Thursday, December 28, 2006

NAFTA Conspiracies: All Smoke No Fire

Sorry, I have to do this.

I use Google Alerts to keep up on NAFTA related news. A large portion of what I get relates to the impending merger of the U.S., Canada, and Mexico into a North American Union and the resultant loss of the American way of life. Go to YouTube and search for video relating to the Security and Prosperity Partnership of North America. Watch videos relating to the North American Union. You will find the shameful and shameless Lou Dobbs fomenting fear and resentment with a non-story relating to the loss of America to a European Union-style North American meta-nation. This is all supposed to happen before 2010.

If you watch these videos and read the equally uninformed web sites and blogs decrying the NAU, one thing quickly becomes clear: although it seems very important to them, these people do not have the faintest idea what sovereignty means. That includes Lou Dobbs who uses a position of media power to whip up strong emotions in well meaning patriotic Americans who may not have access to or the time to consider the information he is ignoring. Shame on him and on CNN for giving him a respectable outlet for his views.

Sovereignty is the exclusive right to exercise supreme political (e.g. legislative, judicial, and/or executive) authority over a geographic region, group of people, or oneself. Keep that definition (which comes from Wikipedia) in mind.

Let's look at some of the key evidence for this mysterious and evil NAU.


NAFTA is a trade agreement permitting the duty-free movement of originating goods between the U.S., Canada, and Mexico. Among other things, it also promotes strong protections for intellectual property and includes side agreements on labor and the environment. It is not a treaty signed by the President and self-executing on the advice and consent of the Senate alone. Rather, it was implemented in a legislative package voted on by both the House and Senate (although in a somewhat limited fast-track mode). Thus, it is entirely domestic U.S. law, not a treaty and not part of any international common law.

Regarding the flow of goods, NAFTA does not remove any significant constraints on the admissibility of merchandise. Basically, it eliminates duties and fees to promote commerce in North America. If NAFTA goods violate U.S. health, safety, environmental, or other legal requirements, they will be barred at the border. For goods, NAFTA does not open the border.

NAFTA has an similarly limited impact on the movement of labor. Basically, the immigration provisions of NAFTA permit only the temporary entry of professionals for business purposes. The Agreement defines professionals through a laundry list of job titles and professional degrees. Nothing in the NAFTA encourages the movement of day laborers either legal or illegal and it does not change the rules with respect to citizenship or permanent immigration.

The part of the NAFTA that gets the most bad press is Chapter 11, which involves the resolution of disputes between foreign investors and the member states. Chapter 11 has been called a secret appellate body with the power to overturn U.S. laws. It is nothing of the sort. Under Chapter 11, a U.S. investor in Canada or Mexico is entitled to treatment no worse than a similar domestic investor in those countries. Same goes for Canadian and Mexican investors in the U.S. That means that the U.S. agreed in the NAFTA not to pass laws that discriminate against Mexican and Canadian investors. In addition, the parties agree to act consistent with international law including "fair and equitable treatment." It prevents a NAFTA party from using regulatory means to expropriate a NAFTA foreign investment or unfairly benefit its own investors.

When a NAFTA arbitration panel finds a violation of these terms, there is absolutely no impact on the underlying regulation, law, or other measure. Take the worst example. Let's say a Mississippi jury awards a half a billion dollars in a claim against a Canadian investor. The Canadian investor then files a NAFTA Chapter 11 claim saying the jury verdict and the subsequent appeals bond requirements violate NAFTA. If the NAFTA panel finds for the Canadian, the Mississippi judgment is not reversed--it stands as the law of Mississippi. Further, the appeals bond rule stands. The NAFTA decision is not a final appeal for the Canadian. All it means is that the U.S. has agreed to make the Canadian whole as a result of the violation. This actually happened although ultimately the Canadian claim was dismissed on procedural grounds.
The sovereignty of Mississippi was never at risk, nor was the sovereignty of the United States. That is because, ultimately, there would have been no impact on the Mississippi rules. Further, the U.S. could, if chose not to pay the Canadian, either accept a possible trade sanction from Canada or withdraw from the NAFTA entirely. The choice remained with the U.S. There is no NAFTA army to enforce these decisions. There is no NAFTA court that can reverse or bind a U.S. court. There is no NAFTA parliament to write laws binding on the U.S. This is not a North American Union.

Security and Prosperity Partnership of North America

This is a non-starter, conspiracy-wise. The SPP amounts is a discussion among the relevant leaders in the U.S., Canada, and Mexico to work together to facilitate legitimate trade in an environment of enhanced security. Mexico and Canada are two of our most important trading partners. The economies of these three neighbors are inextricably linked by companies, big and small, doing business across the borders. America's biggest companies produce goods in all three nations, relying on skilled and unskilled workers, and selling to consumers throughout North America and the world. It is too late to pretend we are not in an environment in which economies prosper through trade. We must recognize that there are comparative advantages at work. Mexico has an advantage in labor; the U.S. in technical innovation, marketing, and services; Canada in natural resources. The SPP is intended to maximize the benefits of the linked economies by promoting a secure environment in which to operate.

The SPP is not a secret organization. Information about it is accessible on its web site. The people managing the SPP have been pretty open about their goals and accomplishments to date. Still, there seems to be much suspicion surrounding efforts directed at border security and facilitation and the harmonization of regulations.

On border issues, the SPP agenda states that its goal is to "reduce the cost of trade" through the efficient movement of goods and people. This will be done by tweaking NAFTA rules of origin and eliminating minor differences in external tariffs. Regarding people, the focus is on facilitating the movement of "business persons." These are measures designed to help industry prosper, which should, in turn, help individuals throughout North America prosper.

On regulatory issues, the objective is to lower the cost of doing business by eliminating redundant or conflicting requirements. Think about this rationally for a minute. If the U.S. FDA tests a drug and finds it to be safe and effective, it can go on the market in the U.S. Does it make a lot of sense for Health Canada and the Mexican authorities to do the same testing? If we trust the process, no it doesn't. Are there mistakes in the U.S. drug approval process? Yes, and there will be in the future. The issue for SPP is whether there is common regulatory ground on which the three countries can agree so as to eliminate cost and uncertainty to business. This is a big issue for businesses large and small. It affects everything from how consumer goods are labeled to whether a car is considered safe for the road. Harmonizing rules eliminates costs and barriers to export markets. That's a good goal.

And, it does not affect our sovereignty. As long as U.S. law requires FDA certification for drugs, unapproved, misbranded, and adulterated drugs and food products will be barred from admission to the U.S. If the U.S. decides that it wants to accept Canadian drug approvals, that will have to go to Congress and the President for approval and implementation. Nothing the SPP does can bypass that legal requirement. The U.S. remains in control of its laws and its borders.

Saying that the SPP somehow translates into a corporate internationalization of the U.S. is the same as saying that the U.S. is prohibited from regulatory cooperation with our neighbors and allies. Efforts to clean up the Great Lakes, for example, or eliminate trade in ozone depleting chemicals, or deliver the mail are not examples of a creeping loss of sovereignty. They are evidence of U.S. efforts to engage the rest of the world to solve practical problems and improve the quality of life for everyone.

The NAFTA Superhighway

Some have argued that efforts to improve the roads linking the U.S., Canada, and Mexico are part of the secret effort to merge the countries. The effort, to improve transportation at least, is not secret. Its supporters have a web site. It is not even new. The roads involved already exist in the form of I35, I29, and I94. And, there is no proposal for anything called the NAFTA Superhighway. The effort simply is to improve the infrastructure of the middle United States to rapidly distribute legal goods and people throughout North America. The business people supporting this effort are doing so through a not-for-profit institution that is collecting funding and lobbying appropriate legislatures.

