Wednesday, December 28, 2005

Privilege & Waiver & Complaints: Oh, My!

The Court of International Trade had an interesting question in the latest chapter of the Optrex penalty litigation.

To understand this, you need to know about the first chapter. Optrex is an importer of liquid crystal display devices. It ran into a classification problem and received a notice of penalty from Customs. So far, this is fairly routine. What makes it interesting is that Optrex claimed that there should be no penalty because it had relied on advice of counsel, which is evidence of reasonable care. Hearing that, Customs said, "prove it" and asked to see the advice. Optrex declined citing attorney-client privilege.

Obviously that put Customs in a bind. It could not make any kind of reasonable care decision simply on the basis of Optrex's assertion that it sought the advice of counsel. At the same time, Optrex has a right to assert the privilege. It also has a right to waive the privilege; either on expressly or through its actions. In Court last year, Judge Barzilay held (slip op. 04-79) that by asserting the advice from counsel as a defense, Optrex made the substance of the advise an issue in the litigation. Like it or not, Optrex waived the privilege. So, the advice came into Court and Customs got a look at it.

There was another discovery side show involving the proposed deposition of a CBP lawyer. The question there was whether that lawyer was giving legal advice to Customs, which would be privileged, or whether he was acting as an investigator. In that case, his communications with others in CBP or ICE would not be privileged. See, this privilege stuff is important and can be tricky.

Now that everyone has read the advice of counsel it seems that what Optrex did was get advice and not follow it. Insert voice of Homer here: D'Oh.

Consequently, Customs asked the Court of International Trade for permission to amend its complaint to assert a higher level of culpability: gross negligence and fraud rather than simple negligence. The effect of that would be to at least double the potential penalty and, in the case of fraud, extend the statute of limitations.

Normally, amending a complaint is fairly routine. But, the Court has discretion and should look at a number of factors including the prejudice to the defendant--in this case, Optrex. In her most recent decision (slip op. 05-160), Judge Barzilay denied the motion to amend the complaint.

She based her decision principally on the fact that Customs is required to tell the importer the level of culpability in the notice of penalty. This allows the importer to respond properly at the administrative stage. Without this opportunity, the importer might not have the ability to resolve the matter administratively before going to Court. A more ominous interpretation would permit Customs to always claim simple negligence in the penalty notice and up the ante whenever the importer refuses to pay and decides to go to Court.

The CIT's decision is in line with the normal rule that both sides to an administrative process must go through the entire process before jumping into Court. There are some cases in which the Courts have waived this requirement, but Judge Barzilay held that this is not one because the administrative process is set by statute.

The last point in the case involves the statute of limitations. This is the rule that if Customs wants to bring a penalty case claiming negligence or gross negligence, it must do so within five years from the date of entry. Customs argued that because the evidence was concealed, it could not have made a gross negligence claim and it wants to do so now. The Court disagreed and said that the five-year limit is firm. But, she noted that the period for fraud cases does not begin to run until the fraud is discovered. So, the government retains the opportunity to make a fraud case provided it runs through the proper administrative process.

All of which is quite interesting. At least to me.

Tuesday, December 20, 2005

Customs Goes MTV

I have repeatedly said that the work CBP does is important. For the most part, CBP handles its job in a professional and respectful way. It also needs a bit of marketing to let people know the important job it does and may need to attract some new folks to do it. That is probably why it has posted some videos explaining Customs to the world.

I am particularly taken by this one. It has "Miami Vice-ish" music; James Bondy shots of fast boats, cars and even horses; and some peeks at high-tech looking gadgets. It also has a bit of pathos in that CBP personnel are shown saving lives in what appears to be the desert along the southern border. You know they are saving lives because the video includes a helpful title sliding across the screen saying "Saving Lives." Other titles include "Preventing terrorism," "Securing Our Borders," and "Seizing Contraband."

The two things I like best are first that the file is actually called "cbp_music_video" and, second, that the video ends with a graphic of plane taking off and then a smashing pane of glass. I'm not sure that last bit was well thought out. I am sure this is not likely to be a big hit on TRL.

Thursday, December 15, 2005

Turf Fights & Job Openings

It seems that the press is picking up on the apparent mess at Homeland Security. This Newsweek article notes that the issues go way beyond my question of whether it makes sense to keep CBP and ICE as two separate agencies. It turns out that all three border control agencies--Customs & Border Protection, Immigration & Customs Enforcement, and the Citizenship & Immigration Service--all lack a leader. In addition, there are apparently ongoing issues between CBP and ICE relating to turf and money. The article says these fights are sapping morale and debilitating the agencies.

So, let's get it over with and merge at least CBP and ICE. And, since the President seems to be having trouble finding a leader for the agencies, I hereby volunteer for the top job in the merged agency. Mr. President, feel free to call me at the office.

Something Squirrely at CBP

This doesn't require much in the way of comment. It is worth noting that the story was carried in at least 40 media outlets checked by my automated news search.

Tuesday, December 13, 2005

Broken heroes on a last chance power drive

Sorry Bruce, make that "power strip."

It's a funny thing that Customs still puts out the Customs Bulletin. Seems like there is no point. Between a posting to its web site and a Federal Register notice, it seems like they should be able to have everything sufficiently public. But, they still put it out. And, every now and then, I find something surprising in it.

Today, I discovered that your basic surge protector-type power strip is not actually a device for protecting electrical circuits under 8536.30.80, which has a duty rate of 2.7%. Why would I ever have thought that? Well, because power strips generally include a fuse or circuit breaker and also circuitry to filter out spikes in voltage. The reason you use them is to protect the sensitive circuits in your expensive electronics. So, on its face, 8536 seems like a good heading for their classification. This makes so much sense that Customs issued a bunch of rulings to this effect.

Not so fast. Customs correctly found a problem with that kind of thinking (see page 56). If there is a circuit breaker or fuse plus surge protection circuitry, then the power strip incorporates two separate apparatus of heading 8536. Since those two items are on a board, panel or base, they fall within the terms of heading 8537 and specifically under 8537.10.90. Unfortunately, that tariff item has the same 2.7% rate of duty. It's a wash.

The moral of the story is as old as classification: read the full text of the heading every time.

Kate Moss not on the Most Wanted List

Immigration and Customs Enforcement posts its list of the most wanted criminal aliens. These are all bad guys and there is really nothing funny about the list except that model and alleged cocaine abuser Kate Moss is not on the list. Why am I thinking about this? Because this article quotes a Customs & Border Protection spokesperson saying that if Kate Moss is convicted of a crime in the U.K., she won't be admitted to the U.S. to work. Consequently, it appears that Ms. Moss is staying out of the U.K. and not planning to cooperate in the investigation.

Maybe she will get the Noriega treatment.

Is this legal?

Is it legal to sell a Customs & Border Protection uniform patch, like this person is doing? I know I am the customs lawyer and I am supposed to have the answers to these questions. But, I'm not sure about this and I don't plan to look it up. If anyone knows, please drop a comment.

Wednesday, December 07, 2005

Customs Does Gucci a Solid

Customs maintains an active enforcement program relating to intellectual property laws. This is the job of the Intellectual Property Rights Branch at headquarters. The job of the IPR branch is to prevent the illegal importation of goods bearing infringing trademarks, trade names, or unauthorized reproductions of copyrighted works. As I mentioned previously, they are also responsible for the enforcement of laws relating to traffic in cultural properties. I have always thought that heading up that branch would be a great job. In law school, I was very interested in intellectual property law and actually went to the trouble of getting an LL.M. in the field. It comes in handy now when clients have IPR related issues come up at the border.

The easy cases for Customs to deal with involve counterfeit merchandise. This is what happened with Gucci (plus Coach and Burberry) at the port of Norfolk. Customs seized a shipment of almost 2,000 boxes of counterfeit handbags, wallets, and backpacks bearing these trademarks. Unfortunately for the importer, the manufacturer was not authorized to apply the trademark and just went ahead and did it. That is counterfeiting. It is illegal. Don't do it. And, if you happen to be looking for merchandise to sell in your shop and get an outrageously good deal on Nike shoes from a seller in Vanuatu or Moldova, ask to see a copy of their agreement with Nike. After that, you are on your own.

Counterfeit cases get tricky is when there is a real dispute over whether the mark is counterfeit or just infringing. To be counterfeit, it has to be essentially identical. It needs to be a simulation of the official mark. Anything less than that is trademark infringement, but not counterfeiting. This matters because the penalties and procedure is different.

The real tricky cases for Customs involve so-called gray market or parallel importation goods. These are legitimate products (i.e., not counterfeits or copy cat products) that the U.S. trademark holder did not want sold in the U.S. Sometimes, they were produced under license in a foreign country exclusively for sale in that country. Another scenario is goods produced in the U.S. that are exported for sale in another market. If the merchandise is purchased abroad and independently imported to the U.S., the officially licensed seller ends up competing against itself and is usually very annoyed. This happens with all sorts of goods but is very common in cosmetics and small electronics.

