Thursday, August 28, 2014

Reservations about the Reserve Calendar

Customs cases present a few unique challenges to potential litigants in the U.S. Court of International Trade. One of those that every unfavorable liquidation of a customs entry stands alone as a possible claim to be brought to the Court for review. Often, multiple entries are grouped together into a single protest and the denied protest forms the basis of the case. The plaintiff initiates the case by filing a summons, rather than a complaint as is done in most courts. The summons puts the case on the Court's Reserve Calendar (see Rule 83) where it can sit for 18 months or more if the Court grants an extension. Sometimes, the cases sit on the Reserve Calendar for substantially more than 18 months.

Why is this the process? Because the typical customs case involves a small potential refund but is often one in a series of many similar potential cases that are worth litigating in the aggregate. To facility the resolution of issues covering many entries and many protests, the Court allows cases to sit on the Reserve Calendar and pile up. The plaintiff then has several options for how to proceed.

As far as I know, the most common approach is for the plaintiff to select one representative case as a "test case" under Rule 84. Once a test case is designated, cases with the same questions of law and fact can be suspended pending the outcome of the test case. When the test case is finally resolved, the parties can usually agree to stipulated judgments in the suspended cases. In some circumstances, it may turn out that the judgment in the test case is not applicable to the some of the suspended cases. When that happens, those cases need to proceed to judgment. Sometime, not often, one side or the other just does not like the result in the test case and will proceed to litigate again in the hope of getting a different result. In customs law, because each denied protest is a separate case, we can have serial litigation of the same issue until pressing the case again is frivolous and a waste of time. At that point, the lawyers involved has problems of their own.

An alternative is to consolidate all of the cases into one action and have all of the cases finally resolved together. That happens when the collection of cases is relatively small and manageable.

Another option is to keep the cases on the Reserve Calendar while a single case is litigated but not designated a test case. When the litigation is done, the parties can negotiate a settlement or stipulated judgment. That, however, requires plaintiffs to manage the docket very closely and ensure that the time allowed for the case to remain on the Reserve Calendar does not expire. After 18 months, the case is in danger of being dismissed. Rule 83 says, in part:

(c) Dismissal for Lack of Prosecution. A case not removed from the Reserve Calendar within the 18-month period will be dismissed for lack of prosecution and the clerk will enter an order of dismissal without further direction from the court unless a motion is pending. If a pending motion is denied and less than 14 days remain in which the case may remain on the Reserve Calendar, the case will remain on the Reserve Calendar for 14 days from the date of entry of the order denying the motion. 

The Rule also says:

(d) Extension of Time. The court may grant an extension of time for the case to remain on the Reserve Calendar for good cause. A motion for an extension of time must be made at least 30 days prior to the expiration of the 18-month period. 

 All of which is background to Rockwell Automation, Inc. v. United States. I will not go into the gory (and they are gory) details of what happened. In the end, the requested extension of time to remain on the reserve calendar was granted. However, the case puts the bar on notice that it is not acceptable to repeatedly miss the deadline for filing motions for an extension of time and to seek relief out of time, even with the consent of the defendant. Again, I leave it to you to read the gory details.

But, I have a question about how Rule 83 is supposed to work. Honestly, I had always treated Rule 83(d) as requiring that a motion for an extension of time be made at least 30 days prior to the expiration of the 18-month period and also 30 days prior to the expiration of any subsequent extension granted by the Court. That's safe and conservative.

But, a good friend of mine who is also in the thick of CIT litigation pointed out that the rule does not actually say that. The 30-day requirement specifically references "the expiration of the 18-month period." That is the first period on the Reserve Calendar and not the subsequent extensions. It would appear that motions for subsequent extensions are permitted without any advance notice. The Court effectively rejected this argument when it quoted Rule 83(d) as follows, including the bracketed edits and italics: "[a] motion for an extension of time [to remain on the Reserve Calendar] must be made at least 30 days prior to the expiration of the 18-month period [or later, if the 18-month period has been extended pursuant to USCIT Rule 83(d)]."

A similar issue crops up with respect to the role of the Clerk's Office. Rule 83(c) says that a case not removed from the Reserve Calendar within the 18-month period will be dismissed by the Clerk of the Court without the involvement of a judge (assuming no motion is pending). But, what happens after that 18-month period when a case is still on the Reserve Calendar due to an extension of time having been granted? That is not "within the 18-month period" and, therefore, it appears that the Clerk should not dismiss the case on her own.

If the 30-day notice and automatic dismissal rules only apply to the first 18-month period and not subsequent extensions, then Rockwell may be a lot of angst over nothing because the requests for extensions were timely if filed before the last day of the extended Reserve Calendar period. If they were timely, the Court should liberally grant them when the plaintiff shows "good cause," which the Court refers to as a lenient standard. If the motions were untimely, then the plaintiff has the much higher burden of having to show excusable neglect. No one likes to argue that they were negligent even if the neglect was excusable.

