CAFC Says HTS Heading 8547 Must Have 'Commercially Significant' Electric Insulation
The U.S. Court of Appeals for the Federal Circuit on Oct. 23 ruled that steel tubing with insulating material imported by Shamrock Building Materials is classifiable as steel tubes of heading 7306, rather than insulated conduit of heading 8547, subjecting the steel tubing to 25% Section 232 tariffs.
Judges Richard Taranto, Todd Hughes and Tiffany Cunningham held that goods falling under Harmonized Tariff Schedule heading 8547, which covers electrical conduit tubing of base metal lined with insulating material and isn't subject to Section 232 steel tariffs, must have a "commercially significant insulation of the conduit against current flow." They found Shamrock's steel tubing, despite having a thin interior coating of epoxy, melamine and silicon additives, doesn't have a commercially significant level of insulation.
The decision affirmed the Court of International Trade's ruling, which made a similar determination regarding Shamrock's entries (see 2303140035).
The imports at issue have an interior coating that in part functions to "facilitate the installation of electrical wires within the conduit" by shielding them from tears resulting from friction created when the wires are pulled through the conduit. Shamrock presented a marketing brochure that emphasized this installation function, along with "litigation-prompted testing" that shows a "nonzero amount of resistance to electrical current flow."
The customs spat boiled down to an interpretation of HTS heading 8547 because a product that fits under this heading is excluded from heading 7306, and "vice versa," said the decision, written by Taranto. The court sided with the government's reading of the heading, rejecting Shamrock's claim that the heading covers any lining that contains insulating materials, such as epoxy resins or silicone.
The court held that the natural reading of the phrase "lined with insulating material" is that the lining must be a material that is insulating, otherwise the heading could cover material with an insulating compound that also has "highly conducting material."
Taranto added that the term "insulate" can be used to include "protection of various kinds," but heading 8547 doesn't cover all kinds of insulation. The relevant insulation type is best understood to mean "protection against the passage of current (and/or heat) from an electricity-conducting wire through to the metal tubing," the decision said.
The court said Explanatory Notes 85.47 and 73.06 confirm this reading because they "draw a distinction between" insulated tubing, covered by heading 8547, and uninsulated electrical conduit tubing, covered by heading 7306. EN 85.47 says metal tubes lined with non-electrically insulating material fall under heading 7306 and it excludes tubing simply coated with varnish to prevent corrosion.
Taranto also held that the "most sensible standard is one tied to the intended purpose of the commercial product: the provision of a commercially significant degree of electrical insulation when an electricity-conducting wire is in use in the conduit." The standard for assessing how much electrical resistance is needed is "what the commercial marketplace deems significant when the product is used as intended," the judge said.
The standard can be "implemented by facts from the marketplace," including product promotion that compares the amount of resistance provided by goods outside of heading 8547 with "non-electrically insulating material covered by heading 7306." And while CBP cites several CBP rulings that classify lined electrical conduit under heading 8547 without referring to the degree of the electrically insulating property of the lining material, the rulings don't "provide any analysis of how to interpret 'lined with insulating material' or determine what degree of 'insulating' function" is needed.
(Shamrock Building Materials v. U.S., Fed. Cir. # 23-1648, dated 10/23/24; Judges: Richard Taranto, Todd Hughes and Tiffany Cunningham; Attorneys: Patrick Gill of Sandler Travis for plaintiff-appellant Shamrock Building Materials; Nico Gurian for defendant-appellee U.S. government)