The reason these cases are tricky is that the courts have generally decided that once a company sells something, it can't control resales because it has been fully compensated through the goods. In other words, when Apple (as a random example) sells an iPod in England, it has been paid exactly what is expected to be paid for that unit. If the new owner figures out that she can ship it to the U.S. and sell it here at a profit, that is her business. Apple, if it wants to prevent that activity, needs to write better contracts with its distributors or deal with its pricing discrepancies. At least that is what the courts have generally held.

But, as with most things in the law, there are exceptions. The main one comes out of a case called Lever Bros. Co. v. United States, 981 F.2d 1330 (D.C. Cir. 1993)(sorry, I can't find a free link). In that case, the D.C. Circuit was asked to determine whether Customs had properly passed a regulation exempting from gray market protection goods imported without the authorization of the U.S. trademark holder where the party that applied the trademark abroad was somehow affiliated with the U.S. trademark holder. That exception was based on the idea that the two related companies should somehow work it out themselves.

In Lever the question involved soap made specifically for the UK market. Across the pond, they have harder water and that are less inclined to smell flowery than is the average American. So, Lever made the soap for the UK market a bit different. That means that when some enterprising person imported the soap to the US and consumers said, "Hey, good deal on my favorite Lever soap," they were bound to be disappointed by the weak lather and lack of flowery smell. Under those circumstances, the Court held, the consumer is not getting what they paid for and Lever is probably being damaged in terms of good will. So, Customs was ordered to seize the merchandise despite the affiliate exception in the regulation.

Now, the issue in all these cases is whether the imported goods are materially different than the goods sold in the foreign market. Things courts have considered materially different include physical characteristics, packaging, labeling and warranties. This can be tricky and might require some arguments for or against depending on whether you are the importer or the rights holder.

One side point, Customs tried to improve protection by creating something called Lever Protection. Under this program, U.S. rights holders can register their products and characteristics with Customs. When a gray market product is imported and the U.S. rights holder has secured Lever Protection from Customs, the goods will be detained unless they are properly marked to indicate that the goods differ from the genuine product intended for U.S. sale. Apparently, only a handful of companies have opted for this protection. Possibly that is because it essentially tells parallel importers how to get materially different products into the country.

Copyrighted works are a whole other deal. Basically, there is no copyright protection for parallel imports. That is, if the goods are not "piratical." But, if their production would have been copyright infringement had it taken place in the U.S., then they can be seized. The real issue in these cases is whether the imported work is infringing.

Class dismissed.

ADDENDUM (12/13/2005):
Here is another article. It involves Nike shoes and Burberry handbags.

So, Maybe I am Right

Does former Customs Commissioner Bonner read my blog? I doubt it. But, we appear to agree on one thing: CBP and ICE should be merged into a single border enforcement agency.

I said this in a previous post.

Now, the former Commission has publicly said the same thing to the Washington Times.

Does that make a groundswell?

ADDENDUM (12/13/2005):
Oddball blogger and conservative columnist Debbie Schlussel agrees with me, too. Now I feel dirty.

Thursday, December 01, 2005

Two Quick Notes:

That must be what they mean by "trade facilitation."

It has recently been noted in the press that the uniforms worn by our Border Patrol are purchased from a company in Tennessee that has outsourced the manufacturing to Mexico. Hence, U.S. Border Patrol Agents are wearing uniforms with a "Made in Mexico" label on the collar. According to the Border Patrol union president, "It's embarrassing to be protecting the U.S.-Mexico border and be wearing a uniform made in Mexico." I guess I don't see the issue. It would be embarrassing for a Border Patrol Agent to be, say, employing an illegal alien as a housekeeper. Wearing a uniform made in Mexico seems OK. At least it is properly marked with its country of origin.

Blogger held up in Immigration

A Canadian blogger who online claimed to be from New York, rather than Toronto, and who carried a magazine mailed to him at a New York address got detained when trying to enter the U.S. The story is reported here although the guy apparently removed it from his own blog. I have no opinion on whether he was properly detained (and apparently searched). It sounds like the circumstances were legitimately a bit suspicious. What I do think is interesting is that the officer apparently Googled the guy's blog and read enough to determine where he claimed to live as part of the routine passenger clearance process.

I better watch what a say.

Wednesday, November 23, 2005

Congratulations are in Order

Leo M. Gordon, presently Clerk of the U.S. Court of International Trade, has been nominated to be a Judge of that very Court. He will likely fill the slot vacated by Judge Aquilino who has taken Senior Status.

But, that is not the main point. The main point is that for what is very likely the last time in his life, Mr. Gordon is listed next to and ahead of Judge Samuel Alito on this Senate list of nominees.

One Face at the Border. No, two!

It has never been clear to anyone why in the process of making the Department of Homeland Security, half of Customs was carved off into another agency. Previously, we had the U.S. Customs Service in the Department of Treasury. Customs had compliance folks, entry personnel, and investigative agents (known as "Special Agents"). When Customs moved to Homeland Security, it was merged together with Immigration and Naturalization folks and some Agriculture Inspectors. The stated goal was to produce "one face at the border." This required cross training Customs Inspectors for agriculture issues, Immigration inspectors for customs issues, etc. There is a certain undeniable logic in this.

But, the Special Agents (and their Immigration equivalents) were moved into a wholly different bureau called Immigration and Customs Enforcement.

This has not worked all that smoothly. There is growing pressure in Washington to merge the agencies. That would make sense. Special Agents are there to help enforce the customs laws and regulations as well as to interdict narcotics and the instrumentalities of terrorism. Their job would appear to require constant contact with other customs and immigration professionals. They need to be coordinated and there is probably some redundancy in function and expense.

Right now seems to be an opportune time to do this. The Commissioner of Customs is, as of today, a private citizen. And, Julie Myers, the nominee to head up ICE has not been confirmed (and may not be). Maybe what is needed is a single person designated to run both agencies simultaneously with the stated goal of bringing them together by some date certain.

There is a good article about some of this here.

Saturday, November 19, 2005

Another Blogger Exposed

Sadly, Underneath Their Robes is no more. This was a great blog that focused on the judges of the federal judiciary the way People Magazine focuses on Jennifer Aniston and Angelina Jolie. The blogger, who went by the nom de blog of "Article III Groupie" and was apparently female, turns out to have been a male Assistant U.S. Attorney from New Jersey. According to this Law.com article, he was frustrated that he received no credit for the great success of his blog. He was voluntarily outed in a New Yorker column by Jeffrey Toobin. Now, following a discussion with his boss, the site is locked down. Too bad we won't be able to follow the Alito confirmation process through UTR.

Thursday, November 17, 2005

People who need my services but don't know it.

Prospective client 1: Brooke Burke.

According to this New York Times article, Ms. Burke (and other celebrities) have endorsement deals with foreign-based internet gambling sites. These deals are potentially illegal under federal law. Now, I am not a criminal lawyer, but there is a trade law issue here. In March of 2003, Antigua and Barbuda requested WTO consultations with the US to discuss whether US anti-gambling laws prohibiting on-line gambling through sites operated outside the US violated US commitments under the General Agreement on Trade in Services (GATS). In November of 2004, a WTO panel held that the US had, in fact, violated its commitment to permit free trade in services including gaming. So, it would seem that the US might have an incentive to loosen up these laws and Ms. Burke could keep her gig. Unfortunately for her (and the others including Jesse Ventura and James Woods), the US appealed and won in an April 7, 2005 Appellate Body Report. The report says the US can prohibit online gambling under the protection of public morals exception but has to adjust the rules of interstate betting on horse racing.

So, even though just about every state has a lottery and most have casinos of one sort or another, the US can protect the public morals by prohibiting people from playing cards online for money. It is a good thing the US has stepped in here. It would be terrible if the internet were allowed to become a portal through which indecency could be delivered into the homes of right-thinking Americans. Oh wait . . . .

Prospective Client 2: The American Association of Museums and its members.

This is more of a customs issue. This New York Times article discusses the issue museums are facing dealing with claims over the patrimony of cultural properties. This is a really interesting area of law that intersects with customs law because, in the US, CBP's Intellectual Property branch is the enforcement agency.

The underlying problem is that countries can lay claim to historically and culturally significant artifacts through local laws and the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property. The local laws basically declare that all artifacts undiscovered at a certain date are the property of the country. Anyone who digs one up and tries to sell it or export it is effectively stealing the artifact. Then, if it is entered into the US, it can be seized as stolen property. Also, the US has a process of recognizing claims by foreign countries through the State Department's activities under the Convention on Cultural Property Implementation Act. A list of designated protected countries and material can be found here.

As you might imagine, this is all very important to museums, auction houses, and private collectors. The worst case scenario is happening to Marion True, former antiquities curator at the Getty Museum.

