Opinion ID: 687717
Heading Depth: 2
Heading Rank: 1

Heading: Historical Evolution of the Tariff Term Drugs

Text: 22 The Customs Simplification Act of 1954 directed the Tariff Commission to compile a revision of customs laws classifying imports for tariff purposes. The Commission submitted the Tariff Classification Study to Congress and the President on November 15, 1960; a supplemental report was submitted in January, 1962. The Commission's report, as amended, became the Tariff Classification Act of 1962. This act implemented the TSUS, which took effect on August 31, 1963. 4 23 The Explanatory Notes to Schedule 4, Part 1 of the Tariff Classification Study state: 24 Paragraph 28(a) provides, among other products, for certain products suitable for medicinal use and for medicinals. In the proposed schedules, the former are provided for in items 407.02 through 407.12; and the latter are provided for under the term drugs in items 407.20 through 407.90. The term drugs is defined in part 3, headnote 2, and its use in part 1 in lieu of the term medicinals is for uniformity of concept which would also provide clarification. Although some question was raised at the hearings in connection with this change of terminology, it is believed that no significant change in coverage or rate is involved. 5 25 Thus, the drafters of the Tariff Classification Act of 1962 recognized a distinction between drugs and medicinal preparations. The explanatory notes to the Commission's study further state: 26 Headnotes 2 through 5, inclusive, define the terms pesticides, plastics materials, plasticizers, and drugs, in the light of prevailing customs practice as well as usage in the industry. 27 Tariff Classification Study, Schedule 4, Part 1, at 21 (emphasis added). As enacted, Schedule 4, Part 1, subpart C, Headnote 5, TSUS (1963), contained the following definition: 28 The term drugs  in this subpart means those substances having therapeutic or medicinal properties and chiefly used as medicines or as ingredients in medicines. 29 This definition remained unchanged throughout the entire controlling period of the TSUS. 6 30 In response to a request by the President dated August 24, 1981, the U.S. International Trade Commission (ITC) initiated an investigation in order to prepare a conversion of the TSUS into the nomenclature of the Harmonized System. The ITC submitted its initial report in June 1983. 7 Annex I to this report contained the proposed Converted U.S. Tariff Schedule. The definition of drugs was now placed in Chapter 29, Additional U.S. Legal Note 1(c), which stated: 31 The term drugs  means compounds having anesthetic, prophylactic, or therapeutic properties and principally used as an active ingredient in a medicament. 32 Other than changing focus from substances to compounds, and broadening the reference to include anesthetic and prophylactic compounds, this definition retains the two substantive elements found in the TSUS definition. Significantly, however, the proposed tariff schedule no longer designated antibiotics as a subset of the broader heading drugs. Instead, Chapter 29 introduced the term antibiotics as an independent heading within the subchapter covering Other Organic Compounds. 8 33 The Trade Policy Staff Committee of the Office of the U.S. Trade Representative reviewed the ITC's 1983 draft proposal; this review resulted in publication of a second edition proposal in September 1984. 9 Notably, the Chapter 29 Notes in this second edition omitted the revised definition of drugs that was contained in the ITC's 1983 draft proposal. The Office of the U.S. Trade Representative published a third edition in October 1986, and a final proposed tariff schedule in July 1987. Neither of these drafts incorporated any definition of the term drugs. 10 34 The HTS, enacted as part of the Omnibus Trade and Competitiveness Act of 1988, 11 took effect on January 1, 1989. 12 In contrast to the TSUS, the HTS did not designate antibiotics as a subheading of the broader term drugs. Rather, the term antibiotics was designated an independent heading, i.e. Heading 2941. 13 Significantly, none of the forty-two Headings in Chapter 29 of the first edition of the HTS incorporated the term drugs; nor have these Headings since been amended to include the term in subsequent editions of the tariff schedule. Although the term drugs was retained, its position had been relegated to isolated subheadings, none of which were included under Heading 2941; in fact, the term drugs was incorporated into only sixty-three of the approximately 875 subheadings within the original Chapter 29. And, despite retaining the term, the HTS failed to expressly define drugs as it was used in the new tariff schedule.