Monday, October 01, 2018

Extinction, Biodiversity, and the Court of International Trade

[Note: I am so disappointed in the Federal Government (exclusive of the judiciary) that I am leaving this pinned here for a while. Advancing that into the future is the only way I could make it stick. The actual publication date is Aug. 18, 2018. Visit the NRDC, Center for Biological Diversity, and Animal Welfare Institute to donate.]

Over the years, the Court of International Trade has occasionally had to dip its judicial toes into environmental law. In Natural Resources Defense Council v. Ross, it was asked to do so to help prevent the potentially imminent extinction of the vaquita. Jumping in with both feet, Judge Gary Katzmann issued a fairly dramatic decision that appears to force the government to act consistent with an existing law intended to protect these animals.

"Vaquita" is Spanish for "little cow," but the animal in question is only the most distant of evolutionary cousin to the land-dwelling cow. The vaquita is the smallest known cetacean, which is the suborder of sea-dwelling mammals that includes whales, dolphins, and porpoises. The vaquita is native to the Mexican waters of the Gulf of California. It is also on the brink of extinction. There may be as few as 15 of these animals alive today. This is so few, that the loss of a single additional individual could significantly increase the likelihood of extinction.

Credit: San Miguel Times
The major threat to the vaquita is getting tangled in gillnets, which are nets hung in the water column with the intention of entangling fish and shrimp for human consumption.

U.S. law supports the worldwide preservation of the vaquita and other marine mammals through the Marine Mammal Protection Act ("MMPA"). Under the so-called Import Provision of the MMPA, 16 USC 1371, Congress sought to prevent the incidental killing of marine mammals in the course of commercial fishing worldwide. One tool it deployed is the "Imports Provision," 16 USC 1371(a)(2), which bans "the importation of commercial fish or products from fish which have been caught with commercial fishing technology which results in the incidental kill or incidental serious injury of ocean mammals in excess of United States standards." To make that comparison, regulations were implemented requiring a finding of comparability and creates a presumption that the foreign fishery is not operating to U.S. standards if there is no finding of comparability. Under 50 CFR 216.24(h)(1)(ii)(A), it is illegal to import fish or fish products from a fishery without a valid comparability finding. However, the regulation contains is a one-time exemption until January 1, 2022, apparently to permit commercial operators and foreign governments to transition their operations. There is also the option of "Emergency Rulemaking" to protect very small populations that are at the risk of extinction.

The Mexican government made efforts to protect the vaquita. For example, in June of 2017, it announced a permanent ban on gillnet fishing in the vaquita habitat. That ban, however, included an exemption for gillnet fishing of the curvina and sierra, which are known to cause vaquita fatalities. In addition, illegal gillnet fishing continues for totoaba, which is in demand in Asia for its swim bladders. Illegal shrimp and chano fishing also continues.

In this case, the Natural Resources Defense Council, the Center for Biological Diversity, and the Animal Welfare Institute, all of which are non-governmental environmental and conservation organizations, asked the Court of International Trade to impose a preliminary injunction on the importation of fish products from the Gulf of California fisheries using gillnets in a potentially last-ditch effort to help preserve the vaquita.

Rather than actually take action consistent with the clear intent of Congress to reduce vaquita mortality to close to zero, the United States Government opposed the motion on technical legal grounds. First, it challenged the Court of International Trade's subject matter jurisdiction. Second, it challenged the standing of the parties to bring the case.


All federal courts are limited in the scope of their authority. As a starting point, the Court must have jurisdiction over these subject matter of the dispute. Here, the plaintiffs are seeking an order enforcing what they believe to be a statutory and regulatory embargo on the importation of fish and fish products caught with gillnets. The Court of International Trade has jurisdiction over civil actions arising out of any U.S. law that provides for an embargo. 28 USC 1581(i)(3). Under the Administrative Procedure Act, a civil action can be commenced where a plaintiff asserts that an agency failed to take a "discrete" action that it is required to take.

