Application for Further Review for Protest No. 1704-16-100117; Virtual Design Pro Sets

HQ H280511 May 22, 2017 CLA-2 OT:RR:CTF:CPM H280511 RGR CATEGORY: Classification TARIFF NO.: 9609.10.00 Port Director Port of Savannah U.S. Customs and Border Protection 1 East Bay Street Savannah, GA 31401 RE: Application for Further Review for Protest No. 1704-16-100117; Virtual Design Pro Sets Dear Port Director: The following is our decision regarding the Application for Further Review for Protest No. 1704-16-100117, timely filed by Counsel on behalf of Target General Merchandise, Inc. (“Protestant”) on January 18, 2016, regarding the classification of a virtual design pro car collection kit and a virtual design pro fashion collection kit (“activity kits” or “kits”), under the Harmonized Tariff Schedule of the United States (“HTSUS”). FACTS: The Protest describes one entry of Crayola Virtual Design Pro Car Collection kits and Crayola Virtual Design Pro Fashion Collection kits, on September 7, 2014. The protested merchandise allows children to create unique designs on paper, which can then “come to life in the virtual world” though an app that is downloaded separately. Each activity kit contains the following components: Paperboard storage case 20-page/10-design activity book consisting of pre-printed templates, which allow for the creation of 10 complete designs 36 colored pencils 20 markers 4 plastic stencils 1 pencil sharpener The Virtual Design Pro Fashion Collection kit provides a paper booklet of pre-printed black and white line drawings depicting a female model wearing various types of undecorated clothing. The child using the kit then uses the colored pencils, markers and stencils to design and color the print of the outlined clothing or the picture of the model. Using the “My Virtual Fashion Show” app, the child may scan their completed page and the clothing as designed and colored by the child, which will appear on a virtual model. Children can then add accessories and shoes, and alter the hair and skin tone of the model virtually, and see the completed ensemble on an animated model walking down a virtual catwalk. The Virtual Design Pro Car Collection kit also provides pre-printed black and white line drawings of various undecorated car designs, including sports cars, pickup trucks, etc. The child using the kit then uses the colored pencils, markers, and stencils to create a car design. The finished design can be scanned into the “Design and Drive” app, where the design will appear as a functioning car. Within the app, the car can be further customized with tire and rim designs. Various fantasy track locations are available within the app, as well as the ability to maneuver the car on the virtual track. Neither the applications nor the equipment needed for the applications, such as a mobile smartphone or tablet are included. The activity kits consist only of paper pages, colored pencils, markers, stencils and a pencil sharpener in a storage case. At the time of entry, the activity kits were classified as “sets” in the tariff provision for colored pencils, under subheading 9609.10.00, HTSUS, which covers “[p]encils and crayons, with leads encased in a rigid sheath.” Protestant now claims that the kits should be classified in subheading 4903.00.00, HTSUS, which covers “[c]hildren's picture, drawing or coloring books.” Protestant claims that the essential character of the kits is imparted by the 20 page activity book. Thus, Protestant argues that under General Rule of Interpretation (“GRI”) 3(b), the kits are classifiable under subheading 4903.00.00, HTSUS, because the 20 page activity books impart the sets’ essential character. CBP liquidated the entry on September 24, 2015. ISSUES: Whether the activity kits are classified as a set under GRI 3(b). If so, whether the essential character of the set is imparted by the activity book of heading 4903, HTSUS, by the plastic articles of heading 3926, HTSUS, by the paperboard case in heading 4823, HTSUS, or by the pencil sharpener of heading 8219, HTSUS, or by the coloring implements of Chapter 96, HTSUS. LAW AND ANALYSIS: The instant Protest and Application for Further Review (“AFR”) covers one entry of the subject merchandise, which was made on September 7, 2014. The entry was liquidated on September 24, 2015, and the Protest was timely filed within 180 days of liquidation of the entry. The matter is protestable as a decision on classification. 19 U.S.C. § 1514(a)(2). Further Review of Protest No. 1704-16-100117 is properly accorded to the Protestant pursuant to 19 C.F.R. § 174.24(b) because it is alleged that this protest involves questions of law or fact which have not been ruled upon by the Commissioner of Customs or his designee. Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRIs”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order. GRI 3(b)-(c) provide as follows: When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: … (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. *** The 2014 HTSUS provisions at issue are: 3926 Other articles of plastics and articles of other materials of headings 3901 to 3914: 3926.90 Other 3926.90.99 Other *** 4823 Other paper, paperboard, cellulose wadding and webs of cellulose fibers, cut to size or shape; other articles of paper pulp, paper, paperboard, cellulose wadding or webs of cellulose fibers: 4823.90 Other Other Other 4823.90.67 Other *** 4903.00.00 Children's picture, drawing or coloring books. *** 8214 Other articles of cutlery (for example, hair clippers, butchers' or kitchen cleavers, chopping or mincing knives, paper knives); manicure or pedicure sets and instruments (including nail files); base metal parts thereof: 8214.10.00 Paper knives, letter openers, erasing knives, pencil sharpeners (nonmechanical) and blades and other parts thereof *** 9608 Ball point pens; felt tipped and other porous-tipped pens and markers; fountain pens, stylograph pens and other pens; duplicating styli; propelling or sliding pencils (for example, mechanical pencils); pen-holders, pencil-holders and similar holders; parts (including caps and clips) of the foregoing articles, other than those of heading 9609: 9608.20.00 Felt tipped and other porous-tipped pens and markers. *** 9609 Pencils (other than those pencils of heading 9608), crayons, pencil leads, pastels, drawing charcoals, writing or drawing chalks and tailors' chalks: 9609.10.00 Pencils and crayons, with leads encased in a rigid sheath. *** In understanding the language of the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the Harmonized System at the international level. See T.D. 89-90, 54 Fed. Reg. 35127 (Aug. 23, 1989). EN to GRI 3(b) states, in pertinent part: (VII) In all these cases the goods are to be classified as if they consisted of the material or component which gives them their essential character, insofar as this criteria is applicable. (VIII) The factor which determines essential character will vary as between different kinds of goods. It may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods. … (X) For the purposes of this Rule, the term “goods put up in sets for retail sale” shall be taken to mean goods which: consist of at least two different articles which are, prima facie, classifiable in different headings. . . consist of products or articles put up together to meet a particular or carry out a specific activity; and are put up in a manner suitable for sale directly to users without repacking. . . *** The subject merchandise is composed of different articles. Analyzing it under GRI 1, there is no single provision in the HTSUS that completely describes the product. Likewise, it is not classifiable under GRI 2(a) or 2(b), because the article is not in an unassembled or incomplete state. Rather, it is imported as a complete article and is a set for tariff purposes, as the kits contain items classified in two or more headings of the HTSUS. The components of the kits are put up together to carry out the specific activity of coloring or decorating cars or runway fashions through the use of colored pencils, markers, stencils, and other components in the kits. Moreover, the kits are packaged in a retail carrying case with a single handle, ready for retail sale without repacking. The kits consist of several components, which are prima facie classifiable under different HTSUS headings. Moreover, all of the articles serve to meet the specific activity of coloring or stenciling line drawings of clothes and cars through the use of colored pencils, markers, stencils, and other components in the kits. The kits’ retail packaging consists of a paperboard storage case. It is ready for sale directly to the ultimate consumers without repacking. Under GRI 3(b), the kits are retail sets and shall be classified according to the component which gives them their essential character. See Estee Lauder, Inc. v. United States, 815 F.Supp.2d 1287 (Ct. Int'l Trade 2012). EN (VIII) to GRI 3(b) states that “essential character will vary as between different kinds of goods . . . it may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.” “[E]ssential character is that which is indispensable to the structure, core or condition of the article, i.e., what it is.” Home Depot USA, Inc. v. United States, 427 F.Supp.2d at 1293 (quoting A.N. Deringer, Inc. v. United States, 66 Cust. Ct. 378, 383 (1971)). Furthermore, the court stated "[a]n essential character inquiry requires a fact intensive analysis." Id.at 1284. Here, the stencils and the pencil sharpener are the least expensive items in the kits and play a secondary role compared to the other components in carrying out the purpose of the kits. Thus, we may rule out the stencils and pencil sharpeners as providing the essential character. The paperboard storage case is the most expensive item in the kits. However, the storage case does not relate to the activity of coloring or stenciling cars or clothes. It merely stores and organizes the design supplies when they are not in use. Instead, the essential character is imparted by the functional items within the sets. See Estee Lauder, 815 F.Supp.2d at 1297. After the storage case, the markers are the highest in value. Although the markers are the highest in value, their similarity in role to the other components with respect to the use of the kit overrides the slight cost differential between the components. See HQ H023622 (July 25, 2012) (although nail polish bottles and etched metal plates were the costliest components of a nail art design kit, the slight cost difference was overridden by the similarity of the components’ role with respect to the use of the nail art design kit). Among the 20-page/10-design activity book, the 36 colored pencils and the 20 markers, all three items play an indispensable role in relation to the use of the goods as kits, as all three items are used in conjunction with each other for the purpose of coloring or stenciling cars and clothes. However, by quantity, the colored pencils predominate with 36 components, followed by 20 markers, and then, the 20-page/10-design activity book. Taken together, the colored