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.