The government's argument is that the ban on gillnet fish products is neither discrete nor is it required. Apparently, the question of whether it is consistent with Congressional direction or just the right thing to do was not enough sufficiently compelling for the National Marine Fisheries Service.

The Court found the ban to be both discrete and mandatory. The statute directs that the government "shall ban" the importation of these products. "Shall" indicates a command; it is language indicating that a duty is mandatory. Where Congress wants to be less than mandatory, it knows how to use the word "may." Furthermore, there is no waiver authority in this section of the law. The government argued that the 5-year exemption in the regulation indicates that it is not yet required to implement the embargo. The CIT noted that the statute does not contain that exemption and that the "Government cannot give itself a five year exemptions from compliance with the MMPA, which dictates that the Secretary of the Treasury 'shall ban offending imports in order to meet'" the legal requirement to reduce the killing of and injury to marine mammals. Thus, the embargo is required.

It is also discrete. While implementing the embargo may require multiple steps, that does not mean it is not legally discrete. Further, that the regulations do not define U.S. standards for purposes of making the comparability determination does not mean that the required embargo is not discrete. The fact is that the vaquita is on the verge of extinction and the importation of fish and fish products caught using gillnets is contributing to death of and injuries to vaquita. That is in direct contravention of the U.S. standards. Waiting until 2022 or any further agency delay may contribute to the extinction of this species. This is why the law directs that the Secretary of the Treasury "shall ban" the offending imports. This is sufficient to make the embargo a discrete action and to give the CIT jurisdiction.


Standing is the legal requirement that plaintiffs have a genuine interest in the litigation they commence. To have standing, the plaintiff must (1) have suffered a concrete and particularized injury that is either actual or imminent, (2) the injury must be fairly traceable to the defendant, and (3) a favorable decision is likely to redress the injury.

Here, the United States Government takes the position that because some of the individuals representing the plaintiff organizations have never seen a vaquita and have no plans to travel to the vaquita range, they do not have a particularized injury beyond the "subjective" interest in the animal. This is thick with irony as there may soon be no vaquita to see.

Environmental law has long recognized that a recreational and aesthetic interest in viewing nature is a protectable interest that can give rise to standing. That includes an interest in viewing a vaquita. The decreasing vaquita population and potential extinction impacts that interest in a real and direct way.  The fact that a single representative of the plaintiff organizations has the desire to observe the animal is sufficient.

The government's second argument is more compelling. The government correctly noted that the ultimate fate of the vaquita does not rest entirely in its hands. This is true. Even a complete import ban will not stop vaquita deaths if the Mexican government does not entirely ban gillnets in the vaquita range and if there is not complete compliance with the ban. Neither seems imminent.

It is also true that vaquita may be killed by passing boats, disease, or a hungry shark. That does not mean that the U.S. should not apply the law. Nor does it mean that doing so will not be an incremental and useful step (hopefully among several steps) to protect the vaquita. According to the Court of International Trade, the risk to the vaquita is fairly traceable to the government's inaction and a favorable decision will at least help redress that injury.

Preliminary Injunction

Having found jurisdiction and standing, the next question for the Court was, what to do? Plaintiffs asked for a preliminary injunction requiring the U.S. to ban the importation of fish and fish production from gillnets in the Gulf of California.

We have previously covered the legal standard for a preliminary injunction. Here, for example. This post is long enough as is, so I will not go into the details.

The statute mandates the immediate requested embargo to prevent the extinction of marine mammal species.  Furthermore, the U.S. standard is at least indicated by the National Oceanographic and Atmospheric Administration's assessment of "potential biological removal." Thus, the Court found there to be a likelihood that plaintiffs will ultimately succeed on the merits of their claim.

Next, the Court noted prior federal decisions stating that "Environmental injury, by its nature, can seldom be adequately remedied by money damages and is often permanent or at least of long duration, i.e., irreparable." Plaintiffs, who have personal and professional interests, both scientific and aesthetic, in the vaquita will suffer an irreparable injury to that interest in the event of the extinction of the vaquita. To say nothing of the harm to the vaquita itself (which, technically, not before the Court).

