Appeals Court Denies Request to Review HTSUS Modifications by Presidential Proclamations

Scales

On June 18, 2010, U.S. Court of Appeals for the Federal Circuit ("CAFC") affirmed the Court of International Trade's ("CIT") decision to deny request for judicial review of the Harmonized Tariff Schedule of the United States ("HTSUS") in 

Michael Simon Design, Inc. et al. v. U.S. 

Three importers filed action in the CIT challenging modifications to the U.S. tariff schedule made by Presidential proclamation. In June 2004, the World Customs Organization (WCO) proposed several amendments to the international harmonized system, including changes to Chapter 95, which covers "toys, games and sports equipment; parts and accessories thereof." Note 1(v) was added to Chapter 95 excluding apparel and other similar "articles having a utilitarian function" from duty-free classification under Chapter 95. 

In response to comments that Note 1(v) conflicted with recent decisions of CAFC holding that certain utilitarian articles were entitled to duty-free classification as "festive articles," the U.S. International Trade Commission ("ITC") proposed the creation of two subheadings to maintain substantial rate neutrality  for two categories of festive articles: (1) "utilitarian articles of a kind used in the home in the performance of specific religious or cultural ritual celebrations for religious or cultural holidays" and (2) "utilitarian articles in the form of a three-dimensional representation of a symbol or motif clearly associated with a specific holiday in the United States." Those duty-free carve-outs did not encompass festive apparel of the type imported by the appellants. In April 2006, the ITC issued its final report to the President recommending the addition of Note 1(v) and the subheadings for festive articles. Soon after, the President issued Proclamation 8097 adopting all of the Commission's recommended modifications; they became effective in February 2007. 

The appellants filed separate but substantially identical complaints in the CIT challenging the modifications to the HTSUS. Appellants invoked the Administrative Procedure Act (APA) and alleged that they had been "adversely affected or aggrieved b the CIT's decision to implement" the 2007 HTSUS modifications, and that the modifications were implemented in violation of law. 

The CIT consolidated the cases and then dismissed the consolidated action explaining that when a party invokes the general-review provisions of the APA, and no other statute provides for a cause of action, the contested agency action must be "final" in order to be subject to judicial review. The CIT stated that the final action in this case was not the ITC's recommendation but, rather, the President's proclamation adopting the proposed HTSUS modifications. The CIT also stated that the President's proclamation was unreviewable under the APA, because the President is not an "agency," and his actions do not constitute "agency action" within the meaning of the APA. Finally, the CIT noted that because the President has "complete discretion" in deciding whether to adopt the ITC's recommended modifications under 19 U.S.C. §3006, and because the ITC's recommendations "carry no direct consequences," the court lacked authority to review the lawfulness of the agency's recommendations to the President. 

After the case was dismissed, the Appellants filed an appeal with CAFC. On appeal, the CAFC stated that the APA, which the appellants invoked as the basis for their claim, authorizes suit by a party who is "adversely affected or aggrieved by agency action within the meaning of the relevant statute." When, like in the case at hand, agency action is not "made reviewable by statute," the agency action in question must be "final" in order to be subject to judicial review under the APA."

The CAFC held that because the acts that the appellants complained of were either non-final or not agency actions, and because judicial review was precluded even outside the APA framework due to the discretionary nature of the President's authority under §3006(a), the CIT's decision to dismiss the actions was affirmed. 

In support of its decision, the CAFC stated that judicial review of the ITC's recommending modification of the HTSUS was unavailable because ITC actions were not "final" for purposes of the APA. Specifically, the ITC's actions served as non-final recommendations that did not directly affect tariffs or bind importers. As such, they were not judicially reviewable under the APA. 

Appellants argued that the ITC's recommendations were "final" because the proposed modifications had the legal effect of overturning this court's precedents regarding classification of festive articles. The CAFC held that the ITC's recommendations did not alter the legal regime to which the decision maker was subject and did not have any binding legal effect on the relevant actions. The CAFC pointed out that the ITC's report under 19 U.S.C. §3005 was purely advisory: it did not contain terms or conditions that circumscribed the President's authority to act; it did not limited the President's potential responses; and it did not directly modify the HTSUS. Under 19 U.S.C. §3006(a), the President was not bound by the ITC's recommendations, so those recommendations did not have any impact on the President's exercise of discretion. Because the President's discretionary action was required to effect modifications to the HTSUS under §3006, the ITC's report could not directly impact legal rights or alter any legal regime in such a way that it would have a legal effect on President' s exercise of discretion. 

Therefore, the CAFC held that the ITC's recommendations under §3005 were not "final" and consequently not subject to judicial review under the APA. The CAFC also held that "the President's actions [of proclaiming modifications to the HTSUS] [were] not reviewable under the APA because the President is not an "agency" within the meaning of the APA."

In addition, CAFC stated that §3006 did not in any way limit the President's discretion in a way that would render the President's actions in this case judicially reviewable for exceeding his authority. On the contrary, "under section 3006(a), the President's authority [was] not constrained in any way by the Commission's recommendations. The statement in section 3006 that the President "may proclaim modifications, based on the recommendation by the Commission under section 3005 of this title, to the Harmonized Tariff Schedule" therefore does not restrict the President's discretion or render the President's actions judicially reviewable." 

The CAFC said that the only language in § 3006 that limited the President's discretion to proclaim HTSUS modifications was the requirement that the President "determine that the modifications (1) are in conformity with the U.S. obligations under the Convention; and (2) do not run counter to the national economic interest of the United States." In this case, the statute contained no language that expressly mandated substantial rate neutrality as a prerequisite to the President's authority to proclaim HTSUS modifications. Nor did the statue require any independent predicate to President's action. The President's authority under section 3006 turns solely on his assessment of whether the ITC's recommendations were in conformity with the U.S.'s obligations under the Convention and did not run counter to the nation's economic interests. Because those determinations were committed to the President's discretion and because the President's compliance with pars. 1 and 2 of section 3006(a) was not at issue in this case, the President's exercise of his discretion was not subject to judicial review.