This argument is ridiculous and probably racist. Detroit is in dire need of improved infrastructure to handle traffic crossing into and out of Canada. Discussions are underway for the building of new bridge. No one is arguing that the possible influx of Canadian truckers is a threat to our way of life.

Security at the land borders is important. The border with Mexico presents unique problems rampant including illegal immigration and narcotics smuggling (although it should be noted that those problems also exist to a lesser degree on the northern border). These troubling issues need to be addressed. Improving the logistical capacity of the borders is not incompatible with law enforcement or with sovereignty.

The Amero

This is an academic discussion that escaped into the wild. When law professors and economists compare the NAFTA to the EU, usually for purposes of explaining what NAFTA is not, the discussion naturally turns to the Euro, the common currency of the EU. Some academics, including Herbert Grubel of Simon Frasier University and Robert Pastor of American University, have proposed the creation of the Amero as a common North American currency. Former Mexican President Vicente Fox appears to have supported the creation of a single currency as part of a more integrated North America.

While there is a certain tendency to consider a single currency as the logical next step in the integration of North America, there is no actual movement in that direction. Instead, the situation on the ground, so to speak, is that most international business done in North America uses the U.S. dollar. The U.S. economy continues to dominate the region. There is no good reason for the U.S. to give up its currency. We are not Italians trading away the lira.

There is a slightly better argument for the middle ground known as dollarization. Under this approach, Mexico or Mexico and Canada would adopt the U.S. dollar as their own currency, thus giving up the control of their own monetary policy. This is, at best, a long shot. To protect its cultures, Canada does not even permit free trade in U.S. movies and television. It is unlikely to drop the loonie for a currency with pictures of U.S. presidents.

Those who oppose the North American Union and the Amero are shadow boxing. They are tilting at windmills of their own creation. The U.S., Canada, and Mexico need to work together to secure a robust environment of legitimate trade and legal immigration. A healthy North American economy is good for all of us.

Lou Dobbs and the others who believe in the conspiracy to create a North American Union will, of course, argue that I am naive and just believing the government's party line. They see efforts at promoting trade and security, and academic "what if?" discussions as sinister clues to the occult hand of globalization controlled by stateless corporations or "international elites" (with its own racist overtones). They will say that my job depends on NAFTA and globalization. That last bit is partly true, but trade lawyers can do quite well in protectionist environments as well.

What is at stake here is rationality and, frankly, the truth. Rational businesses operating in North America need an efficient border crossing system and robust logistical links. Everyone in the region needs security. Recasting governmental and private sector efforts to improve business conditions and border security as a conspiracy to trade away United States sovereignty is at best silly and, at worst, a calculated effort to scare people for personal or political gain.

Tuesday, December 26, 2006

Where is Mandatory AES?

International Trade Today, put out by Broker Power, Inc., ran an interesting piece on December 19th in which Census sources indicated that the final rule on the mandatory use of the electronic Automated Export System (AES) for filing export documents remains a goal for the future. Census claims it will make a push for adoption of the electronic system in 2007 and will encourage large paper filers to make the switch voluntarily.

More ominous, Broker Power reports that Census is going to begin "visits" to AES users. These visits will be used to determine the procedures in place at compliant companies and to "assist" those in need of compliance improvements. That assistance might include referral of violations to the relevant agency (i.e., Custsoms, BIS, or State).

AES filing is something everyone will have to get used to--eventually. You may as well get started on a voluntary basis. At least look at the online training tools.

Thursday, December 21, 2006

It's NAFTA Time: Free Gifts!

Here, have a NAFTA CO.

The start of a new year is always exciting for the folks responsible for maintaining NAFTA compliance. Same goes for all the other new free trade agreements. That is because everyone is scrambling to get NAFTA certificates of origin from suppliers. Or, you might be one of those unfortunate people getting your arm twisted by a customer who wants a NAFTA CO yesterday.

Here are a couple tips. At the end of this post, I'll give you a free tool to help. I promise.

Tip Number 1: Tell Your Broker What is Going On

Most NAFTA COs will expire December 31. If you are an importer who is used to claiming NAFTA status for your merchandise and don't have a replacement CO, you can't make the claim on January 1. Remember, NAFTA works on the assumption that you have a valid CO in your hand at the time of the claim. The other FTAs are a little different in this regard, but just go with me here. So, if you don't let your broker know that Acme Tools of Tijuana did not give you a new CO (or that you changed suppliers to Acme Tools of Beijing), your broker might go merrily along making claims. Each of those claims is a violation.

The right thing to do is provide your broker with a a list of products covered by COs and a list of those previously covered but no longer certified. The broker can them make appropriate claims. As suppliers get their act together and give you COs, you can go back and make a post-entry NAFTA claim within one year of the date of importation.

Tip Number 2: There Are No Shortcuts

There is no "rule of thumb," or "default rule" that says if you have 50% North American content, your goods qualify. Some rules do not care in the slightest what the regional value added is. Some rules are based entirely on the tariff classification of materials and the finished article. These are the tariff shift rules. And among tariff shift rules for similar goods, the required shift may be different.

Each and every time you do the analysis, flip open your HTS to the NAFTA notes and confirm your rule of origin.

Tip Number 3: A=Audit

Simply put, preference criterion A is almost always wrong. This rule of origin requires not a single atom of material in the product comes from outside of North America. If you are in the mineral or agricultural industries, look at preference A because it might apply. For everyone else, move to preference B.

More important, if you receive a CO with A as the preference criterion, question it. If you bought coal or corn, it may be right.

Tip Number 4: Use the Form

The NAFTA CO is a well designed form. It communicates exactly what the customs authorities of the importing country needs to know. Not coincidentally, it also tells your customers what they want to know for their own analysis (except for traced values). So use it, even for domestic transactions. The fact that it lists an importer and exporter does not matter for domestic transactions. Treat "importer" as buyer and "exporter" as seller. You can even mark up the form if you want. That is fine. The form will not be used to support a claim in Canada or Mexico if it shows an "importer" and "exporter" both in the U.S.

While we are talking about the form, note that there are instructions on the back. They are actually pretty good. If you are just getting started, that is a useful place to look. If your customer faxed or e-mailed only the front, click the link at the top of this post for a full form.

Tip Number 5: Click Here

The link in the heading above leads to a short article and a checklist on the Barnes/Richardson web site that can be used to help complete or review NAFTA COs. The article is handy although I think the new forms permit dates in the American mm/dd/yy format. How's that for cultural imperialism?

Happy NAFTA-fest to all and to all a good night.

Wednesday, December 20, 2006

Pres. Signs GSP and other Trade Measures

So GSP survives for another 2 years with some new restrictions on Competitive Needs Limits. The restrictions are supposed to help the lesser developed of the beneficiary developing countries benefit from GSP as opposed to the larger economies like Brazil, India, and Thailand. One has to wonder how that is going to work. It seems more likely that if those countries lose GSP either for certain commodities or entirely, that trade will most likely shift to China rather than, say, Nepal, Columbia or Benin.

I'll let my day job do the talking on this one: click here. Sorry for taking the lazy way out.

Bird Lovers Nabbed at Border

Update: I fixed this link so that it points to the relevant story.

There is not much to say about this story. It is illegal to fail to declare merchandise entering the U.S. That includes live birds. And, if you go to Canada just to purchase 25 pounds of bird seed, expect to be searched.