Regarding the balance of the hardships, the government made the reasonable argument that a preliminary injunction might interfere with ongoing negotiations with Mexico over fishing in the Gulf of California. In fact, according to the argument, it might be easier to secure an import ban without the preliminary injunction interfering with ongoing discussions. [Side note: This and the potential for related WTO litigation may be the underlying reason the U.S. opposed the imposition of an injunction.] The Court found that the statutory mandate and clear congressional intent to reduce the bycatch of marine mammals to near zero weighs in favor of the preliminary injunction.

Finally, the injunction is in the public interest. It is always in the public interest to ensure that federal agencies comply with the law. The statutory purpose here is to protect the vaquita and similar species. That is, therefore, the public interest.

The Court ordered that, pending a final resolution on the merits, that the United States ban the importation of all fish and fish products from the Mexican commercial fisheries that use gillnets in the vaquita's range.

The U.S. did so via a Cargo Systems Messaging Service posting, 18-00484, which says, in its entirety:

** This message supersedes message 18-000483 **

In response to a United States Court of  International Trade order (Slip-Op 18-92) and in cooperation with the National Marine Fisheries Service (NMFS), U.S. Customs and Border Protection (CBP), is imposing immediate import restrictions on fish and fish products from Mexico caught with gillnets deployed in the range of the vaquita, a species of porpoise endemic to northern Gulf of California waters in Mexico and listed as an endangered species under the U.S. Endangered Species Act.
This action prohibits the importation into the United States from Mexico of all shrimp, curvina, sierra, and chano fish and fish products harvested by gillnets in the upper Gulf of California (UGC) within the vaquita’s geographic range.  To effectuate the court order, the importation into the United States of shrimp, curvina, sierra, and chano fish and fish products under the HTS codes listed below, caught with a gillnet within the vaquita’s range, is prohibited.  Any shrimp, curvina, sierra, and chano fish and fish products not caught by gillnet in the vaquita’s range and imported under the HTS codes listed below from Mexico as country of origin must be accompanied by the certification set forth below upon arrival.

CBP also is requiring that all other fish and fish products not within the scope of the import restrictions but imported under the HTS codes listed below from Mexico as country of origin be accompanied by the following certification upon arrival:


As the Importer of Record or duly authorized official/agent of the importer of record, I do hereby certify, to the best of my knowledge and belief, that the fish/fish products contained in this shipment are of species of fish or fish products, or from fisheries, not caught with gillnets deployed in the range of the vaquita, in the upper Gulf of California waters in Mexico.

Printed Name (Importer/Agent)

If a completed U.S. IMPORT CERTIFICATION OF ADMISSIBILITY is not filed, then the entire shipment must be denied entry.

This U.S. IMPORT CERTIFICATION OF ADMISSIBILITY may be submitted to CBP via the Document Imaging System (DIS), e-mail, fax or physical presentation in hardcopy form to the appropriate CBP Port of Entry official for review.

Trade restrictions on these products harvested by gillnets in the UGC of Mexico will continue until a further order is issued by the court.  The U.S. Import Certification of Admissibility as outlined above will be required for the HTS codes listed in this notice until further, superseding guidance from NMFS is issued regarding these trade restrictions and the protocol for Certification of Admissibility. Such guidance from NMFS will be communicated through various means, including a notice in the Federal Register and a subsequent CSMS message in coordination with CBP.

Any questions of CBP regarding this message should be forwarded to the Commercial Targeting & Analysis Center (CTAC) at

The attachment to the Notice is here.

Finally, on August 14, 2018, the Court issued a second order basically reaffirming its prior decision and clarifying that the injunction is effective immediately. See Slip Op. 18-100.