Friday, November 11, 2005

Superior It's Said, Never Gives Up Its Whales

Today is the 30th anniversary of the wreck of the Edmund Fitzgerald. Those of us who live near the Great Lakes know that they are easily whipped up by storms and can provide treacherous sailing. I have a small sailboat (the one in the picture) on Lake Michigan and, on occasion, I see large ore boats coming and going. They are an impressive sight among the more pedestrian sailboats, fishing boats, and cruisers. Personally, as interesting as a lake passage might be on one of these boats, I have no interest in being somewhere between Milwaukee and Ludington when a storm hits.

You can find out everything you ever wanted to know about Great Lakes shipping here. One cool feature on that site is real time ship location reporting.

One thing I have never seen in Lake Michigan is a whale. I'll keep looking. Perhaps these folks can help.

Thursday, November 10, 2005

Bring Out Your Dead

President Bush just returned from a summit in South America. While there, he unsuccessfully tried to defribulate the comatose talks to create a Free Trade Area of the Americas. This agreement is sort of the Holy Grail of regional pacts. It would link 34 western hemisphere democracies in a loose trade bloc (think NAFTA writ large, not the EU). Cuba, by the way, is one country on the outside looking in. It turns out this is unlikely to happen. The US and Brazil are at loggerheads over agricultural subsidies and Venezuela is not exactly on good terms with President Bush (or Pat Robertson) either.

The bigger issue for the FTAA may just be that there is a bigger issue: finishing the Doha Round of WTO talks. That also looks like it need life support. The US and EU have made a proposals over the past month to reduce tariffs but neither side is happy with the other's proposal. The EU, driven by the French, insist the the US proposal cuts subsidies too deeply. Still, the US proposal is not a deep enough cut to satisfy some developing countries. That sound you hear is that approaching stalemate.

It appears that this impasse has actually grown into a breakdown. According to a transcript of a USTR briefing, USTR Portman said: "I am sorry to report that we've not made the progress that we had hoped to make in order to put together a program for the Hong Kong meeting that would enable us to set forth a framework or as the WTO language would be 'modalities' in order for us to complete the negotiation more rapidly." Without a framework for negotiations, the WTO meeting in Hong Kong may be useless.

The meeting could result in an agreement on the non-controversial low-hanging fruit. That would allow everyone to declare victory. Or, the meeting might be cancelled or postponed to let negotiators get past this hurdle. Or, the meeting might be held and fall apart. That would be a terrible blow to the WTO which is already staggering. But, it's not dead yet. Actually, it may be feeling quite a bit better. Perhaps Seattle and Cancun were nothing but flesh wounds.

The US did succeed in getting a deal with China to limit textile imports starting January 1, 2006. The deal imposes quotas on 34 categories of clothing through 2008. That is a win for the Administration and the domestic industry. Predictably (and reasonably), retailers see it differently.

Camera Toss (The Blog)

OK, I admit this is silly. It is also not a good way to treat a digital camera. And, I know David Pogue of the NY Times already mentioned it in his blog (which people actually read). But, it is oddly compelling.

Monday, November 07, 2005

Basement Cycling

The bike commuting season is over; at least for me. It is too cold and too dark. I know there is gear to resolve these issues. I am the king of gear. I love gear. I own expensive winter cycling clothes, Neoprene shoe covers, gloves and glove liners. No matter what I wear, my fingertips become painfully cold when it is under 50 degrees outside. As to lights, adding lights to my bike would involve an HID/LED system and I am not up for a $400-$500 accessory just so I can ride at night.

My alternative is the basement criterium. I prop my bike up in a trainer not as nice as this one, and then ride for a while. As you might imagine, riding to nowhere in the basement can be painfully boring leaving my mind to wander where it should not. So, if you are similarly afflicted, here are things to do to keep you going for a couple hours:

  1. Watch movies involving cycling such as The Bicycle Thief (little actual riding), Quicksilver (crazy messenger riding), Breaking Away (a great movie), The Triplets of Belleville (a surreal French cartoon about a Tour racer literally trapped on a trainer), and the best of the bunch A Sunday in Hell (about the 1976 Paris to Roubaix road-mud-cobblestone race).
  2. Plot various schemes to take over your personal corner of the world.
  3. Fill your MP3 player with music from The Bicycle Men.
  4. Swear at Troy Jacobson while following (or trying to follow) his Spinerval videos. These are hardcore spinning classes designed for cyclists much more fit than me. The workouts have names like "Sweating Buckets," "Suffer-O-Rama," "Have Mercy," and "Tough Love." I have three of these and can only finish one. The other two reduce me to a sweating, heaving, unintelligible heap.

Customs has been quiet for a while. I promise substantive content to follow.

ADDENDUM:

Yes, I know, I forgot the unforgettable Pee Wee's Big Adventure.

Saturday, October 29, 2005

Heavens! Some Caviar Imports Banned

The U.S. Fish & Wildlife Service has banned the importation of beluga sturgeon caviar (and meat) originating in the Black Sea basin. This comes as a blow to luxury buyers in the U.S. who have already been suffering with a ban on these products from the Caspian. This move, consistent with the Convention on the International Traffic in Endangered Species, is intended to force the exporting countries to make progress in implementing conservation programs for the endangered fish.

Of course, the fact that caviar comes from this fish, might make it less appealing. There is a lovely description of the production process here. It might be more than you want to know that the fish is stunned once by a blow to the head with a wooden club, then stunned again before it is cut open.

This ban also covers personal importations with arriving passengers. First, the Concorde is put out of service. Now some beluga caviar is banned. What's next; a tax on polo ponies?

Monday, October 24, 2005

The Death of the Entry?

A lot of what Customs has to do is routine and painfully dull. But, it is important. Think about the thousands of passengers and cargo containers that present absolutely no issues whatsoever. Most people tell the truth when entering the country and most importers properly declare their goods. The tricky part is letting the legitimate trade happen while finding and stopping the bad guys.

One of the current trade facilitation projects is the Periodic Monthly Statement under the Automated Commercial Environment. The Periodic Monthly Statement (which is still technically a test program) lets participating importers identify entries and pay Customs for them by the 15th business day of the following month. This creates an interest free loan of up to 45 days for importers. It also simplifies recordkeeping and allows importers to create national or port summaries of activity.

Until recently, the only way importers could take advantage of the Periodic Monthly Statement was to have an ACE Portal account. Customs has now announced that certified C-TPAT members who are not current ACE accounts will automatically be established as ACE Non-Portal Accounts. This will make certified C-TPAT members eligible to participate in PMS. Non-C-TPAT members can also choose to participate. The importer needs an appropriate bond and their broker needs to be a portal participant.

This seems to be a good move in that it really does provide a benefit to importers and will not have a negative impact on cargo security because it only defers the payment of duties and fees. So, Customs should be given credit for expanding this test program.

But, it does not address the real underlying inefficiency: the entry. Why is it that Customs continues to work from a business model that requires each and every transaction to be the subject of separate documentation? It is as if you had to file a tax return every pay day. The IRS doesn't work that way and there is no intrinsic reason why Customs could not simplify entry reporting while increasing the importers' obligations to periodically report imports and the associated liability. Some sort of cargo manifest report of arriving shipments should be enough to match up to a subsequent quarterly report of duty and fee liability.

Of course, there is a problem with this pie-in-the-sky idea: Congress. Right now, importers are statutorily required to file entries and Customs is, therefore, required to accept them. And, many compliance activities are triggered by entry dates and the corresponding liquidation dates. But, those are details. If Congress wants to help facilitate trade, it should take another look at the continued rationale for the entry. It is clear that Customs is inching away from the all important entry and liquidation. That is clear from the fact that there are now Supplemental Information Letters, Reconciliation, and now the expanded Periodic Monthly Statement. Let's face it, the entry as we know it is on life support and someone needs to pull the plug.

Thursday, October 20, 2005

Gee, Trade Negotiations Are Confusing

There is lot going on in the lead up to the next meeting in the Doha round of trade negotiations. The U.S. is pushing what it calls the Doha Development Agenda which consists of four components:

  • Agricultural market access (with a limited emphasis on the elimination of subsidies)
  • Industrial products market access
  • Services
  • Trade facilitation
While trying to promote this agenda of trade liberalization, the U.S. and other developed countries have to balance the different economic needs of the developing world. There are more than a billion people in the world living in poverty. The Doha agenda includes a mandate that developing countries receive "special and differential treatment" to assist them in more fully integrating into the global economy. These countries can opt for more limited liberalization and longer phase-in periods for changes in trade rules.

There are lots of competing interests in these talks. The most obvious friction results from the facts that the developing world's agenda does not always match up to the desires of the developed world. There are also a lot of industrial sectors that come into conflict. For every industry willing to trade lower tariffs for access to foreign markets, there is another legitimately seeking to maintain tariffs to protect market share, jobs, capital investment, etc. At the same time, there are non-governmental groups seeking to ensure that trade negotiations support the environment, labor interests, human rights, and other interests. And, in the past few years, there have been vocal groups opposed to globalization as a concept.