Monday, December 18, 2006

Counterfeits in Court

An interesting case involving allegedly counterfeit goods came out of the CIT last week. The merchandise involved was PDA accessories including chargers and keyboards. Lots of goods issues were raised including one of my favorites: how is Customs supposed to determine the manufacturer's suggested retail price of counterfeit goods? Another issue was whether it is possible to counterfeit the "flying Windows" mark on a keyboard or--as plaintiff maintained--is using that mark protected "fair use" because it is effectively a requirement for all Windows based keyboards.

Unfortunately, these meaty issues were not resolved because Judge Stanceu dismissed the case on procedural grounds. In summary, the Court found there was no valid protest of the exclusion of the merchandise. Thus, there was no jurisdiction under 1581(a). The Court also found no jurisdiction under 1581(i) because the restriction on the importation of counterfeit goods is not an embargo under 19 USC sec. 1526(a) and no valid protest was filed which could be reviewed under 1581(i)(4). Further, because the challenged determination did not relate to revenue from "imports or tonnage," (i)(1) did not apply. But, the Court found the restriction to be an embargo created by sec. 1526(f) and that it did not relate to health and safety. Thus, it found jurisdiction under 1581(i)(4). It's confusing. Read the decision.

Unfortunately, jurisdiction is not enough. The plaintiff also needs to plead a case on which the CIT has the ability to grant relief. Relief, in this case, requires a final agency action and Customs had not yet decided whether it would seek to enforce its notice of penalty. Thus, it retained some level of discretion on how to proceed. Furthermore, if Customs did proceed with a penalty action, that would be a de novo case rather than review of an agency determination under 1581(i). Thus, no relief was available under (i).

All of which is a preface to what I want to talk about: that darned MSRP question. The penalty for importing counterfeits is based on the value of the merchandise if it were genuine. That raises an interesting question. What is the MSRP of "the merchandise if genuine" when the merchandise is made of cheap materials, by unskilled workers and not at all what the trademark holder would ever sell? Since, the genuine article would never be this lousy, there is no "merchandise if genuine" against which to measure the value of the fake. Get it? Fake shoes selling for $30 might be worth, in terms of labor, materials, profit, etc. $20. Putting a counterfeit famous trademark on them makes them more valuable because either the consumer or the public that seems them on the consumer is being duped into believing that they are expensive shoes. But, it seems that what the law requires is for Customs to figure out the value of these same $30 shoes if they were genuine. That, however, is not what happens. Instead, Customs (with the help of the trademark holder) finds a superficially similar genuine article and uses that as the MSRP. This results in possibly inflated penalties.

Sadly, the issue did not get addressed in this case. It is one of those things that is just going to have to wait for the right set of facts to come along.

The Fruits of International Trade

What the heck is this? It made its way to the produce department in my grocery store but it was not labeled. On top are kiwis; below are prickly pears. That ugly thing in the middle may or may not be edible. Whatever it is, I can almost guarantee that it is here as a result of international trade and I bet it passed through Customs.

Wednesday, December 13, 2006

Softwood Lumber Ends

Not with a bang, but with a whimper. Read about it via the CBC here.

With a few more details, the story is this: The Coalition for Fair Lumber Imports had challenged the NAFTA Chapter 19 dispute resolution process as violating the U.S. Constitution. Unfortunately for this interesting claim, in October the U.S. and Canada entered into a settlement of the softwood lumber dispute. As a result, there was no controversy before the Court to decide and the Court dismissed the action as moot. You can read that here.

Want to know why Chapter 19 might be unconstitutional? I have no idea what the parties to the actual case were arguing. But, I can tell you the argument most commonly raised. It has to do with the appointments clause of the Constitution. Article II, Section 2 gives the President the power to appoint "Judges of the supreme Court, and all other officers of the United States . . . ." This extends to all so-called Article III judges. Prior to NAFTA, antidumping and countervailing duty disputes were always heard by the U.S. Court of International Trade and then the Court of Appeals for the Federal Circuit. In NAFTA, the parties agreed that disputes involving Canada, Mexico, and the U.S. would instead be sent to arbitration. The arbitrators are chosen by the parties from a roster. The U.S. hoped that the roster would contain a number of retired federal judges and it does. But it also contains professors and trade lawyers and, in theory, could include the guy who runs the animal shelter down the street. These are not people who have been appointed by the President with the advice and consent of the Senate and yet they are doing judge work. Thus, the argument goes, it is unconstitutional.

I'm not so sure. This is an agreement between the nations to enter into arbitration rather than go to court. That happens in commercial agreements all the time. Arbitration is, by definition, not court so you don't need a judge. The wrinkle is that this agreement means that private parties, who had not choice in the matter, to give up review by an officer of the United States (i.e., a judge). In other words, the private party is forced out of Court and into arbitration making the decision of a U.S. governmental agency effectively beyond judicial review.

Unfortunately, we won't know the answer to this question until someone else gets fed up with the Chapter 19 process and tries to topple the whole house of cards.

Friday, December 08, 2006

Friday Travel

I was trying to post more regularly, and I will continue to do so. Today, I was traveling and not able to do it until now. At this point, I want nothing more than to vent and to invest in anyone working to perfect the Star Trek style transporter thus eliminating the need for cars and planes.

It is cold here in Chicago. Thus, I was not at all happy when I found myself at 6:00 AM, in five degrees of cold, in the dark, on the side of the Edens Expressway (at Peterson for the locals), with a flat. I was headed to O'Hare to catch a 7:00 plane. This, it turns out, was not a pull-into-the-nearest-gas station-for-air-and-limp-to-the-airport kind of flat. No, it was a gaping-hole-in-the-sidewall, riding-on-the-rim kind of flat. I have no earthly idea what happened. There was no way I was driving on this thing. If I were either Starsky or Hutch, I would assume that someone shot out my rear wheel.

Keep in mind, I was going to visit a client and was (as the client later put it), in "full lawyer." So, in my nice blue suit, tie, and overcoat, I started rummaging for the spare and tools. Again, this is in the dark and no, I do not have a flashlight in the car (thanks for asking). I found the jack and pulled the spare out without trouble. Getting the shredded tire off was not much of a problem either. The problem was trying to line up the spare over the bolts IN THE DARK, wearing gloves, but having no feeling whatsoever in my fingers. It took me many tries including a couple of adjustments to the jacked height of the car. Eventually, I got it done, hand tightened the lug nuts, and lowered the car. With the car down, I tightened up the nuts and tossed everything back in the trunk and went on my way.

Off I went. Total delay, about half an hour and no damage to my suit. Clearly, however, I would miss my plane. Ten minutes later, as they warmed up, my hands were hurting badly and I wondered whether I would lose my fingertips. Arriving at O'Hare, however, I was relieved to find my flight delayed by 40 minutes and I was able to board. So was the screaming infant, the non-stop talker with the Bluetooth headset, and the guy who is not clear on the concept of "please take your seat." Bluetooth guy was so rude to whoever he was talking to, I would be surprised if he were not routinely pummeled at work. His conversation consisted of repeating the sentence, "We are looking at the same numbers but you are too stupid to understand them. " At least I made it to my meeting able to blame the airline for my being late.

On the way home, I had no such luck. We boarded on time and then sat for two hours waiting for "air traffic delays" into O'Hare. What a pain. Luckily, I had Mary Roach's book Spook with me for an interesting read. Now I am home, tired, and ready to go to NY on Monday. Pray for my better travels. Please.

Monday, December 04, 2006

Simon Says, Wait for a Release

Customs just announced beefed up penalties for taking your merchandise before it is officially released. That sounds like a crazy thing, but it happens. Usually, this is the fault of the carrier or broker trying to look like a hero by getting the goods to you. After all, it is not often that the importer actually shows up at the port to pick up the goods.