Sunday, August 19, 2018

Tapenade Redeption

In 2016, I had fun participating in a mock oral argument on the classification of a loose mixture of chopped olives. The facts of that case were modeled on a ruling concerning the classification of olive tapenade and artichoke tapenade. See my discussion of that here. In the High Court of ICPA, I lost to a jury of my peers, which remains to this day a shocking stain on my record. I suspect the entirely fake judge was terribly biased.

Today, I have renewed confidence thanks to a decision of the U.S. Court of International Trade in Mondiv v. United States, in which the CIT found for the plaintiff that the merchandise is, in fact, sauce or a sauce preparation.

Despite my joy, I feel terrible physically and will make this quick.

Both products are prima facie classifiable in HTSUS Heading 2005, where CBP classified them as "Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 2006."

But, it also turns out that both products are prima facie classifiable in Heading 2103 as "Sauces and preparations therefore; mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard."

Because the merchandise is prima facie classifiable in two headings, the question under GRI 3(a) becomes which of the two is a more specific description. To make that determination, the CIT asks which of the two headings is more difficult to satisfy. Here, the Court held that to me "sauces" because preparing a sauce requires additional ingredients intended to enhance the flavor of food.

Also, the goods, when properly classified, qualify for NAFTA.

Thus, I clearly should have appealed the travesty of the ICPA mock trial.

If anyone needs me, I will be napping.

Saturday, August 18, 2018

Sigvaris Affirmed

This is far less interesting than the life and death fight over the vaquita, but nevertheless an interesting illustration of how tariff language is to be interpreted.

You may recall Sigvaris, the classification case involving graduated compression hosiery. These items exert 15 to 20 mmHg of compression on the wearer to force pooled blood to circulate out of the leg and throughout the body. Customs and Border Protection classified these products as graduated compression hosiery in Heading 6115, subject to a 14.6%rate of duty. Plaintiff protested, claiming that they should qualify for duty-free treatment as articles specially designed or adapted for the use or benefit of the physically handicapped in Heading 9817. These articles are duty-free. Customs denied the protests and the U.S. Court of International Trade agreed with Customs. The basic rationale for that decision was that these products are designed to help patients with early stage conditions that do not yet interfere with getting around and basic daily tasks.

The Court of Appeals for the Federal Circuit has affirmed that decision.

Although reaching the same result, the Federal Circuit took a different approach in the analysis. It found that the relevant inquiry is not, as the CIT had done, about the condition for which the merchandise is allegedly designed. Rather, it is about the persons for whom the merchandise may have been designed. According to the Court, merchandise entitled to duty-free entry must be "specially designed" for "persons" with a given limitation, not specially designed to address the symptoms of a specific disorder that may afflict a person.

Looking at it from this angle, the Federal Circuit held that to qualify for duty-free entry, the merchandise must be designed for the use or benefit of a class of person who has a physical limitation to an extent greater than it is designed for other persons. Evidence of this would include the physical properties of the merchandise, whether the merchandise is solely used by the handicapped, the specific design of the merchandise, the likelihood it is useful to the general public, and whether the merchandise is sold in specialty stores.

Given the facts found by the CIT, the Federal Circuit was able to conclude that the merchandise was not specially designed for the use or benefit of a specific class of persons at all. Consequently, it did  not need to reach the question of whether that class of persons also happens to be handicapped.

Tuesday, August 07, 2018

Lamps, Lanterns, and Justice

The Court of Appeals for the Federal Circuit has affirmed the Court of International Trade decision in The Gerson Company v.United States. This is the case you may remember from here, in which we discussed the difference between a lamp and a bulb.

As is the case in most classification cases, the issue on appeal was the same as it was below. Here, that means whether artificial tea light candles and similar devices are "lamps" of Heading 9405 or "electrical machines and apparatus . . . not specified or included elsewhere" of Heading 8543. It is relevant for purposes of discussion that Heading 8543 includes the subheading "electric luminescent lamps," at 8543.70.70 (now .71)

The Court of Appeals agreed that in a "hyper technical" sense, the artificial candles are electrical machines or apparatus. But, they are also lamps. What to do?