Balancing all this is hard enough without the confusing fact every group of countries taking a position seems to become known as the G-something. There is the G8 (Canada, France, Germany, Italy, Japan, Russia, U.K., and the U.S.) group of industrialized countries. Recently, the G20 has been active (along with Australia) in pushing for market access in agricultural goods. There is also a G4 (India, Germany, Japan, and Brazil) looking for membership in the U.N. Security Council. And now comes the G33 group of developing countries active in the WTO agriculture negotiations. Oddly, there is an 11-member G10 (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United
Kingdom and the United States) which issued an impressive report on financial consolidation. This may or may not be the same G10 that just got the support of Norway on on agricultural duty reductions. Then there is the Quad Group consisting of the U.S., Canada, Japan, and the EU.

I think people who pull together these groups need to be more creative in naming them. I suggest following the lead of college sports where the number of members is tacked on to something other than the letter G. There is, for example, the Pacific-10, Atlantic-10, and my personal favorite, the Big-10. Of course, the fact that the Big-10 consists of eleven schools does not do much for my effort to avoid confusion.

Tuesday, October 11, 2005

CAFTA-DR Coming Together

It looks like we might have CAFTA by January 1, 2006. The USTR announced that Nicaragua has approved the agreement. Since I am short on words at the moment, here is the entirety of the USTR statement:


Statement of USTR Spokesperson Neena Moorjani Regarding Nicaragua’s Passage of CAFTA-DR

10/11/2005

“We congratulate the Nicaraguan government for passing the Central America-Dominican Republic Free Trade Agreement.

“They now join El Salvador, Guatemala, Honduras, the Dominican Republic and the United States in approving the CAFTA-DR.

"We have met with representatives of the CAFTA-DR governments recently and we are working towards a target date of January 1, 2006, for implementing this agreement.

“This agreement levels the playing field for American workers, farmers and businesses, expands choices for consumers and strengthens democracies with our neighbors.”


Sunday, October 09, 2005

No Bonking Zone

Today was the Chicago Marathon in which 40,000 runners competed either to win, make a new personal record, or just finish. I wasn't there; bad knees, and all. I have personally made a significant contribution to the college funds of the children of several orthopedic surgeons and a raft of physical therapists. That is why I now ride a bike rather than run. But, due to a serious downpour, I did not complete the 100-mile ride I had planned for the end of September. Thus, I am feeling envious of the marathoners who finished today. In particular, that means you, P.

P is the runner I turned on to Gu when he decided to train for his first marathon. I think that makes me kind of a legal sugar pusher. He finished today at about 4 hours, 34 minutes. For 26.2 miles, that is something to be proud of.

For those of you who don't know, Gu is a concentrated carbohydrate gel. When competing in endurance events, Gu comes in very handy to prevent the dreaded and embarrassing bonk. Runners and cyclists bonk when they completely deplete the reserves of fuel in their muscles and blood. The liver can't replenish the supply fast enough. What's left is a very inefficient process of trying to burn fat. It won't work and the runner will eventually collapse after suffering weakness and nausea possibly followed by vomiting and hallucinations. Ahh, the glory of long distance sports!

The trick, of course, is to eat properly throughout the event. Enter Gu. When cycling distances, I try and eat one every hour and half or so. Should the Gu folks read this endorsement of their very fine product, I prefer the Just Plain variety with vanilla being a close second. Eating it is quite pleasant. It is very similar to swallowing a mouthful of frosting or pudding. The small amount of caffeine in it is also helpful.

I think it might be a reasonably successful business model to travel around the country with a supply of Gu selling it at grossly inflated prices to tired looking runners and cyclists as they pass by. I could set up a little table along a bike or running path with a sign reading "Bonking? GU $5 each" and probably do just fine. If I toss in a cup of warm tap water for another $1, I'd be sitting pretty. This sounds like a franchise opportunity. Isn't this how the FedEx guy and Michael Dell got their starts? One problem is that runners don't tend to carry much cash. Hmmmm. I need to work on this a bit more. Perhaps I can take credit cards.

Saturday, October 08, 2005

Blackberry Whine

Here is a U.S.-Canada battle worth watching. Research in Motion, the makers of the ubiquitous and, for some, essential Blackberry wireless e-mail and phone devices has been sued for patent infringement. The U.S. patent holder, NTP, sued RIM for infringing patents relating to its software for transmitting e-mail. RIM's main argument is that its servers are located in Ontario (that's Canada, not California), which is a separate sovereign country where U.S. patent laws are not in effect. The U.S. Court of Appeals for the Federal Circuit, which also hears appeals from the Court of International Trade, was not swayed by the border argument. The most recent opinion is here.

The news media now reports that the Federal Circuit has denied RIM's request for en banc review by the entire 12-member court. RIM faces the possibility of an injunction against sales or operations in the U.S., which, according to the New York Times, is 70% of its revenue.

Two interesting things are bound to happen. First, RIM will surely appeal to the Supreme Court which, if it takes the case, will have to make a decision about the extraterritorial application of the patent law. This may be unlikely as the Federal Circuit hears all patent appeals and there is no possibility for another circuit to disagree with it. Also, there is no obvious constitutional issue. The second thing going on is that the U.S. Patent & Trademark Office is re-examining the NTP patents to see if they should have been issued in the first place. According to RIM, that is looking like a promising way to get this wrapped up.

We'll have to see what happens. Just image the hue and cry from Blackberry addicts if the service goes dark. Palm shares rose on this thought alone. If that happens, I suspect the Canadian military will have to move to the border as U.S. white-collar workers threaten to invade Ontario in an effort to force RIM to settle with NTP.


Thursday, October 06, 2005

Twinkies, Anyone?

There are blogs I check now and again and one I am reading start to finish. The former category includes blogs to which I have linked on the right. The latter blog is called The Real-Life Twinkie Experiment. It purports to be the experiences of an identical twin who switched lives with her 2L law student sister. It is well written and entertaining. Thus, I am fairly convinced it is a work of fiction. But, the depiction of the law school experience is pretty compelling if a bit overly dramatic.

Saturday, October 01, 2005

No Protesting NAFTA, Really!

For years, Customs has said that importers can't seek a refund of duties paid on NAFTA-originating merchandise via standard refund. The reason for this is that if the importer failed to make a claim at the time of entry and Customs liquidates it accordingly, it made no mistake that can be challenged. At least that has been Customs' take on the question. If you want a post-entry refund, you need to apply for it via a request for reliquidation under 19 U.S.C. § 1520(d). These requests must be filed within one year of the date of importation.

The Court of Appeals for the Federal Circuit has now had the opportunity to weigh in on this in a case called Xerox Corp.Vv. United States. Xerox filed protests to seek NAFTA refunds and Customs denied all but one of the protests finding them to be untimely. This is because all but one of the protests was filed more than a year after the date of entry. Customs treated the remaining protest as a request for reliquidation.

The Federal Circuit look at the law, regulationss, and legislative history and found that the one-year limit is a strict requirement. More important, the Court also held that the lack of a NAFTA claim at the time of entry means that Customs made no decision regarding the NAFTA status of the goods. As a result, there was no protestable decision and, therefore, there could be no valid protest of the NAFTA status of the merchandise. Obviously worried about how far this holding might apply, the Court was clear that is did not mean to imply that when Customs liquidates merchandise "as entered," there is no protestable decision. Mainly, this seems to be because 19 U.S.C. § 1520(d) specifically addresses this question. But, it seems to be a dangerously slipper slope. We'll have to see.

Help Wanted

Anyone looking for a policy job who is willing to relocate to DC should send a resume to the President of the United States. Customs Commissioner Bonner has announced his intention to retire. I'm not sure what the job pays but I'm guessing it comes with decent benefits. You probably also get a pretty high security clearance, lots of opportunity for travel, and a big staff.

On the downside, you are near the top of the food chain with respect to Homeland Security. If anything breaks bad via a U.S. port of entry or an immigrant, it will not look good on your resume. Plus, you need to be sure to keep Congress happy. That can't be easy, or fun.

Wednesday, September 21, 2005

The Tell Tale Saddle

I have been annoyed lately by a creaking sound coming from my bike saddle. It happens almost every time I hit dead bottom on a pedal stroke. This is new, my bike used to be very quiet. I took it to the guys at Turin in Evanston and they lubed the rails. That helped for a few days, but the noise returned.

At this point, I am overwhelmed by literary references. The obvious one is to Poe.

It is impossible to say how the sound entered my ears, but, once heard, it haunted me day and night. Object there was none. Passion there was none. I loved the old saddle. It had never wronged me. It had never given me a sore or rash. I think it was in the rails! Yes, it was this! The rails creaked the sound of a tick--pale silver titanium rails. Whenever it sounded, my blood ran cold, and so by degrees, very gradually, I made up my mind to take the life of the saddle, and thus rid myself of the tick for ever.