Unfortunately, given that the motion was granted, there is nothing from which to appeal. That means the questions raised above will remain theoretical until someone misses a date and has their case dismissed after the initial 180-day period on the Reserve Calendar. Not that anyone asked, but it looks to me like the test case-suspension process is looking better. Of course, that process has its own docket management issues. But those issues do not arise until after the test case is decided.

As always, tell me if I am wrong about this.


Friday, August 22, 2014

Ruling of the Week 5: Right to Make Entry

There is an important and sometimes silly aspect of customs law involving who has the right to make entry. There is a statutory requirement that the importer of record for merchandise entering the U.S. be a party with the right to make entry. Specifically, the IOR may be the owner or purchaser of the goods or a broker appointed on behalf of the owner, purchaser or consignee. That is fine and seems clear. The problem is that it just does not fit with all of the crazy ways international transactions get structured these days. For example, what if Acme Corp. Canada owns some merchandise located in Canada that it wants processed in the U.S. by a third party. There is no purchaser in the U.S. because Acme Canada continues to own the goods. Acme Canada could be the (non-resident) importer as the owner. But, what if Acme Corp. USA decides to offer to help and act as importer? That might be an issue. Acme USA is not the owner (that is Acme Canada), it is not the purchaser, and because the goods are going to a third party, it is not the consignee. What to do?

Customs and Border Protection has been extremely reasonable on this issue, which is a good thing. According to Customs, it views the "owner" of the goods as being any party with a financial interest in the transaction. See Directive 3530-002A (Jun. 27, 2001). Note, this is not any part with a financial interest in the merchandise (for example a lien). Rather, it is a financial interest in the transaction.

In HQ H240983 (Jun. 23, 2014), Customs considered whether a selling agent working for the foreign producer is an "owner" with the right to make entry even though it never takes ownership (in the traditional sense) of the goods. The Directive referenced above explicitly includes buying and selling agents as parties with an interest in the transaction. Consequently, the only real question here was whether the party involved qualifies as a selling agent. If so, no problem.

In this case, the agent's activities were controlled by the seller. Those activities included securing purchase orders, establishing shipping schedules, customer service, and reporting to the seller on the progress of the transaction. The agent also performed post-entry logistical services for which it was compensated. Taken together, the agent qualified as a selling agent and had a financial interest in the transaction over and above its status as an agent. Thus, the agent had the right to make entry as the owner or purchaser of the goods.

All of which is perfectly logical and informative. Of course, what should really happen is that Congress should amend the law to avoid people having to ask this question. The IOR should probably by any party in the U.S. or with a registered agent in the U.S. who is willing to get bonded by a surety and accept responsibility for the shipment. Isn't that pretty close to where we are now?

Monday, August 18, 2014

Hi, I'm Back

Domain issue fixed. Return to your normal activities. My fear of having my domain hijacked by a competitor has passed.

GRK Canada: Wood Screws, Fly Swatters, and Butter Knives

Is it possible that I failed to report on the Court of International Trade decision in GRK Canada, Ltd. v. United States? I can't find it on my own blog, so that seems to be true. Well, the Federal Circuit has vacated and remanded that decision back to the CIT, so pretend it never happened and start here.

The issue is the proper tariff classification of various screws. Customs and Border Protection liquidated the the screws as "other wood screws" in HTSUS item 7318.12.00. GRK protested, asserting that the correct classification in in 7318.14.10 as "self-tapping screws." The Court of International Trade held that both subheadings were eo nomine, meaning that the scope of the heading depends on the description of the product by name rather than by use. Because the government's argument in the Trade Court was based on the use of the screws in wood, the Court found it to be weak and ultimately unconvincing. The Court then found that the imported products had physical characteristics of both wood screws and self-tapping screws. Because the competing subheadings were equally specific, the CIT applied GRI 3(c) and classified the screws as self-tapping, which is the last subheading in numerical order.

The Federal Circuit disagreed with the Court of International Trade in a very fundamental way. According to the majority opinion, an eo nomine designation may inherently suggest a type of use. For example, the eo nomine term "fly swatter" implies that the item is used for the swatting of flies. Under the the Federal Circuit's analysis, it would be incorrect for the Court of International to ignore this implication when classifying fly swatters and similar articles.

In fact, how could it be otherwise? What are the physical characteristics of a fly swatter that define it as such? They tend to have long handles and heads consisting of some kind of mesh or light solid surface. That might also describe a squash racket and a spatula. Other characteristics that distinguish the fly swatter might include the value and materials. But, the real distinction is that the product is designed for swatting flies, which makes the use and probably the marketing relevant.