The Court noted that the apparent conflict (or ambiguity) can be resolved by reading the statute as a whole. Context matters. Looking at it in that light the Court found that 8543 must be more limited in scope than was proposed by plaintiff. If lamps are electrical machines and apparatus of 8543, and consequently excluded from 9405, what remains of 9405? Only non-electric lamps. That seems incongruous in that 9405 expressly covers searchlights and spotlights, which are presumably electrical. Furthermore, the Explanatory Notes describe lamps of 9405 as including lamps of any material that use any source of light, including electricity.

That would include lanterns. This one, for example, is perpetually powerful and able to recharge all your devices, including any extraterrestrial power rings you may have received from dying pink aliens. It would not be very useful in brightest day, but would be welcome in blackest night. [Yes, it has been a while since I did that kind of aside. It feels good.]

The description of electric lamps as complete items squares with the Explanatory Notes to Chapter 85, which describes that chapter as covering electrical goods not generally used independently. Rather, goods of Chapter 85 tend to play a particular role as a component in electrical equipment. To me, that sounds like a "bulb."

Gerson made several valiant arguments to overcome this analysis. It argued against using the Explanatory Notes to add limitations to the plain meaning of a Heading. It also argued that the Court of International Trade improperly treated these competing headings as controlled by use. Neither argument gained any traction.

There are a couple important analytical points to take from this case. First, the HTSUS is a statute that will be read as a whole to avoid conflicts. Any classification analysis that eliminates a potential heading must do so producing a consistent and logical reading of both headings. You can't leave one heading so limited in scope as to be effectively meaningless.

Second, always compare headings at the heading level. The fact that "electric luminescent lamps" appears in a subheading of 8543 does not dictate the scope of the heading.

One last point I think is worthy of note. The Court of International Trade almost always starts a classification analysis noting its obligation to reach the correct result. This comes from a 1984 Court of Appeals decision called Jarvis Clark Co. v. United States. The opinion was written by visiting Senior Circuit Judge John Minor Wisdom. Initially, it is important to linger at the beauty of being a judge named "Wisdom," (ignore the "Minor" part). That is like being a doctor named "Jane Curesall" or a super-villain named "Ed Nigma."

Regarding the Court's obligation to find the correct result, the Court of Appeals instructed:
The clear intent of Congress was to change the operation of the dual burden by requiring the Court of International Trade to reach a correct result. This requirement is not inconsistent with the presumption of correctness embodied in § 2639(a)(1). The importer still has the burden of establishing that the government's classification is wrong. Ordinarily it will be difficult to meet this burden of proof without proposing a better classification. But the trial court cannot determine the correct result simply by dismissing the importer's alternative as incorrect. It must consider whether the government's classification is correct, both independently and in comparison with the importer's alternative. In some cases, the government's classification may be so patently incorrect that the importer can overcome the presumption of correctness without producing a more satisfactory alternative. In other cases, the importer's alternative may have faults and yet still be a better classification than the government's. In either case, the court's duty is to find the correct result, by whatever procedure is best suited to the case at hand.
Apparently, this obligation does not attach to the Court of Appeals.  I gather that because in footnote 3 of this decision, the Court points to two alternative classifications, neither of which Gerson presented as alternative classifications. Because they were not argued, the Federal Circuit did not consider them. Had the CIT been aware of these alternatives, under Jarvis Clark, I think it would have been obligated to consider and, as appropriate, reject them. There may be no practical consequence to this difference in process. But, someday, there will be an odd case in which the best classification occurs to neither of the parties and not to the CIT. In that case, I guess the Federal Circuit would remand for further consideration.