Of course, that is too easy. I am drawn instead to Tennessee Williams' Cat on a Hot Tin Roof wherein the character Brick drinks until he feels the "click." The problem, of course, is that Brick is a wounded, impotent, alcoholic, head case who goes out in search of the click to get past what lies in his closet (if you know what I mean). I'm not that.

So, I went back to the shop and bought a new saddle. I got a Specialized one with a geometry to match my sit bones. If you ever have your sit bones measured, remember to take your wallet out of your back pocket.

Anyway, the new saddle feels fine. It is a few grams lighter and slightly smaller than the original. But, guess what, it clicks!

No doubt I now grew VERY pale; and the sound increased -- and what could I do? It was A LOW, DULL, QUICK SOUND -- MUCH SUCH A SOUND AS A WATCH MAKES WHEN ENVELOPED IN COTTON. I gasped for breath. The noise steadily increased. Why WOULD it not be gone? I foamed -- I raved -- I swore! I swung off the bike upon which I had been sitting, and pressed upon the saddle, but the noise arose over all and continually increased as I grappled with the seat. It grew louder -- louder -- louder! Others could hear it; others would judge my bike inferior. Anything was more tolerable than this impending cyclist derision! I could not bear those condescending glances! I felt that I must scream or die! -- and now -- again -- hark! louder! louder! louder! LOUDER! --

"Villains!" I shrieked, "tear off the saddle! -- here, here! -- it is the beating of this hideous titanium rail (or maybe it the seat post)!"

Whatever. I need to get it fixed before it makes me nuts.

Monday, September 19, 2005

Secret Agent Man

How many times have you thought, or heard someone express the thought, that if you structure your transactions to avoid being importer of record, you can avoid most customs liability? That comes up a lot. People think it is beneficial to let the seller be the importer or even have the broker take care of that responsibility.

Customs lawyers generally tell clients to shake that thought out of their heads. I say "generally" because there may be situations where it makes sense. Remember, this is just talk, it is not specific legal advice (it is not legal advice at all). Often, the reason we tell buyers that using a third party as the importer of record is not a liability shield is because of the possibility that Customs might treat the buyer as "aiding or abetting" the importer if something goes wrong. Worse yet, the buyer could be a co-conspirator in a criminal enterprise. None of that is good.

The Court of International Trade recently issued an opinion basing third-party liability on a different theory. But, no matter how you slice it, the buyer discovered that it was not able to hide behind the importer when it came to liability. The basis for this decision was that the importer was an agent acting for and on behalf of the buyer. The case is United States v. Pan Pacific Textile Group, (Slip Op. 05-107).

The facts are a bit convoluted . The defendant was importing apparel using a customs broker. Eventually, the broker offered a better way to structure the transaction. Under the new structure, the broker would be the importer of record and the buyer would pay a flat-fee for the service including duties. The result was a significant savings to the buyer. This, of course doesn't make much sense since the broker was absorbing more liability which would generally result in more cost to the buyer, not less. Apparently, the buyer either did not think this was strange or went along with the scheme.

The bad news for the buyer is that the broker's great idea was to fraudulently misdeclare the merchandise as something with a lower duty rate and no quota requirements. While this did result in lower duties and costs at the time of entry, it is, of course, profoundly illegal.

So, how did the buyer get to be held liable for the unpaid duties? The Court of International Trade applied basic concepts of agency law. These are the same rules that make an employer liable for the acts of the employee. In this case, the broker was an agent and the buyer was the principal. The broker's bad acts were held to be the bad acts of the buyer. The fact that the agent's bad acts were not authorized and were, in fact, illegal was not enough to prevent the fraud from being imputed to the principal. The Court held that even though the broker had clearly been acting in its own interest rather than fully for the benefit of the buyer, because the buyer benefited, it could be held liable for the duties.

This means that buyers of imported goods cannot use a third party importer as a shield against duty liability. This does not mean that every buyer of imported goods is potentially liable for the importer's fraud. It does mean, though, that where buyers specifically structure transactions to come through a third-party importer, that buyer might be legally in charge of the transaction and, therefore, liable if something goes wrong. Keep this in mind when drafting your purchase orders and logistics contracts.

By the way, the question of whether the buyer is also liable for a penalty, remains open. A trial will likely be held on that question.

Tuesday, September 13, 2005

Unsolved Mysteries

Can anyone tell me where I can buy a crystal skull, get a clear photo of Ogopogo, or explain the Coral Castle? I figure it will be easier to do those things than figure out how to get Google rankings.

It is apparent to me that most of the visitors to this site that come via a search engine do so through MSN Search, followed by Yahoo, with Google a distant third. I can't figure out how it is that the search "customs law" gets me number one placement on MSN but relegated me to the second page of Yahoo results. In Google, I have a hard time even formulate a search that finds this page.

If the search is "customs law blog," I stay number one on MSN and move up to a respectable number 10 on the Yahoo results. On Google, I was not in the first four pages.

Anyone who might read this and has any tips, I'd appreciate them. In the meantime, ignore the following text, it is here for experimental purposes only.

Customs law, NAFTA, reasonable care, dumping, countervailing duties, classification, valuation, penalties, audits, exports, imports, EAR, ITAR, WTO, WCO, C-TPAT, cargo security. Customs law, NAFTA, reasonable care, dumping, countervailing duties, classification, valuation, penalties, audits, exports, imports, EAR, ITAR, WTO, WCO, C-TPAT, cargo security. Customs law, NAFTA, reasonable care, dumping, countervailing duties, classification, valuation, penalties, audits, exports, imports, EAR, ITAR, WTO, WCO, C-TPAT, cargo security. Customs law, NAFTA, reasonable care, dumping, countervailing duties, classification, valuation, penalties, audits, exports, imports, EAR, ITAR, WTO, WCO, C-TPAT, cargo security.

Saturday, September 10, 2005

Skidding into Deference

Whenever an importer sues the government over duties, the system gives all the breaks to the government. The challenged decision is presumed to be correct. That means the importer has the burden of proving that Customs is wrong. That's not too terrible, as some one has to have the burden of proof and it does not make sense to force Customs to prove that it is right every single time they deny a protest. But, in most customs matters, the Court of International Trade is also required to reach the correct result on the record developed before it. That means the Court looks only to the papers or evidence submitted, not the agency's record. That is what we call de novo review just to make it sound sophisticated.

The apparent conflict between de novo review and the presumption that Customs is correct raised questions of how much independent thought the Court of International Trade is supposed to exercise when reviewing to Customs' decisions. Stay with me here, I have a point.

In most areas of federal administrative law, there is a pretty strict rule that the courts let the relevant agency decide what the laws mean and the courts go along with that interpretation as long as it is reasonable. So when the EPA, for example, says you measure smoke stack emissions at the top of each stack, that is going to be the rule even if the court thinks it would be better to measure emissions at ground level. The reason for this is that the agency is supposed to have technical expertise that a court is unlikely to have. The one important caveat is that if Congress has clearly said in the statute that the emissions are to be measured at ground level, that is the end of the matter. Both the court and the agency are bound by the law as written. All of this comes out of a famous 1984 Supreme Court cases called Chevron v. NRDC.

For lots of reasons unique to customs law, no one thought Chevron applied to most day-to-day customs decisions. There was some disagreement on this. The government, of course, always argued for Chevron deference of every decision. And, a lot of people were willing to concede that if Customs went to the trouble of issuing a regulation (including public notice and public comment), Chevron would probably apply. That last point was confirmed in 1999 a cased called United States v. Haggar Apparel.

This all came to a head in a case called United States v. Mead Corp. which involved the classification of day-planner style diaries. In this case, there was no regulation only a series of rulings; some of which were in conflict. Customs wanted Chevron-style deference. The importer wanted de novo review. This went up to the Supreme Court.

The Court (8 to 1) said that Customs rulings are not entitled to Chevron deference. Basically, there are too many, issued from too many offices, and they are not binding on third parties. So, they should not have the force and effect of law (so to speak). There was much rejoicing in the customs bar until we read the rest of the opinion.

The Court went on to hold that Customs rulings are entitled to deference under a 1944 case called Skidmore v. Swift & Co. Skidmore held that Courts should look at federal administrative decisions and decide what weight to give that decision based upon several factors including:

  • the thoroughness of the consideration
  • the validity of the reasoning
  • consistency with earlier and later decisions
  • and all other factors that give the decision the power to persuade

So, you may be wondering, what's my point? It is simple: Every decision Customs makes gets Skidmore deference. Under this rule, the vast majority will be ignored because they contain no evidence of consideration, no express reasoning, and nothing that gives them the power to persuade. The check box denying a protest has no power to persuade, so the decision will be ignored. But, it receives Skidmore deference at least to the extent that the Court needed to look at it.

Recently, some CIT opinions have appeared to flip this around. It looks like the Court is checking whether the decision has any power to persuade and then declaring that the decision gets or does not get Skidmore deference.