With this in mind, the Federal Circuit held that "other wood screws" "seems naturally aligned with the indented use of screws," meaning that they are screws used to fasten wood. Further, the Explanatory Notes indicate that wood screws and self-tapping screws are similar but that self-tapping screws are intended to cut into metal and slate. The Court of International Trade recognized this when it stated that self-tapping screws as made of hardened materials. But, the Federal Circuit found this distinction to be trivial and insufficient to differentiate the products. According to the Federal Circuit, "The use of goods may be an important aspect of the distinction of certain eo nomine provisions, in particular, where, as here, the name of the provisions refers directly to the use of subject articles."

As a result, the Federal Circuit vacated the decision of the Court of International Trade and sent it back for reconsideration.

All of which would have been interesting enough. But, there's more. There is a dissenting opinion from Judge Reyna, who was a trade lawyer before he became judge. Judge Reyna says that once the Court determined that the two subheadings at issue are eo nomine provisions, it was improper to "import a principal use analysis into its construction of the eo nomine subheadings." So much for my fly swatter.

Also, Judge Reyna correctly points out that the CIT applied the legally binding General Rules of Interpretation to their logical conclusion at GRI 3(c). Rather than fault the CIT for that analysis, the Federal Circuit should recognize that resolving this kind of classification conundrum is exactly why GRI 3(c) exists.

Judge Reyna makes a strong case. He wants to focus on lexicographical evidence of the common and commercial meaning of the terms "other wood screws" and "self-tapping screws." Reviewing that evidence, he would find that the industry, and presumably the rest of English-speaking America, differentiate these screws based on the physical characteristics of the screws, which is what the CIT did. He would have affirmed the CIT.

This is a tough case. I think it turns on two important questions. The first question discussed by the Federal Circuit is whether the phrase "other wood screw" is an eo nomine designation that inherently suggests a limitation based on use. That is my fly swatter analogy. If so, does the law then require the Court of International Trade to consider use in determining the classification? That consideration raises the second question: is this really an eo nomine classification? Is "wood screw" meaningfully different than "screw for use in wood?" The latter would be a use provision and all of this goes away because we no longer have competing eo nomine provisions. I'm not suggesting that is the right answer. For example, a butter knife, has all kinds of common uses other than cutting and spreading butter. There are physical characteristics that define a butter knife including a rounded tip and relatively dull cutting surface. All I am suggesting is that this is an interesting case and is exactly the kind of issue customs lawyers love to sort out.

Friday, August 15, 2014

Ruling of the Week 4: Gelato

I need to give you a post on GRK Canada v. United States, which is a recent decision of the Court of Appeals for the Federal Circuit on the classification of screws. It is interesting and deserves attention. You'll have to wait a bit.

In the meantime, enjoy some dessert, specifically a product called "Le Crème Pregiate - Ricotta con pezzi di pera e gocce di cioccolato." According to Customs and Border Protection, this delicious sounding stuff is gelato containing milk, sheep-milk ricotta, semi-candied pear pieces, chocolate chips, and a bunch of other stuff. As with many rulings issued from CBP in New York, there is no analysis provided in N255285 (Aug. 6, 2014). The end result is that it is classifiable in HTSUS subheading 2105.00. The specific tariff item will depend on whether the goods are imported in or out of the milk quota, which is why this caught my attention. That result is similar to the unbaked cinnamon rolls we discussed last week.

See a theme here? That's right, I am hungry. Also, one of my few hidden talents is that I make pretty awesome ice cream. I'm going to have to work on ricotta and pear, that sounds good to me.

Saturday, August 09, 2014

Ruling of the Week 3: Mmmm Cinnamon Rolls

The New York Times occasionally profiles a business traveler. One of the questions the paper asks is whether the traveler has any secret airport vices. It surprises me that more of the profile subjects do not say cinnamon buns. Very few things on Earth smell better than airport cinnamon buns. But, I will admit, I do not think I have ever actually eaten one. They seem to me to be sized for a family of six. That is not intended to sound virtuous. I am not opposed to the airport beer or the airport milkshake. On rare occasions, I will indulge in the airport McFlurry. But, I find the cinnamon roll to be altogether too daunting a challenge.

Which brings me to the ruling of the week: HQ H158455, which is still proposed. 

The importer had requested a ruling on the tariff classification of unbaked cinnamon rolls imported for retail establishments to proof and bake. Originally, CBP classified them as food preparations of flour in HTSUS item 1901.90.90. Apparently, the importer was not happy with that result and asked CBP to reconsider the ruling. In that request, the importer provided additional information including details of the dry weight of the various ingredients. It may not surprise you to learn that more than 10% of that dry weight was white sugar derived from cane or beet.