Sunday, July 29, 2018

Swimways Floaties Classification

I often say that tariff classification cases rarely depend on disputed facts and, in my view, generally do not turn on facts not clear from an examination of the imported product. In other words, I often think these cases present fewer issues and can be more easily resolved than is the common view. 
That said, there are obvious examples of where this is not the case. One example is Swimways Corp. v. United States, in which the Court of International had to undertake a fairly detailed factual analysis to determine the essential character of recreational floatation devices made of plastic inflatable floatation bladders, textiles mesh, and a metal spring that permits the deflated device to be compacted and then snap back to shape for use. The case involves two groups of floaties, the first are designed for adults. The second are designed for young children to help acclimate them to water as the first part of a learn to swim program.

U.S. Customs and Border Protection classified these floaties (which is my word, not the parties’) as other textile articles in Heading 6307. The importer protested and asserted that the correct classification for the adult floaties is in 3926 as other articles of plastics. For the child floaties, the plaintiff claimed that the proper classification is in Heading 9506 as an article for general physical exercise.

Let’s deal with that last part first. “General physical exercise” is not defined in the tariff schedule, nor in the Explanatory Notes. The Court looked to the Oxford English Dictionary for the meaning of “exercise” and found it to be training for the purpose of improving the body, mind, or spirit. Physical exercise is more specifically “excursion undertaken with a view with a view to the maintenance or improvement of health.

The packaging for the baby floatie, on the other hand, explained that it was useful for introducing infants to the water. It also helps them stay comfortable and happy in the water. Even though this may be an important first step in learning to swim, it is not physical exercise. Thus, the Court rejected this proposed classification.

As a result, the floaties are all going to be classified in the same heading.

Analytically, this is a useful decision to read. It very methodically goes through the legal and factual issues and illustrates how a classification should be determined. The first important decision the Court made is that neither Heading 3926 nor Heading 6307 fully describes these articles.

Heading 3926 covers “Other articles of plastics and articles of other materials of headings 3901 to 3914.” Heading 6307 covers “Other made up articles, including dress patterns.” Note 1 to Chapter 63 specifies that the goods of that Chapter must be “of textile.” Neither heading fully describes the floaties. For example, neither describes the metal spring. Further, 3926 does not include the textiles and 6307 does not include the plastics.

Because of that, the headings and the relevant legal notes do not resolve the classification. As a result, the Court moved on the determining classification on the basis of the material that imparts the essential character to the floaties. I am not going to through all of it. Here are the highlights: 

The Court differentiated between materials and components for purposes of identifying essential character. With respect to materials, the Court held that by weight, bulk and value no material predominates. Consequently, the Court moved on to components.

Looking at each, the Court found that the inflatable plastic bladders provide the floatation to the floaties. This is, obviously, pretty key. In addition, the bladders are the most complex parts to produce. They are also the most expensive components. Those factors convinced the Court to classify the floaties in Heading 3926.

There was a bonus issue in this case. I suspect, but do not know, that this bonus issue came as a surprise to the parties. That can happen, in part, because the Court of International Trade has a mandate to find the correct classification, whether or not the correct classification was argued by either party.

The additional issue relates to an accessory to the baby floatie, which is a combination toy with four inflatable arms. On three of the four arms is an infant toy: a stacker, a squeaker, and a soft star. On the fourth arm is a teether. What to do with this accessory, which comes with the floatie?

One might expect that the toys would be included in the classification of the floatie as part of a retail set. The Court did not take that approach. Rather, pointing out that the “octopus” of toys and teether are not used in conjunction with the floatie for the purpose of floatation. They also do not rely on the floatation device for their use or value. Consequently, the Court classified the toy array separate from the floatation devices. That resulted in the floatation devices, which are not retail sets, being classified in 3926 along with a separate retail set of toys of Heading 9503.

Saturday, July 21, 2018

Jurisdiction Argument Goes Up In Smoke

U.S. Customs and Border Protection is the agency responsible for the collection of federal excise taxes. Recently, a question has come up regarding which court is the proper venue for an action to collect these taxes. Turns out, that is not as clear as you might have thought. United States v. Maverick Marketing, LLC Et Al., tries to sort that out.