In my very first post, I said I would not take any pot shots at judges, and I am not going to do so here. I am doing this as an academic exercise. If I had more time on my hands, I'd do this in a law review article (giving due credit to the partner in my firm that originally pointed this out to me). But, it is likely more people will actually read this. So, here are a couple examples:

In Simon Marketing, Inc. v. United States, Slip Op. 05-118 (Sep. 1, 2005), the Court says: "As a preliminary matter, the Court finds that CustomsÂ’ decisions in NY D84205 and HQ 963793 are not entitled to Skidmore respect." Substantially the same language is in Cargill Citro-America, Inc. v. United States, Slip Op. 05-101. In The Pillsbury Co. v. United States, Slip Op. 05-51, the Court says outright, "Nor is Customs entitled to Skidmore deference."

I think these conclusions are, respectfully, all wrong. What they should say is that Customs rulings are entitled to Skidmore deference, which they receive in proportion to the individual ruling's power to persuade. In each of the cases cited above, that is none. But, they still get Skidmore deference.

So, you might well ask, what difference does this make? As a practical matter, maybe none. But, lawyers and judges must be precise in how we say things. It is very hard to tell what argument might be made 10 years from now over whether a court did or did not give Skidmore deference. We should avoid that problem by closely following the decision from the Supreme Court.

Wednesday, September 07, 2005

Life in Chicago


I have several things piled up about which to blog. I want to get something off my chest about deference to Customs and there is an interesting new penalty case.

But, for now, I offer only this snap shot of life in Chicago. It was taken looking down into an alley while waiting for my cup of coffee at Starbucks today. Having watched the Soprano's a fair amount, I assume the box near the trunk holds mattress covers, a jug of bleach, and some scrub brushes.

Friday, September 02, 2005

Do I Smell NAFTA in the Air?

September? Really, already?

September is the cruelest month. Those of us with summer avocations (like cycling and sailing) know that the end of the season is bearing down on us. I have already scheduled a date to get my little boat out of the water for the winter.

But, fall also means we enter the heart of the NAFTA season. Those of you responsible for NAFTA compliance should know that this is the time of year to be getting out supplier solicitations for Certificates of Origin. You want to have your required certified materials before the first of the year so that, when your existing CO's expire on January 1, you don't have a gap in your import or production records.

Here's three hints that I hope are clear to most people (but I know are not clear to everyone):

  1. Don't waste your time an effort sending requests for CO's to every supplier in your database. It may seem obvious, but it is worth noting, that you should only get completed CO's from North American suppliers.
  2. Check your particular NAFTA rules. It is entirely possible (if not likely) that you only need CO's for a limited number of materials. Don't chase down CO's for materials which make the qualifying change in tariff classification. It just doesn't matter where they come from, so why try and prove it? OK, I know why; sometimes you ship the part. But, don't let the exceptions drive the system.
  3. If you have to satisfy a regional value content test, sort by value. If a minority of originating parts make up the majority of your value, there is no point in chasing CO's for every nut, bolt, and screw you consume. Remember, the test is pass/fail. There is no real difference between a solid 51% and a 95% RVC. Again, I know there are some exceptions for automotive goods, etc.

Don't let it sit too long. We all know that some suppliers will wait to respond and others will respond wrong (e.g., most of those preference criterion "A" items floating out there). You don't want to start paying duty on materials on January 1 just because you haven't received the paperwork from your supplier.

If anyone is in Chicago and wants to here me talk about this, I am doing a seminar Sept. 23. Let me know and I'll send the details.

Oh, while you are at it, you may as well get out your Australia, Singapore, Chile, and CAFTA requests. But, do it after the long weekend.

Thursday, September 01, 2005

It's A Bright Sunny Day in Chicago


Here is a cell phone shot of Cloud Gate, the newly unveiled, fully polished sculpture in Chicago's Millennium Park. Locally, it is known as "The Bean" for obvious reasons. Here is some more detailed info. I say "fully polished" because when it was unveiled last year, there were visible seams criss-crossing the surface. They have now been polished out.

Friday, August 26, 2005

Customs Makes the Brown Bomber Proud

I don't really do sports metaphors, but this one seems to make sense. There is an ongoing prize fight in the usually sleepy area of duty-free stores that is worth mentioning if only because it highlights the fact that Customs (or the Justice Department) can sometimes get obsessed with an issue that does not seem to fit into the big picture.

In this corner is Ammex, Inc., which operates a duty-free store and gas station at the Ambassador Bridge between Detroit and Windsor. Not far from the Joe Louis Arena. Because of the way the roads work, there is no way for a car to enter from the U.S. side and return to the U.S. without passing through Canada (if only for a moment). So, everything purchased from the the store is destined for exportation. It just is. Here is a map that kind of proves it.

In the other corner is Customs, which, in 1994, denied Ammex's request to be permitted to sell motor fuel at its duty-free store. Customs said because fuel is a fungible item, there is no way prevent it from being reimported and avoiding duties.

In Round 1, the Court of International Trade held for Ammex that there was no basis to deny the request. Customs grudgingly granted the request.

Customs, in what can only be described as a below the belt shot, then asked the IRS what it thought about all this. The IRS responded with a general statement of useful information that the fuel sales were taxable. Based on that, Customs revoked the permit to sell duty-free fuel.

Ding, Round 2. Ammex sought to have Customs held in contempt for taking the permit away after the CIT ordered that Customs allow the sales. The CIT and Federal Circuit both denied the request.

Ding, Round 3. Ammex went back to the CIT and asked, "How come Customs can revoke the permit without even checking whether the IRS had actually collected any taxes?" Or something to that effect. The CIT said that was a mistake and held for Ammex. Customs appealed.

Ding, Round 4. The Federal Circuit said that there are two laws involved. The first says that a tax is "imposed" on "the entry into the United States of any taxable fuel for consumption, use or warehousing." For those who care, that is 26 U.S.C. § 4081(a)(1)(A)(iii). The second is the law that says merchandise on which a federal tax has been "assessed" cannot be treated as duty-free. Customs figured that first law made the fuel ineligible for duty-free sale.

Well, it turns out that the Federal Circuit sees a difference between a tax that is imposed and one that is assessed. Assessment is defined as the recording of the liability. It also means the "fixing of an amount of liability." A tax is "imposed" on the other hand, whenever there is a liability. It is the creation, not the calculation of a liability.

Nothing in the record of this case shows that the IRS ever assessed the tax.

Round 4, goes to Ammex. Here is the opinion.

For whatever reason, Customs seems bound and determined to prevent these guys from selling motor fuel that might be used by motorists making a U-turn in Canada. They have a point. But, the bigger point is that they need to do this right.

So, guess what is going to happen in Round 5. You don't have to be Gary Kasparov or Madame Blavatsky to see it coming. Pretty soon, Ammex will get a letter from the IRS assessing the tax. At that point, it might be a TKO.

Tuesday, August 16, 2005

Death of a Lobster

One of the reasons customs law is an interesting practice is that you get to learn about a lot of different products. Sometimes, you learn about things you'd rather not.

For example, Customs ruled, NY R00821 (Oct. 19, 2004), on the classification and country of origin of frozen raw lobster meat from Canada. Here is how Customs describes the process:
  • They are put into a machine that kills them, using hydraulic pressure to release the meat from the shell.
  • The dead lobsters are separated into different parts, --i.e., separated into knuckles, claws, tails and bodies,--each of which is processed separately.
  • The raw meat is removed from the leg by using rollers, from the knuckles using compressed air, from the claw by opening with a knife, and from the tail by scoring the shell with a blade and then pulling the meat out.
  • After removal, the knuckle and claw meat is mixed together, weighed and put through a vacuum packaging machine. The leg meat is weighed and similarly vacuum packaged. Each tail is vacuum packed separately.
  • After packaging, the lobster meat is quick frozen, then packed for export to the United States. The shells are discarded.

Yummy.

In case you are wondering, the classification is 0306.12.0030, Harmonized Tariff Schedule of the United States (HTS), which provides for Crustaceans, whether in shell or not, live, fresh, chilled, frozen, dried, salted or in brine;...frozen, lobsters (Homarus spp.), in airtight containers, other. The rate of duty is Free. In this case, the American and Canadian lobster meat was mixed together, so the appropriate marking was "Product of the United States and Canada." And, remember, the NAFTA marking rules apply.

Read all about it here.

Thursday, August 11, 2005

My Love/Hate Relationship with Technology

PUBLIC VERSION
DELETED APO INFORMATION IS [BRACKETED]

I love technology. I also hate it. It is an evil enabler of my base self. Before you start wondering what I have been downloading, let me set the scene.