Do you know what that means? It is not necessarily a good thing for the importer.

It means that the unbaked cinnamon rolls are classified in HTSUS item 1901.90.56 as products containing 10% or more sugar. That puts the products under the sugar quota system. If the goods are not from Mexico and the quota limit is filled, the duty on the merchandise is going to go from 10% ad valorem to 23.7 cents per kilo plus 8.5%, which I assume is more than 10%.


Is there a lesson here? For purposes of learning about tariff classification, this is a straight up GRI 1 analysis. The only fact that changed and resulted in the revocation was that Customs got better information from the importer about the product. From a strategy perspective, keep in mind that the facts you present may have apparently unintended consequences.

Sunday, August 03, 2014

Trouble, With a Capital T&E

You should remember from the prior post on this case that the Court of International Trade held C.H. Robinson liable for duties on imported clothing from China that entered the U.S. bonded for transportation and exportation (“T&E”), but were never exported. That is a violation of the bond. C.H. Robinson was the bonded carrier responsible for delivering the merchandise to Laredo, but another carrier was going to accomplish the actual exportation to Mexico. It appears the goods made it to Laredo, but it is not clear what happened after that.

When U.S. Customs and Border Protection audited the T&E, C.H. Robinson produced the stamped Mexican pedimento entry documents as proof of the export. Unfortunately, Mexican Customs subsequently declared the pedimentos to be false. As a result, Customs hit C.H. Robinson with liquidated damages of $75,000, which it mitigated to about $57,000. Customs then went to court to collect that amount plus duties, taxes, and fees. The total amount was in excess of $100,000. The Court of International Trade found C.H. Robinson breached the bond and is, therefore, liable. This appeal resulted.

As background, keep in mind that when goods are moved via T&E, the bonded carrier may be liable for any shortages, failures to deliver, or irregular delivery. 19 CFR 18.8(a). In addition, the regulation allows Customs to collect duties, taxes, and fees related to “missing merchandise” from the bonded carrier. On appeal, C.H. Robinson’s point was that the goods are not “missing” because it made it to Laredo, the intended port of exportation.

But, that did not convince the Court of Appeals. While C.H. Robinson did show documents indicating delivery to Laredo, those documents were not conclusive proof of delivery. Customs can ask for additional evidence such as bills of lading or delivery receipts, which C.H. Robinson did not produce. Further, evidence that the merchandise was not exported (i.e., the false pedimentos) leads to the possibility that the goods remain somewhere in the U.S. If that’s true, the goods are “missing.”

Remember, C.H. Robinson was not supposed to export the goods. Its job was done when it delivered the clothing to Laredo, where another carrier was going to accomplish the exportation. On appeal, C.H. Robinson argued that it was not obligated to produce evidence of exportation because it was not responsible for exporting the goods. Neither the Court of International Trade nor the Court of Appeals for the Federal Circuit accepted that argument. The problem for C.H. Robinson is that it was the bonded carrier and once the goods went missing, there was a breach of the bond. According to the courts, that makes C.H. Robinson responsible.


Since no one could find the goods and there was no proof of exportation, the Court of Appeals affirmed the CIT’s determination that the government had proven by a preponderance of the evidence that the goods are missing. That was enough and C.H. Robinson remains on the hook.

Saturday, August 02, 2014

Ruling of the Week 2: Flashing Jewel Sticker

In HQ H236025, which is technically still a proposed ruling, Customs and Border Protection will change the tariff classification of a star-shaped green plastic jewel. The jewel includes a battery and an light. When pressed, it flashes. And, to make it really useful at your next rave, the jewel is adhesive and can be worn anywhere on the body.

Anyone want to guess its tariff classification?

CBP's analysis is mostly about what this thing is not. It is not imitation jewelry because it does not imitate the small articles of person adornment of precious metal or of metal clad with precious metal. In other words, this thing is not trying to look like earrings or a brooch for example and, therefore, won't be classified as imitation jewelry.

Next question is whether it is a portable electric lamp. I guess it is possible that kids at Lollapalooza might get close enough in the dark to read by the light of their green jewel stickers. But, CBP noted that the light flashes and does not provide much illumination. Because the purpose of this gizmo is to adorn the body rather than provide light, Customs excluded it from classification as a portable electric lamp.

That leaves Heading 3926, the final resting place of many plastic tchotchkes. Heading 3926 covers "other articles of plastic" and 3926.90.40 covers imitation gemstones.

To me, that raises an interesting question. Customs excluded this item from imitation jewelry because it did not imitate traditional jewelry. Last time I looked, no natural gemstones flash to the beat of The So So Glos, which seems to say it is also not trying to imitate a gemstone. Maybe somewhere else in 3926 would be more appropriate.