboration between CBP and domestic textile industry organizations lobbying for a more protectionist interpretation. CBP finalized its reclassification in October, and Best Key filed suit.

CIT Reverses Course, Can Hear APA Case on 1581(i) Grounds

CIT had dismissed the challenge in December, finding that Best Key couldn’t challenge the ruling revocation because it wasn’t the direct importer of the goods, and wasn’t directly injured (see 13121317). Best Key filed a request that the court reconsider the dismissal (see 13122701). It said it wasn’t challenging the content of the ruling, but the way that CBP arrived at its decision.

The court granted Best Key’s request, albeit reluctantly. “The court agrees it is ‘highly questionable’ whether a Customs’ ruling that lowers the rate of duty on a product the plaintiff has no expressed intention of importing can result in aggrievement or adverse effect to the plaintiff, either directly or under a ‘zone of interests analysis, as intended under the Administrative Procedure Act (APA),” said CIT. In its motion for reconsideration, Best Key had argued it had a right to challenge the ruling revocation under the APA simply because it is “adversely affect or aggrieved” by CBP’s action. “While the court stands by its prior ruling in general, it is, nonetheless, the plaintiff’s product that is the subject of the ruling at issue,” said CIT. “The court will therefore presume Customs’ ruling ‘reviewable,’ and the complaint’s allegation of ‘aggrievement’ sufficient to invoke jurisdiction under section 1581(i)(4),” it said.

No Evidence of CBP Misconduct, Says Court

The standard the court would use to decide Best Key’s challenge is the APA’s tough “arbitrary and capricious” standard. Under that standard, to reverse an agency action the court has to find a “clear error.” In this case, Best Key didn’t convince the court that CBP’s ruling revocation was so far out of line.

First, CIT examined Best Key’s allegations of misconduct by CBP. It found no evidence on the court’s record to credit them. “There is no indication from the record” that CBP communicated with Best Key’s competitors or lobbyists on the issue of classification, said CIT. CBP had consulted the American Fiber Manufacturers Association and the National Council of Textile Organizations during the proceeding. “It is plain from the record that during Customs’ internal debate, prior to deciding whether the Yarn Ruling should be revoked or was correct, it simply reached out for help informing its own expertise," said CIT.

Turning to the classification decision itself, Best Key had argued that HTS heading 5605 covers all forms of metallized yarns, but the court said that CBP reasonably found that not to be true. The explanatory notes expressly exclude some types of yarn with metal, such as anti-static yarn, so the heading doesn’t include a yarn just because it is metallized. That supports CBP’s decision to look to the “nature” of the yarn as well as the metal content to find whether a yarn should be classified as metallized under heading 5605.

Any amount of metal content does not a metallic yarn make, said CIT. “In the end, Customs reasoned that to classify in accordance with [Best Key’s] argument that any fiber’ with as little metal as is present in the instant yarn in heading 5605 would expand the heading far beyond its current scope, to include any yarns which contain trace amounts of metal as a byproduct of common textile treatments, and which have never been considered metallized yarn,’” said the court. “This logic holds especially persuasive power. By [Best Key’s] literal reasoning, even a barely measureable amount of metal -- a couple of atoms? -- ‘intentionally’ introduced and dispersed into a slurry would suffice for a ‘metallized’ yarn of heading 5605,” said CIT. “That is, quite literally, reduction ad absurdum,” it said.

Reached for comment while traveling, Best Key’s counsel John Peterson of Neville Peterson called the case a “big victory” for plaintiffs on the issue of CIT’s jurisdiction to hear challenges to CBP decisions. On the matter of the court’s decision on Best Key’s metallized yarn in particular, Peterson said Best Key would “soldier on” in the case. The Justice Department and CBP did not immediately return requests for comment.