The penalties are pretty substantial. Here is the gist of it (which are published in the guise of "mitigation guidelines"):

A first violation may be mitigated upon payment of an amount
equal to the lesser of: 1) 75% of the domestic value of the merchandise,
removed or delivered without authorization and/or examination,
or 2) a flat sum between $10,000 and $25,000, as determined at
CBP’s sole discretion.

A second violation may be mitigated upon payment of an amount
equal to the lesser of: 1) 75% of the domestic value of the merchandise,
removed or delivered without authorization and/or examination,
or 2) a flat sum between $25,001 and $50,000, as determined at
CBP’s sole discretion.

Third and subsequent violations may be mitigated upon payment
of an amount equal to the lesser of: 1) 75% of the domestic value of
the merchandise, removed or delivered without authorization and/or
examination, or 2) a flat sum between $50,001 and $75,000, as determined
at CBP’s sole discretion.

The lesson here? Customs takes this seriously. There must have been some issues at the ports that prompted this change. So, be sure that any pressure you place on your carrier, broker, or other agent at the port is coupled with an instruction the be sure the merchandise is properly released.

The other lesson here? It pays to keep your eye on the Customs Bulletin. Thanks, Rick, for pointing it out.

Tuesday, November 28, 2006

Hello Moto

I am treading lightly. It turns out, people read this stuff. The last time I talked about sec. 1625 and the revocation or modification of rulings or treatments, I got chewed out (with some justification). But, here we go again. This time, I freely admit I am writing this not out of a disagreement with the judgment but because I had a hard time piecing together what happened. Maybe you did too.

In Motorola, Inc. v. United States, (slip op. 06-165), the issue was whether 900 bypass entries or pre-classification rulings constitute "treatment" for purposes of 1625. If so, Customs should have engaged in the 1625 notice and comment process before issuing a ruling changing the classification in a way unfavorable to Motorola. The Court does a very thorough, well-reasoned analysis finding that bypass entries are not a treatment triggering section 1625.

The regulations (19 CFR 177.12(c)(2)(ii)) state the following:

The determination of whether the requisite treatment occurred will be made by Customs on a case-by-case basis and will involve an assessment of all relevant factors. In particular, Customs will focus on the past transactions to determine whether there was an examination of the merchandise (where applicable) by Customs or the extent to which those transactions were otherwise reviewed by Customs to determine the proper application of the Customs laws and regulations. For purposes of establishing whether the requisite treatment occurred, Customs will give diminished weight to transactions involving small quantities or values, and Customs will give no weight whatsoever to informal entries and to other entries or transactions which Customs, in the interest of commercial facilitation and accommodation, processes expeditiously and without examination or Customs officer review . . . .

The Court found that bypass entries are processed expeditiously for purposes of facilitating commerce. Consequently, the burden was on Motorola to show that real review occurred and that the exception does not apply. Unfortunately, the Court did not find Motorola's evidence of review compelling and found that bypass does not constitute treatment.

But, there was another possibility for Motorola, and this is where things got more complicated for me. The second question was whether two pre-class rulings constitute treatment. Here, the Court started with the premise that the PRLs, which it called interpretive rulings, do not constitute prior interpretive rulings or decisions for purposes of 1625(c)(1). Thus, they can only trigger notice and comment if they are treatments for purposes of 1625(c)(2).

The reason for this oddness is that the CIT previously held, and no one contested on appeal, that PRLs do not trigger 1625 notice and comment because they only apply to the same merchandise and not to other merchandise even if substantially identical. So, 1625(c)(1) was off the table and Motorola's only chance was to find a 1625(c)(2) treatment.

No such luck. The problem for the Court was that it could not (in its judgment) consider interpretive rulings as treatments under (c)(2) when there is a specific provision for them in (c)(1). That would make (c)(1) redundant, and that is against the lawyer rules for reading statutes. For proof, poke around on the sadly apparently defunct Statutory Construction blog.

Thursday, November 23, 2006

More Counterfeit News

Here is a link to another article on counterfeit enforcement. This really must be one of the hot issues in CBP these days.

Oh, and a Happy Thanksgiving to all who care about such things.

Monday, November 20, 2006

CBP Makes Murder Arrest at the Border

I saw this story a few days ago and passed on blogging it. It came up in my automated Google Alert for CBP. Unfortunately, the first site on which I saw it reported was NSFW, if you know what I mean. Now, it is showing up in the news without illustrations.

The story is simply that CBP arrested one Timothy Boham after he was questioned at the border in Arizona. Apparently, when questioned he volunteered that he was the subject of an arrest warrant in Denver for murder. Generally, that is an answer that will lead to your arrest.

The reason the original link was NSFW is that Mr. Boham is an "actor" in gay pornography where he goes by the name Marcus Allen. Which, of course, makes me wonder whether this Marcus Allen has considered filing for trademark protection for his name.

Thursday, November 16, 2006

More NAFTA Penalty Action

Apparently, it is not just Ford that has come under scrutiny from Customs and Border Protection for NAFTA certification.

Here is the text of a press release that pretty much speaks for itself:

WASHINGTON -- U.S. Customs and Border Protection in San Diego has reached a $10 million settlement with Pioneer Speakers, Inc. for violations of Nafta rules and record-keeping requirements. The settlements are in lieu of fines totaling more than $46 million that accrued against Pioneer in two unspecified years, according to a Customs press release. Customs said that Pioneer provided false claims for preferential treatment for speakers imported from Mexico. The speakers were assembled from parts made in another country, so do not qualify for Nafta duty preference. Pioneer also failed to keep proper records on the imports, Customs said.

A million here, a million there, pretty soon these penalties get to be real money.

Like so much else in this business, there has got to be an interesting story behind this case. I wish I knew what it is.

On the Watch for Counterfeits

Looking to pick up a fake Rolex on your next trip overseas ? Careful. Customs is looking for you. Well, really they are looking for larger quantities, but you get the point.

Here is an article posted by the State Department on the increased international attention being paid to counterfeit merchandise. The article says that seizures have doubled since 2001. I am going to speak on this topic at John Marshall on Nov. 30. Here is the brochure.

If you are smuggling, don't assume you won't come under suspicion just because you look like a respectable, non-threatening civilian. That's probably what 60-year old Carmen Grado Franco thought. At least up until she was busted at the port with almost 200 pounds of marijuana and a bit of cocaine.

Wednesday, November 15, 2006

WTO Appellate Decision on EU Uniformity

The USTR announced yesterday (11/14/2006) a WTO Appellate Body finding that the EU fails to administer uniformly its customs laws with respect to liquid crystal display monitors. While this might seems like a narrowly focused issue, it has broader ramifications. First, the decision reaffirms the important principle that the EU needs to have uniformity across its 25 member states. This should be true for all merchandise, not just the liquid crystal display monitors. Second, the Appellate Body also held that the original panel should have considered the broader question of EU uniformity rather than limiting it to the LCD display question.

The full report and background is available here from the WTO.

In the U.S., this is seen as an important step toward giving exporters a uniform set of rules in Europe and, therefore, reducing costs and other burdens in trade with EU members.

Monday, November 13, 2006

I'm Back

It's odd that I feel bad when I don't post for a while. I try and post twice a week and to have at least one post on topic. When I travel, I find it harder to post and I have been on the road lately.