Maverick Marketing and Good Time USA were involved in an agreement to import tobacco. Under 26 USC 5701, importers of tobacco are liable for federal excise taxes. The United States has alleged that Maverick and Good Times made material false statements and/or omissions when entering tobacco products into the United States and, as a result, deprived the government of excise taxes. A previous decision (Slip Op. 18-16) of the Court of International Trade denied defendants' motion to dismiss for failure to state a claim.

The jurisdiction problem arises from the language Congress used in the statute defining the jurisdiction of the Court of International Trade.  Keep in mind that the Court of International Trade, like all federal courts, can only act within the jurisdiction granted to it by Congress. For cases the United States brings to collect a penalty assessed by Customs, the relevant statute is 28 USC 1582, which says:

The Court of International Trade shall have exclusive jurisdiction of any civil action which arises out of an import transaction and which is commenced by the United States—
(1) to recover a civil penalty under section 592, 593A, 641(b)(6), 641(d)(2)(A), 704(i)(2), or 734(i)(2) of the Tariff Act of 1930; 
(2) to recover upon a bond relating to the importation of merchandise required by the laws of the United States or by the Secretary of the Treasury; or 
(3) to recover customs duties.
What's missing from that?

This case is about about recovering federal excise taxes, not customs duties. Federal excise taxes are not mentioned in the statute. Furthermore, this part of the case is not about recovering a penalty; it is only about the taxes. To the extent that the surety was also a defendant, the Court does have jurisdiction under subsection (2) to recover on the bond.

The Court of International Trade was able to see its way through this and find it has jurisdiction. The key is that Section 1582 gives the Court "exclusive jurisdiction of any civil action which arises out of an import transaction and which is commenced by the United State . . . to recover a civil penalty under" section 1592. Section 1592(d) permits the United States to seek the recovery of any duties, taxes, or fees it was deprived of as a result of the false statement or omission. Furthermore, 1592(d) states that Customs may recover lost duties, taxes, and fees even if no penalty is assessed. Consequently, when subsection (1) gives the CIT jurisdiction over a claim to recover a civil penalty under section 1592, that necessarily includes the recover of unpaid taxes and fees, despite subsection (3) being silent as to taxes and fees.

The Court also held that the federal excise taxes are legally equivalent to customs duties for purposes of jurisdiction. Boiling it down: The taxes on tobacco products are imposed on imported merchandise, become due at the time of entry, and are collected and administered by Customs. The taxes are also based on the value of the imported merchandise and reported on the entry documents. All in all, they are handled as if they are duties. This finding is consistent with a federal appeals court case from 1951 that was referenced in the relevant legislative history to 28 USC 1582. It also comports with the ancient legal principal "Si is vultus amo a anatis, natat ut anates, et quacks quasi anas est anatem tum verisimile."

On those two grounds, the Court found it had jurisdiction over is action brought by the government to recover federal excise taxes.

Sunday, July 08, 2018

Duty Drawback, TFTEA, and Administrative Delay

Tobacos de Wilson, Inc., et al. v. United States, et al. is an effort to force Customs to apply amended drawback law after the statutory deadline but before Treasury has completed the regulatory process. It is pretty in the weeds but is important to drawback claimants. In the bigger picture, it is a good example of using the Courts to ensure that administrative agencies are meeting congressional mandates for action.

The Trade Facilitation and Trade Enforcement Act of 2015 (known awkwardly as "TFTEA," which is pronounced "tiff-TEE-ah" in my office) made three important changes to the duty drawback law. Those changes, intended to make drawback less cumbersome, include: a change to the standard for substitution manufacturing drawback; a change to the test for commercial interchangeability for substitution unused merchandise drawback; and an expansion of the period for filing drawback claims.