Today, I am in [the south, the deep south]. I am visiting [a great client] here in [a place I shall not disclose]. It is [south] and it is [rural]. I have been here almost 12 hours and I can't recall seeing a foreign car. Many of the towns around here are so small that the population [is in the two digits range]. [The client I am visiting] is in a town [requiring four digits to advertise its population]. The person who checked me into the hotel was proud of the fact that, since my last stay, they have added an elevator to this two-story building. I really don't care much about that. I am, however, very happy to report that they have also added free wireless broadband. She was also very proud to tell me that I am here just in time for the venerable [Local Crop] Festival.

Don't get me wrong. I am not looking down my urbane nose at [this town]. I like it here. The area is pretty and I like the hard-working folks at [the factory]. I am happy to come visit whenever they want. Really.

I walked to dinner at the extremely average [ethnic] restaurant that shares the parking lot with this [chain hotel]. During the course of the meal, I dropped [ethnic sauce] in the lap of the only pair of pants I have with me. That will look great tomorrow when I bet we have lunch at another [same ethnic group] restaurant.

After that, I decided to see the sites, which include the birthplace of [a famous person]. And that's when it happened. The navigation system in the Hertz rental car started taunting me. It offered up a listing of local hotels, bars and restaurants. Remember, I had already eaten. So this was nothing but malice on the part of Mr. Neverlost. Somehow, I found myself sitting there entering letters into the Neverlost database: D . . . A . . . I . . . . I swear I had no intention of doing this. R . . . Y . . . .

And, there it was, only 1.2 miles away: a Dairy Queen. I did not even need to think. All I had to do was listen to the pleasantly female voice say "Prepare to turn right," and "Right turn approaching." Next thing I knew, I was inside a very tidy little DQ/Brazier ordering up a medium Strawberry Cheesequake Blizzard.

I have news for you: That is a darn good cup of ice cream. Big strawberries. Big chunks of something that might even be cheesecake. It is the last thing in the world I needed, and I regret it already. As I said in an earlier post, when I look in the mirror, I see this guy. But, it sure was good. Tomorrow, I will feel guilty. Definitely.

So, I love the fact that my rental car talks to me and keeps me from getting lost. Once, in one trip, I was lost for hours both in Pittsburgh and Detroit. I literally ended up on a dirt road outside Pittsburgh at a cemetery. Where was Neverlost then? Not helping me out of that jam. Instead, it was biding its time waiting until it could enable me to find a DQ in [rural town], [southern state].

Can't really complain about the Blizzard, though. That was all good.

Wednesday, August 10, 2005

Thanks to Inter-Alia

I just discovered via Evan Brown, the blogger at Internet Cases.com, that my own blog was Blog of the Day on July 30 at the Inter-Alia blog. Well, how about that? Thanks to Tom Mighell for the nod. Both you guys deserve a link from me (which you now have).

Tuesday, August 09, 2005

Out and About

I have spent the last several days engaged in American Bar Association activities. Up until yesterday, I had been the Co-Chair of the Customs Law Committee in the Section of International Law. I have held that position for about three years and am now going to move to another role within the Section. I still do not know exactly what that role will be. But, in a lot of ways, the ABA is a great organization and I am happy to do my part.

Having the meeting in my home town of Chicago made it even better. I spent a fair amount of time giving advice on what museums to visit (the Art Institute), where to get good pizza, seafood, and the best Mexican food.

I was directly involved in two programs.

The Customs Law Committee sponsored a meeting on the issues relating to the re-importation of prescription drugs. This turned out to be a really good discussion. The panel consisted of an M.D. from the Board of AARP, a Canadian consultant to the pharmaceutical industry, a former FDA official now in private practice, the head of the State of Illinois prescription drug program, and the guy from Customs & Border Protection responsible for cargo release. The panel was very balanced, and, take it from me, this group had a variety of opinions.

There was of course no resolution. But it is clear that basic economics are at work here. The U.S. has a relatively free drug market. Many developed countries have price controls on drugs. This situation naturally creates an incentive to import or re-import drugs. A very perceptive person in the audience described this as "not re-importing drugs, but importing price controls."

One thing to keep in mind about this issue: People are pretty loose with the difference between "import" and "re-import." "Re-import" makes us all feel good because the drug was made here and we trust the system. But, a lot of the drugs coming in via the internet and mail are not re-imports at all. They are drugs produced outside regulatory oversight system (whether in Canada or elsewhere). That can be dangerous and is why state and federal officials looking into re-importing drugs are careful to limit the acceptable sources to approved pharmacies.

It is a very complicated issue that cuts across customs law, public health policy, and economics. Very interesting.

My other contribution was as a panelist speaking about the future of free-trade agreements. The panel consisted of a lawyer from Argentina, another from Brazil, an auto company compliance manager, a professor and me. There was a lot of discussion about the almost dead FTAA and the newly born CAFTA.

My role was two-fold. First, I talked about whether there is any real commercial utility to some of the new agreements. I can't recall a client every pounding the desk telling me that the U.S. needs to open the markets in Morocco or that we need to make kumquats from Bahrain duty-free in the U.S. Looking at the commercial value of these agreements (e.g., CAFTA, Jordan, Panama, Thailand, the Andean nations, etc.), versus the administrative hassles, costs and potential liabilities makes me wonder who is actually lobbying for them. Seems to me it is probably Donald Rumsfeld.

The second point on my agenda was to discuss the relationship between regional trade agreements and the WTO. As far as I can tell, the relationship is that the regional trade agreements undermine the WTO. According to a recent WTO consultative body report, these agreements are one of the biggest threats to the future of the WTO. As it stands right now, WTO members pledge to give each other Most Favored Nation treatment. The exception to that is where there is a regional trade agreement. Well, now everyone is doing regional trade and just being in the WTO leaves you with Least Favored Nation status. Seems to marginalize the WTO. That is an example of what lawyers call the exception swallowing the rule.

So, that was my Friday through Sunday. All empty space was filled with fancy receptions, drinks with friends from around the world and big talk about big ideas.

Tuesday, August 02, 2005

Ford Compliance Crash

I'm not sure there is much to say about this except: "Oh, my!" There are plenty of big companies all over the country breathing a sigh of relief that this happened to Ford and not to them.

What happened is that Ford got hit with a $20 million penalty for failing to properly declare the value of imported merchandise.

The decisions of the Court of International Trade (there are two, reported here and here) are interesting reading. Basically, Ford entered merchandise and failed to mention to Customs that the declared values were tentative. They never got around to notifying Customs of the correct final values even though they apparently understood that they were supposed to do so. The merchandise ended up being under valued and duties were under paid. Ford had a not unreasonable argument about the transaction value being the price paid or payable at the time of export, so it was properly declared. Heck, I have used that myself. But, in this case, everyone knew the price was tentative at the time of export so that argument did not fly.

Judge Tsoucalas went through a pretty exhaustive analysis of the facts, the credibility of the numerous witnesses, and the basis on which he determined the penalty amount. The case is an object lesson for anyone trying to get upper management to focus on compliance as a cost savings measure. So, even though the opinions are long, they are worth a read.

Thursday, July 28, 2005

Do you Know the Way to San Jose, or Tegucigalpa?

CAFTA is a done deal. Last night, the House passed it in a very close 217 to 215 vote. When the President signs it, and the U.S. makes some official notifications, the agreement will come into effect. To make life easy on everyone, this might be timed to happen January 1, 2006, but it could be sooner. Part it depends on whether the other parties have completed their legislative process and made their notifications.

CAFTA covers the U.S., Costa Rica, Honduras, El Salvador, Nicaragua, Guatemala, and the Dominican Republic. This will likely be an economic blip on the radar. Apparently, this region exports less to the U.S. than the exports of Virginia. But, the sugar and textile trades fought hard against it along with various labor groups and those who fear the steady march toward a one-world government.

For the Bush administration, it is a big win. It shows they can get trade deals done, it shows a commitment to rewarding democratic reform, and it might even help to open some markets to U.S. goods which is, after all, what trade deals used to be about before geopolitics became the foundation for many trade decision.

The text of the agreement is here and the implementing legislation is here.

The real question for companies is going to be how to integrate a compliance program into its existing system. Most big companies have set up NAFTA systems that treat U.S., Mexican,and Canadian content as originating. Now, here comes a new agreement and the originating country mix has to change. Plus, the certification and verification process is different. Don't forget that you might need a system that is capable of doing an analysis for Australian, Jordan, Singapore, or Chile as well. What about Bahrain and Morocco? This is getting to be a bit like playing four Monopoly games simultaneously with slightly different house rules for each game. Seems like it would be a good idea to have one over-arching trade regime that works to reduce duties in an orderly multilateral fashion.

Oh wait, there is a WTO meeting coming up.

Tuesday, July 26, 2005

Don't Try This At Home

I am a gadget guy. I use a tablet PC, have an MP3 player, and a WiFi network. I am only lacking for an HD TV and a hybrid car. I also carry (or carried) a Treo 650 smartphone, which I love(d)and for which I am in mourning.