Last Monday, I moderated the Administrative Procedure Act panel for the CIT Judicial Conference. From where I sat, it seemed like an interesting panel. Boiled down to its core, the conclusion is that the APA has no real role in CIT cases brought under 28 USC 1581(a)-(h) because those cases are either de novo or have a standard of review set in a different statute. But, the APA is directly implicated in 1581(i) cases. How the APA applies will depend on the nature of the case and the questions of both law and fact. It is clear, however, that more than just the "arbitrary and capricious" shorthand is applicable.

From NY, I went to Miami for the ABA Section of International Law Fall Meeting. There was an excellent discussion there about "new" opportunities for judicial review at the Court of International Trade. Some of that discussion had to do with non-traditional actions that fall within the current jurisdiction of the court. The rest of the discussion had to do with possible expansions in the Court's jurisdiction.

The highlight of my week, though, was a frolic and detour. I got to indulge my fascination with crackpot theories and the paranormal by visiting the Coral Castle (don't skip the intro) in Homestead. Basically, it consists of a small compound built with very basic tools by a single 100 pound man. The place is made entirely of local coral and there are pieces that weigh as much as 30 tons. This, of course, raises the question of how he accomplished this feat including moving the stones. Some believe he had good instinctive engineering skills and built pulleys and levers to do it. Boring. The better theories involve his esoteric knowledge of magnetism. This knowledge allowed him to render the stones weightless the same way the Egyptians did to built the pyramids. Others say he used harmonics and actually sang the stones into weighing less than gravity would dictate. Another theory is that he strung wires around to induce magnetic fields to lift the stones. All of this, keep in mind, was figured out by a guy who turned a Ford differential housing into a BBQ cooker and

Honestly, I don't know how he did it.

I love this stuff. It is a great way of identifying people who did poorly in high school physics. I am also fascinated by people who think the earth is 10,000 years old and that Noah's Ark included sleeping dinosaurs. Yes, I know that sounds very condescending and judgmental.

This picture I took depicts a wall of the castle showing models of Mars, Saturn, and a crescent moon. The builder apparently believed Mars was inhabited. His decorating touches also include a table made in the shape of Florida, a throne room, and an open air bathtub. He did all this, we are lead to believe, because he was jilted in his native Lithuania.

I am sure that when the reptilian controllers of the world are exposed, they will tell us how Ed managed to build this place.

I'll be reading slip opinions this week and will catch up with a useful post soon.

Tuesday, November 07, 2006

To The Yacht, Lovey

Customs and Border Protection has announced a new program to make it easier for pre-registered recreational boaters to return to the U.S. after visiting foreign ports. The program, called the Local Boater Option is only available in select ports from Tampa to the U.S. Virgin Islands. Pre-registered arriving vessels will only need to report in via phone. Everyone else has to arrange for the normal face-to-face screening.

Seems like a good idea as long as the 2007 Terrorist Regatta is not in town.

More Laptop Customs News

On Monday, November 6, 2006 the previously unknown to me Association of Corporate Travel Executives issued a warning to its members about carrying laptops in international travel. The association is rightly concerned about the risks to corporations of having a laptop seized as evidence at the border and losing access to important corporate information.

I've written on this before. At that time, though, I did not think of it in terms of corporate compliance. It is an issue. If one of your managers is traveling abroad with a computer containing sensitive information, your corporate policies should prohibit that person from storing any illegal or questionable information on the computer even temporarily (Customs and Border protection can look at deleted files, Internet caches, etc.). What you are worried about here is illegal information. There is no problem with your executives having a computer chock full of pictures of their kids and pets or the latest version Grand Theft Auto. A computer with images of child pornography, the Quicken books for a terrorist cell, or recipes for Ecstasy could present a problem. If the laptop is seized, it is not likely to go back to the company anytime soon. While you may be put out because your manager is sitting in jail, that is his or her problem. On the other hand, if the PowerPoint presentation needed to pitch the hot new prospect in Dubai is seized, that could be a real problem.

This about. Talk to your HR people about an appropriate policy.

Friday, November 03, 2006

What Exactly is an Electronic Signature

Customs recently issued a ruling quite wisely stating that an electronic signature would be acceptable on a NAFTA certificate of origin. OK, fine. This is hardly newsworthy since copies of COs are acceptable.

The interesting thing here is the distinction between a run of the mill electronic signature and a digital signature. The electronic signature at issue in the ruling was a bit map graphic of a handwritten signature. For all intents and purposes, it is the digital equivalent of a rubber stamp and ink pad signature.

Don't get me wrong. I think the ruling is fine. There is no reason to require that a human being take a pen in hand and make his or her mark on the document to authenticate it. Customs correctly noted that the law has long recognized that anything placed upon a document with the intent that it signify that the person making mark agrees to the contents, is a signature. That is why illiterate people used to "make their mark" with an X on a document or why a thumb print is a perfectly good signature. The NAFTA CO is not such a unique or important document that it requires an original signature. Frankly, this day and age, it is increasingly difficult to think of any documents that should require a physical signature. I recently renewed my license to practice law completely via the internet without signing a single document. Every time you make a purchase online, you "sign" the charge receipt when you complete the transaction. The Court of International Trade has almost fully implemented the electronic filing of documents with true electronic signatures and no physical ones.

A true digital signature is a code usually consisting of many alphanumeric characters that bears a complex mathematical relationship to the contents of the document. As a result, with good electronic signature technology, it is possible to determine whether the document has changed since the original signing. The BMP facsimile signature does not do that.

Why do I point this out? Because real people in real industry want to eliminate the paper NAFTA CO entirely and let suppliers provide the relevant data via a secure web interface. The data could then be digitally signed to prove its authenticity and preserve its integrity. From there, the company could use the data in its own compliance processes without having to re-key it. If a NAFTA verification were to be necessary, the company could produce all the relevant data in a report or, if requireed to do so, run it off on paper CO forms. The only thing missing would be a physical signature or something looking like a physical signature.

In the past, I have read the regulations to require a paper CO. Given this ruling, I am not sure that is the case. With a true digital signature, the data is authenticated and secure. The name of the certifier can be printed in the signature block of a paper CO as necessary. What is missing from this system in terms of compliance? Nothing. Perhaps someone should request a ruling to confirm that a paperless CO system is acceptable.

After that, I will move on to getting rid of the official posting of liquidation notices.

Wednesday, November 01, 2006

Crikey! The U.S. Bans Vegemite (Maybe)

News reports from down under (where women glow and men chunder) say the U.S. has banned the importation of the Australian culinary staple Vegemite.

This is a serious issue. One blogger at Homeland Stupidity has done a little investigative journalism and ordered a sample from Oz. It appears to have arrived without delay, leading to questions on whether there is, in fact, a ban. Aussie newspapers have quoted a Kraft spokesperson as explaining that the folate added to Vegemite is apparently only permitted in U.S. grains and cereal products.

When all else fails, I turn to Snopes, which declares this story to be false. But, the explanation clearly indicates that U.S. rules prohibit boosting folate in non-grain food products and that commercial importations would be a violation of U.S. regulations. Snopes, however, concludes that because the FDA has not asked Customs to seek out Vegemite in the possession of arriving passengers, the story is false. I think they need to parse this out a little more finely.

The story is fascinating to me because for a short period in my ill-spent youth, I lived in Australia. That period was 1980 and I attended high school there as an exchange student.
During that time, I ate a number of odd foods including some crab-like thing that I think was called a beach bug. I also learned to drink beer. Mostly, I drank Fosters before it was made in Canada but also Tooth's. I hope this does not come as a shock to my parents.