Under the law, Treasury (remember, drawback is all about the money) had two years to pass regulations implementing TFTEA. That two-year period expired on February 24, 2018 without implementing regulations. Apparently, a draft Notice of Proposed Rule Making is been sent to Office of Management of Budget for review. Under the statute, starting February 24, 2018, drawback claimants can elect to proceed under the pre-amendment version or under the TFTEA.

On February 5, 2018, Customs and Border Protection published a Guidance Document (the link goes to Version 3)stating that it would not apply the TFTEA until the pending regulations are fully promulgated. That guidance also included restrictions on drawback not included in the TFTEA. Among those restrictions is the denial of accelerated disposition for TFTEA claims pending the new regulations.

The first question, as is always the case, is whether the Court of International Trade had jurisdiction to hear this challenge to CBP's Guidance Document. The Administrative Procedure Act, 5 USC 702, gives individuals a means to challenge a final agency action. But, it is not a jurisdictional statute. Some other statute must grant the court hearing the case the authority to do so. In this case, jurisdiction is based on 28 USC 1581(i)(4), which gives the Court of International Trade exclusive jurisdiction over "civil actions commenced against the United States, its agencies, or its officers, that arise out of any law of the United States providing for administration and enforcement with respect to, among other things import revenue collection. According to the Court, the Guidance Document, which is an operative statement of CBP policy and details how drawback claims are to be processed, is a final agency action subject to review. Consequently, this case is properly before the CIT.

Thus, under the APA, the question to be resolved is whether the policy stated in the Guidance Document is arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or is without observance of procedure required by law.

Plaintiffs' first and second counts relate the allegation that the Guidance Document illegally limits a claimant's rights to accelerated payment. Accelerated payment of drawback claims is a regulatory provision that does not depend on the drawback statute, either pre- or post-TFTEA. See 19 CFR 191.92. Under the Guidance Document, CBP would continue to grant accelerated payment for claims filed under the old law but would decline accelerated payment for claims filed under TFTEA. According to plaintiffs, this is inconsistent with the regulations, especially 19 CFR 191.0, which states generally that the regulations apply to all drawback claims. Plaintiffs' reading of that makes it applicable to TFTEA claims as well.

The Court of International Trade rejected that argument. According to the Court, TFTEA requires Treasury to determine the calculation methods to be applied to refunds. Those methods will be determined in the regulations. Thus, for claims filed under TFTEA, the law requires a determination as to methodology that has not yet occurred. The regulation, therefore, is inconsistent with the statute and is invalid when applied to a TFTEA claim.

Plaintiffs also challenged two limitations on TFTEA drawback claims: the "first-filed" and "mixed use" rules. The first-filed rule means that the first claim made relating to a line on an entry will dictate the type of drawback available to be applied to the remaining merchandise on the line. This can limit the drawback available to claimants if, for example, some of the merchandise was first claimed on the basis of direct identification. All subsequent claims for that entry line must also be based on the direct identification method. Under the mixed use rule, claimants must identify entry lines that are subject to both pre-TFTEA and TFTEA claims. Under the most recent Guidance Document, CBP will accept these claims, but not process them until the regulations are passed.

Because CBP will not be enforcing these rules until the regulations are in place, the Court found these claims to be moot.

Plaintiffs next argued that the deadline for implementing regulations was mandatory and that the government's failure to comply entitles Plaintiffs to relief. The Court agreed that the deadline in the statute s clear and mandatory. Plaintiffs and other claimants are being deprived of benefits Congress intended to be in place by now. This, according to the Court, is a violation of the law.

The question is what to do about that violation? The Court had already ruled that the plaintiffs do not have a right to accelerated payment under TFTEA. Consequently, it refused to order it. The Court also found that it was not yet necessary to order Treasury to complete the regulatory process by a date certain. Instead, the Court ordered that if the government did not complete the process by July 5, 2018, the Court would consider imposing a deadline. [Note, this opinion was issued on June 29, 2018.] On top of that, the Court noted its willingness, if necessary, to craft further relief to ensure that the benefits of TFTEA are not lost due to administrative delay.