pencils and markers comprise an extensive grouping of coloring implements that can be used either in conjunction with the activity book or for other coloring purposes. Also taken together, the quantity and bulk of the coloring implements outweigh the activity book. Because of the greater quantity and bulk of the coloring implements, it is likely that a child using the activity kit will use the colored pencils and markers long after he or she has run out of pages in the activity book. The fact that additional coloring page templates are available to download once the activity book pages have been used up also implies that the coloring implements will outlast the activity book provided in the kits. Where each of the colored pencils, markers, and activity book play an equal role in carrying out the purpose of the kit, and where the colored pencils predominate in terms of bulk and quantity, we find that the colored pencils impart the essential character of the set. Therefore, the activity kits are properly classified under subheading 9609.10.00, HTSUS, which provides for “[p]encils and crayons, with leads encased in a rigid sheath.” Protestant argues that the subject activity kits are properly classified under subheading 4903.00.00, HTSUS, which covers “[c]hildren's picture, drawing or coloring books,” because the 20-page/10-design activity book imparts the essential character of the protested activity kits. According to Protestant, the activity books are “the focal point of each kit – they are the one component around which all of the other set components orbit.” In support of this argument, they cite to previous rulings where CBP held that the coloring/activity book in an activity set imparted the essential character of the set, such that the sets were classified in heading 4903, HTSUS. See New York Ruling Letter (“NY”) N009856 (May 14, 2007); NY N052458 (Mar. 20, 2009); NY N158975 (Apr. 18, 2011); NY N251273 (Mar. 18, 2014); NY K83001 (Feb. 18, 2004), NY N245910 (Sep. 17, 2013); NY N245824 (Sep. 17, 2013); and NY N009924 (May 21, 2007). However, in some of these rulings, the number of pages in the activity book exceeds the number of drawing/coloring implements in the kit. See, e.g., NY N009924 (May 21, 2007) (essential character imparted by three coloring books consisting of 58 pages in total); NY N052458 (Mar. 20, 2009) (essential character imparted by 48-page coloring book); and NY N009856 (May 14, 2007) (essential character imparted by 90-page activity book). We also note that in some of the rulings cited by the Protestant where the essential character was imparted by the activity/coloring book, the quantity of pages in the activity book proportionally outnumbered the accompanying coloring implements. See, e.g., NY N158975 (Apr. 18, 2011) (essential character imparted by 32-page activity book rather than 10 mini crayons, 8 crayons, or 9 markers); NY N251273 (Mar. 18, 2014) (essential character imparted by 20-page coloring book rather than 12 crayons); NY K83001 (Feb. 18, 2004) (essential character imparted by 20 activity book rather than 4 crayons and 2 markers); NY N245910 (Sep. 17, 2013) (essential character imparted by activity pad in a set that only included 4 crayons); and NY N245824 (Sep. 17, 2013) (essential character imparted by 25-page sketch book rather than 6 markers). In comparison, the protested activity kits contain a 20-page/10-design activity book and a total of 56 coloring implements, made up of 36 colored pencils and 20 markers. Thus, in the instant protest, the coloring implements constitute a more substantial component in relation to the use of the activity kits as a whole, compared to the colored implements in the cited rulings. In sum, we disagree with the Protestant’s argument that the essential character of the activity kits is imparted by the 20-page/10-design activity book, and we hold that the essential character is imparted by the 36 colored pencils. Accordingly, the activity kits are properly classified in subheading 9609.10.00, HTSUS, which provides for “[p]encils and crayons, with leads encased in a rigid sheath.” In the alternative, we also find that pursuant to GRI 3(c), the activity kits are properly classified in subheading 9609.10.00, HTSUS. Under GRI 3(c), where no single component of a set imparts the essential character, the merchandise is to be classified in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification. In regards to the protested activity kits, the tariff heading for colored pencils, subheading 9609.10.00, HTSUS, appears last in numerical order among the competing headings which equally merit consideration. Thus, under a GRI 3(c) analysis, we also find that the proper classification for the protested activity kits is subheading 9609.10.00, HTSUS, which covers “[p]encils and crayons, with leads encased in a rigid sheath.” HOLDING: Under the authority of GRI 3(b) and 3(c), the subject activity kits are properly classified in subheading 9609.10.00, HTSUS, which provides for “[p]encils and crayons, with leads encased in a rigid sheath.” The 2014 column one, general rate of duty for the subject merchandise was 14 cents/gross + 4.3% ad valorem. The protest should be DENIED. In accordance with Section IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the Protestant no later than 60 days from the date of this letter. Sixty days from the date of this letter, the Office of Trade will make this letter available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, Myles B. Harmon, Director Commercial and Trade Facilitation Division