On September 6, 2018, CBP issued Headquarters (HQ) H299857, a significant information letter upholding a New York ruling interpreting how Section 301 tariffs will be applied to certain retail sets containing only some goods subject to the section 301 additional tariffs. The HQ ruling involved a reconsideration of New York (NY) ruling N298532 (July 26, 2018) which held that a 129-piece Mechanic’s toolset is properly classified in 8206.00.00, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “[t]ools of two or more headings 8202 to 8205, put up in sets for retail sale.” general rate of duty applicable to products of subheading 8206.00.00, HTSUS, is “[t]he rate of duty applicable to the article in the set subject to the highest rate of duty.” In accordance with the application of the duty rate in subheading 8206.00.00 to “[t]he rate of duty applicable to the article in the set subject to the highest rate of duty,” NY N298532 considered the duty rate of each article in the set. With respect to the five (5) items classified in subheading 8466.10.0175, HTSUS, NY N298532 considered the column one rate of 3.9% duty plus the additional 25% Section 301 tariff. Accordingly, NY N298532 concluded that the rate of duty applicable to the entire set was 28.9%.

HQ concluded that the NY approach was consistent with CBP’s policies and past practices. The requesting party pointed to a section 301 FAQ, which states that:

When importing goods put up in sets for retail sale (in accordance with General Rule of Interpretation 3) that contain articles subject to the Section 301 remedy, if the product that imparts the essential character to the set (i.e. the HTSUS provision under which the entire set is classified) is covered by the Section 301 remedy, then the entire set will be subject to the additional 25% duties. [Emphasis added.]

If the HTSUS provision under which the entire set is classified is not covered by the Section 301 remedies, but the set contains components that are classified in a subheading covered by the 301 list, the 301 duties will not be assessed on the individual components.

HQ pointed out that this rule applies only when GRI 3 is used. Furthermore, the above reasoning is inapplicable to this set since it is unlike other sets where the duty rate used is that of the component that imparts the essential character, here the duty rate is determined based on the article with the highest duty rate and the entire set must be taken into account. CBP stated:

…in contrast, the set is classified by reference to GRI 1. See Informed Compliance Publication “Hand Tool Sets Classified Within Subheadings 8205.90.00 and 8206.00.00” (“Subheading 8206.00.00, HTSUS, allows for tools that are put up in sets suitable for retail sale to be classified under this one subheading based on GRI 1 . . .”). This guidance therefore does not address the situation presented. Furthermore, the above reasoning is inapplicable to this set since it is unlike other sets where the duty rate used is that of the component that imparts the essential character, here the duty rate is determined based on the article with the highest duty rate and the entire set must be taken into account.

CBP did not dispute that,

…if entered separately, and as mentioned in T.D. 91-7, each item would be subject to the column one rate of duty associated with its tariff classification, with only the items specifically listed in U.S. Note 20(b) of Subchapter III, Chapter 99, HTSUS, subject to the 301 measures. Here, however, the items are entered under 8206.00.00, HTSUS, as part of a set. The entire set is subject to “[t]he rate of duty applicable to the article in the set subject to the highest rate of duty.” Here, that article is subject to a 28.9% rate of duty. Therefore, under the plain terms of the provision, the entire set is subject to a 28.9% rate of duty.

HQ affirmed NY N298532 which applied the 28.9% to the entire 129-piece set, although only five items in the set were on the Sec. 301 list at the time.