I enjoyed my time in Australia. I think a major reason for that is that I never ate Vegemite. I tasted it. I tasted it several times. Each time, I realized that it is not what Americans would call "food." Rather, it is more like an ingredient. This stuff is a salty, malty, pungent yeast extract that is not dissimilar to straight soup base. Bite a bouillon cube and you'll get a decent idea of Vegemite.

But, if there is a break in the supply chain for ex-pat Aussies living in the U.S., there may be repercussions. They take this stuff pretty seriously. That means we all need to be on the lookout for bomb carrying wombats and boomerang tossing emus. And whatever you do, stay away from Nicole Kidman. She is likely to be very cranky.

Monday, October 30, 2006

Updates on Nothing

I am back from Canada. The fine folks at ieCanada throw a nice annual meeting. Next week, I am moderating a panel at the Judicial Conference of the Court of International Trade. Although talking to a room full of lawyers is never as much fun as talking to real people, it should be a good program.

In the category of sure signs that the ecosystem is a mess I note the following. First, a skunk has recently taken up residence in my yard. I have seen him (I assume it is male) three times in the past month. Most recently, he walked right up onto my back deck.

Second, my new garbage pails are being gnawed and whatever is doing it is smart enough to go right for the locking mechanism. Lastly, outside my office today, hanging upside down (as one would expect) on a concrete step, was a small bat. At first, I thought it was a dead bird but it was clearly covered in fur, not feathers. Also, it had tiny little claw at the top (because it was upside down). It was a bat. This sounds like the opening sequence in a 1960's horror movie. By the end of the week, I expect to be cowering under a steel water trough while dog-sized shrews nip at my ankles.

And, finally, in an effort to retain some sense of professionalism and topical content for this blog, here is a link to a transcript of a C-SPAN interview with Commissioner Basham.

Monday, October 23, 2006

By Request

I know a lot of people in the customs law business. Occasionally, I disagree with my colleagues. For the most part, that leads to a polite exchange of ideas and, maybe, an agreement to disagree. It's different, however, when I commit my opinions to the public through this blog. When someone disagrees with a blog post, I have the choice of ignoring it or letting the world know about.

Today, by the express request of a friend and the implied rebuke of the Federal Circuit, I address an apparent error in my thinking.

The relevant context here is International Custom Products v. United States. When the case was decided at the CIT, I wrote a post that was hard on the government and congratulated the Court for keeping CBP on the straight and narrow. The basic facts as presented were that the importer received a ruling and went about its business based on the ruling. Much later, Customs investigated the product and its use. As a result of this investigation, Customs issued a Notice of Action to reclassify the merchandise, substantially increasing the duty rate. The importer characterized this action as revoking or modifying the ruling and challenged Customs' failure to go through the required notice and comment process to revoke or modify the ruling.

It seemed clear to me that as long as the same product was involved, the ruling should stand until properly revoked. That is what I said, harshly, in the original post. Since the administrative procedure was at issue, I did not think a protest should be necessary to get into Court. After all, Customs had already told the importer how it would decide the protest and the issue did not really relate to liquidation. It related to requiring CBP to follow its procedural regulations.

Well, it appears that I was wrong. At least as far as the CAFC is concerned. The Court cut right to the heart of the matter and said that there was no good reason why the importer should not be required to file a protest, let Customs deny it, and go to the CIT under 28 USC 1581(a). The Court rejected the notion that filing a protest was futile or too slow.

For the most part, this laser-like focus on the protest process is entirely consistent with past law holding that if the CIT has jurisdiction under 1581(a), that is the only way to get into court. The HMT litigation notwithstanding.

Still, you have to feel for the importer who had a business built around the classification ruling it received from Customs only to have Customs change the classification. There seems to be something in the background regarding whether the merchandise either changed or was not properly described in the original ruling request. If that is true, and I don't know that it is, then it would make sense for Customs to want to leave the ruling in place while telling the importer to change its classification. If the goods are exactly the same as what was described in the ruling, it still seems to me that Customs needs to revoke or modify it.

I hope that satisfies everyone.

Friday, October 20, 2006

See You In Toronto

If any of you happen to be headed to the ie|Canada annual meeting on Monday through Wednesday, I'll be there. Please say hello. I'll be talking on U.S. penalty law and manning the Barnes/Richardson booth at the trade show where we will try hard to give away an iPod.

What Goes Around

When I started in this practice, a decade before 9/11, there were always Special Agents sniffing around importers looking for revenue and admissibility violations. My first really big project involved a multi-year investigation of one of the biggest companies in the world. The investigation went on so long that I became relatively friendly with the lead agent and auditor. It was the auditor's job to follow up on the agent's theories and hunches about the bad things the client had allegedly done. I'm happy to say that, in the end, it did not amount to much more than several prior disclosures.

Today, things appear to be very different. The agents have been peeled off into a different agency altogether. They spend most of their time, it would appear, working to keep us safe from terrorists and narcotics. Which is, of course, laudable. For the past five years, it has been rare, at least in my experience, to deal with a Special Agent on a matter involving commercial enforcement. Rather, Customs has used Focused Assessments and the Importer Self Assessment program to let Regulatory Audit whip importers into procedure-driven compliance.

Something is about to change. To me, it looks like a return to the pre-9/11 days with a fancy new name: Quick Response Audits. Customs announced this in May, so nothing I say below is talking out of school. Boiled down to its essential core, a QRA is simply an audit focused on a single compliance risk that was triggered by a request from someone inside DHS (most likely ICE) or CBP to Regulatory Audit. The request could also possibly come from an outside tip.

Assume, for example, that an Inspector stops a shipment of craft works because they are made from the feathers of an endangered species. That Inspector can request that an auditor determine whether any past shipments by that importer contained the offending materials. The same applies to just about any admissibility issue. There appears to be a focus on agricultural products at the moment.

The same applies to classification, value, quantity, rate of duty, origin, and essentially anything Customs enforces. So, if an importer does a Supplemental Information Letter to change the classification on an entry, the Import Specialist might request a QRA of past entries of the same merchandise. Another focus area is intellectual property. If an Inspector seizes some merchandise bearing a trademark and the importer cannot show a legal right to import it, the auditors can be asked to look for past offending entries.

This sounds remarkably like the way things used to work except that the agents are out of the loop. Rather than have the front line Inspector call a Special Agent (who used to work for the same agency), the Inspector calls the auditor directly.

One has to wonder whether this is this a result of having the Agents removed from CBP? Maybe it is a bit of turf squabbling between CBP and ICE. Perhaps CBP is just trying to fill a gap left by ICE Agents busy elsewhere. Or CBP may be building up its own emphasis on commercial law enforcement.

A lot remains to be seen about how QRA's will work. A few things are clear:
  • ISA members are not exempt. Sorry, there goes another benefit of ISA.
  • If you are notified that you are going to be subject to a QRA, it is likely that Customs suspects a violation has taken place.
  • That means you need to get a disclosure in pronto--before you have notice of an investigation. Unless the notice is worded quite specifically, notice of an audit does not count as notice of an investigation.
  • Many QRA's will relate to violations for which prior disclosure does not provide any benefit anyway.

There was a period, not too long ago, when importers were viewed essentially as criminal suspects who needed to prove to Agents that their imports were being handled properly. Under the first President Bush and in the Clinton years, the philosophy at Customs shifted to enforcing the law while facilitating legitimate trade through the application of technical risk management techniques. In trade circles, this was known as the era of a "warm and friendly Customs Service." After 9/11, the focus rightly shifted to national security through cargo security while leaving commercial enforcement, in part, to self reporting through, prior disclosures, reconciliation, ISA, and other audit related programs.

