It has been almost 30 years since a court has ruled on what constitutes a handbag for purposes of determining the correct import duty. Yet, everywhere you look, from the sidewalk to the subway, women’s handbags are clearly getting bigger. The bags’ intended purpose hasn’t changed, but styles have; bigger bags have become the norm.
U.S. Customs and Border Protection (Customs) imposes a four-percent higher duty on plastic handbags if they are classified as “travel bags” rather than “handbags” under the Harmonized Tariff Schedules (HTS). While Customs has established rules for determining whether an article is classified as a handbag or travel bag, Customs’ classification of these articles may not have not kept up with fashion. The result is that importers are forced to classify their ever-larger plastic handbags into the higher-duty travel bag tariff provisions. For years, importers have relied upon a size test for determining the tariff classification of handbags; e.g., bags that are smaller than 12” (W) x 9” (H) are handbags. This simple metric has always masked more than it has revealed and, as bags grow bigger, it has become increasingly meaningless. Size is becoming less and less indicative of the use for which a bag was intended.
Customs defines a handbag as a bag designed to “carry money, credit cards, keys, and small or pocket-sized personal effects….” HQ H095041 (2010). In theory, a travel bag is designed to “contain various items including clothing and personal effects while traveling” (see HQ H014775 (2008)), but in practice Customs treats all non-handbags as travel bags.
The size of the bag is therefore only one, albeit important, factor in identifying a bag’s intended use. Larger bags are more likely intended for clothes, books and food while smaller bags are probably designed for smaller personal effects. But, as Customs has recognized, there is a dimensional middle ground – a range from 10” to 15” (W) by 7.5” to 12” (H) – within which the bag’s size does not clearly indicate its purpose.
For this subset, Customs has relied on other indicative, though not individually dispositive, criteria to determine the bag’s intended use:
• Compartmentalization. Handbags typically have smaller compartments in which to separate individual personal effects like a phone, keys or wallet. Travel bags, in contrast, are distinguished by undivided interiors designed to carry clothes or books. See HQ 961849 (1998).
• Closure. Handbags tend to have secure closures, such as a zipper or multiple snaps, to protect the smaller personal effects for which they were designed. See HQ 961358 (1999).
• Inside Zipper Pocket. Handbags are more likely to have inner zipper pockets to store smaller personal effects. See HQ H095041 (2010).
• Lining / reinforcement. A handbag is more likely to have an inner lining or reinforcement of the sides or corners designed to protect its contents. See HQ H095041 (2010).
• Tapered Size. Customs typically measures a bag’s dimensions at its largest point. However, if a bag decreases in size from bottom to top, Customs has been willing to rely on the size of the top, recognizing that the smaller opening prevents an individual from including items as large as the bag’s biggest dimension. See HQ W968454 (2007).
For importers of plastic bags the tariff differential is material; plastic-coated handbags have a 4% lower tariff (16% to 20%). In addition, importers of bags made from cotton pay a 0.3% lower duty on handbags than on travel bags (6% versus 6.3%). However, for importers of leather bags, or bags of other man-made fibers, a higher duty is imposed on handbags than on travel bags. Leather-coated travel bags have a 4.5% lower tariff (4.5% versus 9%), and travel bags of ‘other man-made materials’ have a 0.4% lower tariff (18% versus 17.6%). Thus, a retailer that imports bags made of both plastic and leather is in a Catch-22. To lower their duty obligations such retailers would want a broader definition of handbag as applied to imported plastic bags, but a narrower definition of handbag as applied to leather bags.
If you are a retailer that imports predominately plastic or cotton handbags, then you may want to consider challenging an adverse Customs’ classification in court. Courts have not been asked to review Customs’ treatment of handbags in thirty years, since U.S. v. J.E. Mamiye & Sons, Inv., 665 F.2d 336 (C.C.P.A. 1981). That case involved an interpretation of tariff terms under the old Tariff Schedules, which have been changed under the HTS and are no longer legally binding. Moreover, as Customs itself recognizes, under the new tariff terms it must classify handbags based on the article’s intended purpose. Yet Customs’ mechanical application of Cold-War era factors to assess 21st century intent overlooks the societal shifts that have occurred in the interim. In short, bigger handbags are now used to carry personal effects, which are not intended for travel. Given the legislative and industry design changes, a legal challenge may be the best way to force Customs to update its standards to reflect modern reality and ensure retailers are not paying too much duty on plastic handbag imports.
Content for this post was provided by John Brew and Dj Wolff in the Washington, DC office of Crowell & Moring.