To make a longish story short, do not mix the following: a grande coffee with sugar, a Treo smartphone, and a small sink on a boat. Boats move. Coffee tips. Gravity does its thing. Your phone, marinated in sugar-infused coffee up to two hours will become a surprisingly soggy mess. When dry, it becomes a sticky mess.

According to PalmOne, Treos subjected to liquid damage are not repairable. So, following instructions I found on line, I squirted plastic-safe contact cleaner into the keyboard. No dice. The unit turns on but the keyboard has about as much play in it as a brick. The keys just don't move.

Figuring I cannot make matters any worse, I have ordered a set of small Torx wrenches to open the thing up, thereby voiding my warranty, which is no good anyway since this is not a factory defect, normal wear and tear, or anything but me forgetting the fundamental laws of physics. I'm hoping that when I open it, there will be a big gunky spot I can clean with a toothbrush and get back to business. If not, I'm going to have to go back to Sprint and explain why I need to buy another $500 phone. I'm sure they won't mind.

Tuesday, July 19, 2005

The CIT Reaches for False Claims Act Cases

Here is an interesting tidbit: Suddenly, the U.S. Court of International Trade has jurisdiction to hear cases brought under the False Claims Act by the United States. These actions involve civil claims against a party that (in the case of something before the CIT) made a false statement to the United States that resulted in a reduction in customs liability. Technically, this is a "reverse false claim." Until now, most people would have expected these cases to be handled in the district courts.

Often, False Claims Act cases arise via a whistleblower who files on behalf of the United States. That is a qui tam action. The case at the CIT, however, was not a qui tam action but was brought directly by the U.S. As a result, the CIT held that the case falls within its grant of exclusive jurisdiction. Essentially, the Court treated the action like a regular old boring customs penalty case.

The case, U.S. v. Universal Fruits & Vegetables, is a quick read. The result seems right. It will be interesting to see whether this develops into a new area of practice for the court and the bar.

Saturday, July 16, 2005

Really Simple What?

On the advice of people who know better than me, I have set up an RSS feed from this site. Click the Feedburner button on the right side of the page for some info. Everything I know about RSS, I learned here.

The relevant links are:

Atom: http://customslaw.blogspot.com/atom.xml
Feedburner: http://feeds.feedburner.com/CustomsLaw

There are supposedly many good RSS news readers available including this one, which I am not vouching for. I'll try it too and see how this works.

Friday, July 15, 2005

To Mac and Back

Saturday is the start of the greatest fresh-water yacht race in the world--the Chicago Yacht Club's Race to Mackinac. The course is up the length of Lake Michigan and across to Michigan. It is something like 335 miles, but that is generally as the crow flies. Sailboats rarely get to go in a straight line. The normal approach is either to hug the western shore and try and cross near the top of the lake or cross right away and hug the eastern shore. It all depends on wind and whether you prefer Wisconsin to Michigan. In either case, the strategy is to take advantage of coastal winds rather than get stuck in the middle of the lake with no wind. Figure on two or three days on the water.

In the end, you are at Mackinac, which is inexplicably pronounced "Mackinaw," for lots of beer and assorted nautical high jinks. It's not much of a spectator sport, but it must be fun to take part.

Thursday, July 14, 2005

How Much Care is Reasonable?

The main thing Customs says about avoiding liability as an importer is to "exercise reasonable care." What the heck does that mean?

Customs has put out a lot of information about reasonable care (including this). Generally, reasonable care is equal to the amount of care a reasonably prudent importer in a similar situation would exercise. That, of course, is a bit circular as Joe importer generally can't tell what a reasonable Jane importer would do. To help, Customs has provided a bunch of examples of what constitutes evidence of reasonable care. These examples (usually in the form of questions) include:

  1. Using an expert (including lawyers like me) to assist in compliance activities.
  2. Having a competent individual in the organization to review compliance procedures.
  3. Providing your expert with complete information about the importation before the merchandise applies.

So far, so good. But, sometimes this breaks down. For example, how does an importer exercise reasonable care when making a GSP entry? This is what Customs says:

If you are claiming a conditionally free or special tariff classification/provision for your merchandise (e.g., GSP, HTS Item 9802, NAFTA, etc.), How have you verified that the merchandise qualifies for such status? Have you obtained or developed reliable procedures to obtain any required or necessary documentation to support the claim?

For GSP, there isn't much in the way of required documentation. The "Form A" that used to be required is now extinct. All you need is to make the claim. That counts as a promise that you can prove it if asked. The vast majority of times, the entry will get through Customs just fine. But, what happens in an audit? The auditor will ask what have you done to "verify" the claim. Usually, the answer is that you asked the supplier. But, to Customs, that is not enough.

Let's imagine that scenario.

You: Look, we need to confirm that your product qualifies for GSP.

Supplier: It does.

You: How do you know?

Supplier: Trust me.

You: Not good enough. I need to know that 35% of the value comes from [fill in your favorite beneficiary developing country].

Supplier: I can't tell you my cost of production. You will know my profit.

You: Customs says I need this info.

Supplier: Here is a spreadsheet. Please go away.

You: Can you show me proof of payment at the prices shown on the spreadsheet?

Supplier: We can show you proof of payment at any price you like.

And so it goes in a standoff. You want to make entry and you want to do it right, but there might be no way to be sure enough to satisfy reasonable care. Trusting your supplier without more probably is not enough. So, what do you do?

Well, one approach, is to go visit the supplier (or have an agent do it). Make sure the product is made where it is supposed to come from. Are the right number of machines there with sufficient employees? Ok, so they can make it. Now, ask about the supplier's suppliers. Can you see receiving records? Then ask whether you can see proof of payment for just enough materials to satisfy the 35% requirement. That might be enough.

This is not a magic formula. It is really nothing more than a possible approach. There are plenty of other ways to do it. You need to be creative and you need to work with the supplier. Sitting back and relying on the supplier's word alone, though, is definitely not a good strategy.

Sunday, July 10, 2005

Uh Oh, TiVo!

Well, not really TiVo which is a registered trademark of TiVo, Inc. and I don't want to mess with them. What I really mean is "Uh Oh, I purchased a competing product manufactured by Sony Corp. which is wholly unrelated to TiVo, Inc. and TiVo-brand hard-drive-based personal digital video recorders." Unfortunately, that is harder to rhyme.

See, I have an LL.M. in intellectual property law and these things make me nervous. Plus, I feel for any company with a brand whose name is so ubiquitous that it moves toward becoming the generic term for the product. Companies like Xerox, DaimlerChrysler (makers of Jeep-brand vehicles), Johnson & Johnson (Band-Aid brand bandages) and Kimberly-Clark (Kleenex brand tissues). Keep up the good fight, TiVo. Don't go the way of aspirin.

Anyway, I got one of these gizmos because I don't have cable and don't watch much TV. Makes sense? It does to me. You see, when I do want to watch something, I get really annoyed when I miss it because someone took the tape out of the VCR or, just as likely, I screwed up programming the VCR. Or-- in that special circle of hell reserved for the people at WTTW, the PBS station here in Chicago--when something interesting inexplicably moves around the schedule.

The unit I bought has the bonus feature of being able to transfer programs not locked down by a copy protection signal to a DVD for my enjoyment elsewhere. We'll see how this works out. Right now, I am not sure what 85% of the buttons on the remote do.

Saturday, July 09, 2005

CBP Strikes Back!

Wouldn't it be nice if buried deep in the fine print of your employment contract there was a clause that says when you disagree with the instructions from your supervisor, you can disregard them? Image that.

Now assume that your employment contract is the United States Constitution. Your supervisor is the federal court system. You are Customs.

Turns out that Customs has essentially that authority. It comes from 19 USC § 1625(d) and 19 CFR § 177.10(d). Those two provisions give Customs the authority to "limit the application of" the decisions of the Court of International Trade and the Court of Appeals for the Federal Circuit to the specific entries before the court in a specific case. In other words, when Customs loses a case or does not like the reasoning of a case, it can say: "Well, you win on that entry but we will not apply that decision anywhere else. Possibly not even to the next entry of the same stuff."

To its credit, Customs doesn't exercise this authority often, but it did so in the June 29, 2005 Customs Bulletin where it limited the application of Park B. Smith, Ltd. v. United States. That case involved the question of whether table linens and rugs decorated with holiday themes were classifiable as "festive articles." If so, they would be entitled to duty-free entry.

After it was clear that the Courts disagreed with CBP, Customs went to the WCO for an amendment to the Explanatory Notes to the Harmonized System to "clarify" not change the scope of the relevant provision to exclude the goods from the festive articles provisions. So, future festive articles cases will have a different Notes and, potentially a different result. Of course, that assumes that a change in the Notes is enough to change the outcome of the case when the fundamental language of the HS hasn't changed at all. Which, of course, is a questionable proposition.

Given the change in the Explanatory Notes, this is a reasonable application of CBP's magic get-out-of-jail-free card. But, it just seems wrong.