Take a deep breath people. The pendulum may have reached its apogee.

Wednesday, October 18, 2006

Animal Stories

If you grew up in Chicago and know what a "Boogie Check" is, click here to instantly feel old. You are the same people who see Bob Sirott on the 10:00 news and say, "How did that top-40 radio goof get on TV?" And, if you are anything like me, you have listened to Steve Dahl for more than 25 years; although now I tend to hear only the part from 6:55 to 7:00 when I get off the train and into my car.

So, for today's barely-on-topic post I have this animal story of a canine Amber Alert. I am not making fun of this story. CBP dogs are important tools in the fight against terrorism and smuggling--both drugs and people. I once had a client who was stopped while trying to leave the country without declaring that he was in possession of more than $10,000 in cash. CBP, it would seem, has cash sniffing dogs.

While I am not poking fun at the missing dog, it is interesting (at least to me) that this seems to be the number one CBP story of the moment. I suspect that goes to show something about the media's love of animal stories.

A CBP narcotics detection dog named Eddie is missing near the Canadian border with Montana. Apparently, Eddie's handler tripped and let go of the leash. Eddie ran a bit, startled some wildlife and took off in pursuit. If you live out that way, be on the look out for a 3-year old black and tan German Sheppard weighing 70 pounds. He has a number tattooed in his right ear.

I hope he'll be OK, Little Tommy.

Friday, October 13, 2006

Zero Sum Games?

No good Friday questions this week. Most of the searches were pretty basic ones like "customs law."

So, I'll just pass on this good article on steel dumping from the Chicago Tribune.

The gist of the article is that the U.S. steel industry and the U.S. auto industry (including foreign-owned producers in the U.S.) are at odds over whether a dumping order on corrosion-resistant flat-rolled steel. The U.S. steel companies, which are now relatively profitable, have been protected by antidumping duties on goods from six countries since 1993. This, of course, helped the U.S. companies compete with imports by offsetting the allegedly unfair low price of imported steel.

The thing to keep in mind is that for every producer of steel desiring protection from injury caused by low-priced imports, there are multiple consumers of that steel who feel they are paying unfairly high prices. And who are among the biggest steel consumers? Car companies. Not to mention appliance manufacturers and the folks who make basic steel products like auto parts, gears, etc.

So, trade relief (antidumping or countervailing duties) needs a delicate balance. The recipient needs protection. We know that because the International Trade Administration found that the goods were being sold in the U.S. at less than in the home market and the International Trade Administration found that the low price was causing injury to the domestic industry. But, there are consumers are who have built business plans around the low price. In many cases, the consumers are businesses that use the goods in the production of something and they likely employ lots of people doing that. Or, who want to use it.

And that, in part, is why there are "sunset reviews" conducted five years after the original antidumping duty order. At that point, the government gets to revisit the case. If it finds that dumping is not likely to continue in the absence of the order or that there is no continuing threat of injury, then the order is lifted.

For the steel case, that might happen next week. That is why there is a war of words going on between the auto industry and the steel industry. I'm not close enough to the issue to have a prediction. Either way, a big U.S. industry is going to be unhappy.

Wednesday, October 11, 2006

Nothing of Moment

I try and keep my off topic posts to a minimum. I've started using tags to let you skip what you may not find of interest.

At the same time, I have not posted much of late. So, to make up for that, here are some links I find interesting in their almost absurd focus on the narrowest of topics.

Project Posner: Do we need a searchable database of opinions by a single federal appellate judge? Last time I looked, Lexis and Westlaw would both do that with a simple search. Yes, I know that Project Posner is free. I also know he is a prolific writer with lots of fans. But think about the time, effort, and bandwidth involved. This smacks of someone with too much time on their hands. But, to redeem the project, I suggest you read this case in which the plaintiff tried to challenge the constitutionality of the ban on the importation of switchblade knives. Interesting reading for, as Judge Posner puts it, "aficionados of federal jurisdiction."

Bike Rack Blog: It is "A blog about the bike rack on West 21st Street between 8th and 9th Avenues in New York City." I like the zen of it.

Dracula in Real Time:
The original Stoker novel is written as journal entries. This blogger lays out the text in accordance with the calendar and has a community of folks reading along and commenting. Consider it an early Halloween present.

Above Water

Lately, I have been swamped. I have been thinking mostly about the nuances of administrative law and of pleading. The reasons for both of these things will likely be public in the next few weeks.

Today, however, I wasted an enormous chunk of the day. Illinois recently imposed a requirement that lawyers engage in Continuing Legal Education. I understand and applaud the idea behind this new rule. The bar wants to be certain that lawyers are aware of developments in the law. It is a means of protecting the public. Almost every other state bar has a CLE requirement. I get that.

The problem for me and--judging by my visitor data--probably you, is that your run-of-the mill CLE is not particularly useful for a customs lawyer. Today, I spent three hours listing to several speakers talk about evidentiary issues that arise in trials, making objections, preserving the record, etc. I am sure it was a great seminar. The people around me were taking copious notes and laughing knowingly every time someone mentioned the name of a local judge. There was lots of discussion about Illinois Rule 213.

The problem is that the seminar was probably most useful to Cook County tort litigators. I learned a lot about the admissibility of medical records. Well, "learned" is too strong of a word. I heard a lot about that. I could not tell you what I heard. It was not useful for me. The speakers did not address the Federal Rules of either Evidence or Civil Procedure and I am willing to bet that I was the only person in the room admitted to the U.S. Court of International Trade. Also, the material was not really general enough to be applicable to what we do.

Of course, the flip side is that if we ran a local CLE program on some juicy topic like liquidation by operation of law or the deemed export rule, only 10 people would show up and six would be in the wrong room.

I don't do wills, speeding tickets, or real estate transactions. Today, listening to lots of war stories about the Cook County courts, I was reminded why. Apparently, if I am not intimately familiar with Illinois Rule 213, everyone is better off that I stick to what I know. Remind me to bore them with stories of suspension disposition calendars and protestable events.

Friday, October 06, 2006

Greetings, Finland

Today's Friday question comes from Jyvskyl, Finland. That's great. I love having visitors from far away lands. But, here is the odd part: the search this visitor used to get to my blog was "transaction value method NAFTA ppt." So, someone in Finland want to know how to certify goods for duty free treatment in trade between Mexico, the U.S., and Canada. There is something odd in that transaction, but who am I to judge?

Under NAFTA, goods can be certified as originating in North America (and, therefore, entitled to preferential treatment) if they satisfy detailed rules of origin. Some of these rules are based on the percentage of North American value in the finished product. The regulations provide for two ways of calculating regional value content ("RVC"). My friend in Finland is interested in the transaction value method.

Under this method, the RVC is calculated as follows:

RVC=(TV-VNM)/TV x 100

TV stands for transaction value, which is the adjusted price of the finished good. It is adjusted take into account all the proper elements of value (e.g., assists and indirect payments) but exclude costs not related to the value of the good (e.g., the value of transportation). For imports, it is close to customs value. The details of that are set out in Schedule II.

VNM is the sum of the values of non-originating materials used in the production of the goods.

You do the math. Take your adjusted selling price and your VNM and plug them into the formula. You end up with the RVC, your percentage value of North American content.

