Friday, August 26, 2005
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. Â§ 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
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.
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.
Thursday, August 11, 2005
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
Tuesday, August 09, 2005
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
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.