Parties in Power Cell Case Clash Over HTS Interpretation, How Product Functions
The trade court asked both parties in a case for supplemental briefing addressing whether note 3 of the Harmonized Tariff Schedule’s section XVI should be applied to a supermodule that goes into power plants. The U.S. claims that the product should be analyzed under note 2, which it said was mutually exclusive with note 3; the importer, HyAxiom, advocates for interpretation under note 3 (HyAxiom v. U.S., CIT # 21-00057).
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
Under issue is HyAxiom’s PC50 supermodule, which is used in a hydrogen fuel-cell power plant module called a PureCell Model 400. HyAxiom argues that the supermodule is not a “part” of the PureCell Model 400 but rather a water gas generator that should be classified under HTS heading 8405 (see 2305160045). In contrast, DOJ claims it is “part” of the electric generator under headings 8501 or 8503 (see 2306220055).
In their briefs, the parties again strongly disagreed about whether the supermodule generates a water gas.
The government argued that notes 2 and 3 are mutually exclusive because applying note 3 to parts, which should be covered by note 2, would “violate [General Rule of Interpretation] 1’s requirement that only relative section notes apply.” It added that note 2 expressly states that it is only subject to the first notes of the section and of each heading.
Both parties “agree that the PC50 is a ‘part’ of the Model 400” and that note 2 applies to the supermodule, as both had been asked to provide previous briefing on the subject, the government said.
HyAxiom disagreed, stating that it believes both notes 2 and 3 could properly apply to the situation. It called note 3 a note of “general application,” usually to composite machines, that generally looks to products’ “principal function.” It said that the PC50 itself could be described as a composite machine, as it contains a primary component, a steam methane reformer, and other parts that support a function of that reformer.
The principal function of the supermodule is to generate water gas, it said. It pointed out that heading 8405 covers “producer gas or water gas generators, with or without their purifiers; acetylene gas generators and similar water process gas generators, with or without their purifiers; parts thereof,” which “describes the exact function of the PC50 supermodule.”
Note 2(a), it said, assists its argument by providing “that an article falling under any Chapter 84 or 85 heading (other than parts) must be classified under that heading, even if that article could more specifically be classified as a part of another heading.” This means that even if the supermodule could fall under heading 8503, it must be classified under HyAxiom’s preferred heading, 8405, the company said.
The two parties also discussed whether the explanatory note for Harmonized System heading 84.05, which notes that it covers “self-contained apparatus” for “generating any kind of gas,” should affect the court’s decision.
The government pointed out that the explanatory notes are not legally binding. Regardless, it said, the PC50 doesn't generate a water gas, and the HTS heading still describes only “a limited set of gas generators,” which does not include the supermodule.
Again, HyAxiom disagreed. The water gas the supermodule generates, it said, is the water gas contemplated by the relevant HTS heading.