There is not much to it. Here are some pointers on the use of the transaction:

  • If you have a lot of related party transactions, you probably can't use it. The trigger is 85 percent of sales by volume in the past six months.
  • If there is no real sale, there is no transaction value.
  • Transaction value may be harder to use than the net cost alternative. TV often changes by customer, volume, delivery point, etc. Net cost tends to stay fixed.
  • Sometimes, people suggest adjusting TV to a higher price to increase RVC. Don't do that. An adjustment to price to create a NAFTA originating good probably violates the provision on non-qualifying operations (sec. 17), which says the following will not result in an originating good:
any production or pricing practice with respect to which it may be demonstrated, on the basis of a preponderance of evidence, that the object was to circumvent this appendix.
There you have it, Finland. What you wanted to know about NAFTA. Now, my friend Jose in Cancun has a question about those reindeer in Lapland . . . .

Wednesday, October 04, 2006

Importing Price Controls

For almost a year now, Customs has had a policy of seizing prescription drugs imported from Canada via mail. That policy is about to change. The Wall Street Journal reported today that CBP will stop that practice due to pressure from legislators. The prime mover behind the policy change appears to have been Florida Senator Bill Nelson. According to Nelson, CBP has seized drug shipments to 40,000 Americans from Canada.

There are lots of arguments about this as a policy question. A couple years ago, I chaired an ABA panel on this issue. Speakers raised questions about the safety of drugs not subjected to FDA scrutiny on the one hand. On the other side, some questioned whether CBP should be used as a mechanism for protecting intellectual property rights for big companies that can generally afford to take care of themselves in court. But, the most interesting thing I heard came from a Canadian health-care industry consultant who had pretty compelling evidence that much of what is shipped to the U.S. from the Canada does not come through the legitimate Canadian pharmacy industry. He claimed that many of the Internet and mail order pharmacies are operating outside of the regulation of the provincial governments that regulate them. (At least I think it was provincial, rather than federal.) This created concern over whether the drugs shipped were subject even to Health Canada scrutiny. And, just to be clear, no one on the panel including a medical doctor, had any doubt that Health Canada's inspection and approval process was reliable.

So, as of Monday, Customs will apparently no longer seize shipments from Canada. That means Americans can piggy back on the price control system established by Canada for the benefit of Canadians. I am sure that will make our good friends to the north very happy.

In the meantime, keep in mind that the actual law has not changed. This is an exercise in enforcement discretion. The law continues to prevent the importation of unapproved, adulterated, or misbranded drugs. Also, when a drug is made in the U.S. and shipped abroad, only the manufacturer has the authority to reimport that drug. Here is a good summary of Customs current policy on Internet pharmacy purchases.

Friday, September 29, 2006

Friday's Questions: Marking

Someone from Germany visited with the following search: "origin country customs marking." Gl├╝cklich zu helfen, Freund.

U.S. law requires that all articles of foreign origin imported into the United States be marked with their country of origin. The marking must be permanent and conspicuous. For certain specific articles, Customs has specific marking requirements. This applies, for example, to watches and jewelry in the style of Native American wares. Also, Customs likes to see die cast or etched markings on pipes and the like. Bottom line is that it has to be permanent enough to reach the end user.

Deciding on the correct country of origin is tricky. We already discussed NAFTA marking, which is wholly different, so that is not what I am talking about here. The country of origin of goods is generally the country in which the goods originate or last underwent a substantial transformation. So a coconut grown and harvested in Thailand is of Thai origin. No problem. Coconut milk canned in Malaysia from Thai coconuts is a different issue. Here, the question is whether the coconuts from Thailand undergo a substantial transformation in Malaysia A substantial transformation is a change in name, character, or use. Given that the name of the product has changed from coconut to coconut milk, that it is no longer a raw agricultural product but has become a canned commodity, and that it can't be used to to make a bikini top, I conclude it is a product of Malaysia and should be so marked.

The coconut milk will need to be marked in a conspicuous place. It could be printed on the label so long as it is easily visible and permanent. If lots of cans of coconut milk are packaged together in crates for shipping, the outermost container must also be labeled with "Malaysia."

There are lots of exceptions and refinements to the marking requirements. For example, if the importer is the last person in the U.S. to get the product in its imported form, the goods may be exempt from marking. Another example is that replacement parts made in the same country as the machine they go in need not be marked. One rule that trips people up is that if there is a U.S. address (or other conflicting marking), then the origin label must be close to that address, in type that is at least as large, and include the phrase "Product of . . ." or "Made in . . ." on the origin marking.

Some products just don't need to be marked. These are on the so-called J-list. A lot of these things are just too small or there is some other reason why marking does not make sense.

Lastly, none of this relates to the use of the phrase "Made in U.S.A." For obvious reasons, that is not generally a Customs issue. It belongs to the Federal Trade Commission. Bottom line on that: if all or substantially all of your labor and materials is not from the U.S., you don't qualify. Think about that the next time you wander through a department or hardware store. How much faith do you have in most of those "Made in U.S.A." claims?

Wednesday, September 27, 2006


Last night I had a close encounter with a spider. Normally, this would not merit any discussion. In most cases, when I find a spider that has taken up residence in my house, I scoop it up and toss it outside to fend for itself. I believe the spider PR that they eat things we like even less than spiders.

But this was different.

My new roommate was big.

Really big. I looked into its eight eyes and I saw no fear.

To get this into perspective, we are not talking Clint Eastwood's Tarantula. But, we could easily be talking about an extra from William Shatner's Kingdom of the Spiders. This spider claimed Peter Parker as a dependent on its last tax return.

The spider sat in a plastic bin full of toys, mostly of the Play-Doh genre. I could not reach in with a shoe, newspaper, or other suitable blunt instrument as the spider was in a crevice between some containers.

So, I did exactly what a third world dictator would do. I gassed the S.O.B. More specifically, I sprayed it with a product cleverly called Spider Kill (note to producer: you must have the worst corporate web site in history). I have used this stuff, which quite literally smells like a used diaper, on my boat to control spiders. If left unchecked, tend to grow fat and ugly all over the place.

On the boat, I have grown quite accustomed to picking the critters up and tossing them overboard. Often, they are immediately gulped down by a bluegill or carp. But, I was not going near this thing. First, I am fairly certain it could bite. Second, I am also certain that it could jump up to my face, insert some sort of tube down my throat, and lay an egg that would eventually hatch into something that would burst from my chest, most likely while in court. While I would like to be like Lance, that means Armstrong not Hendriksen.

Having stunned the beast with chemical weapons, I took the entire bin outside and dumped it out. This allowed me to get a good look at it. Of course, the thing, like any good Alien, would not die. Rather, it started to scamper away. At which point, it was impacted by the sole of my shoe. May it rest in peace. I have since decontaminated the toys and the bin.

After extensive Google research, I have decided that the spider was a dotted wolf (Hogna punctulata) which "hunts by night and hides by day." Nice to know.

Friday, September 22, 2006

Firday Q&A

Today I spoke at a seminar put on by the International Trade Club of Chicago. The topic was internal reviews and prior disclosures. Three hours listening to me seems like a lot, but I think it went well enough. I took a new approach on my PowerPoint slides. It is a long story, but I am convinced that in the hands of the unskilled (like me), PowerPoint can suck the life out of a presentation. I've been doing some reading about this and I tried to emulate Stanford professor Lawrence Lessig today. Basically, I had no bullet points, no charts, no slide transitions, and no fancy fonts; just a few key words for each thought. Anyway, I think it was OK. I'll have to keep practicing the method.

We had lots of good questions. Rather than find a search engine phrase for my Friday question, I'll just give you some from the meeting this morning.

Why do I have to worry about privilege for an internal review?

Because you may not want to turn the results over to Customs when they come knocking. That's it.

Customs often starts an audit by asking about prior reviews and to see the results. If you do a review as part of normal management activity (which you should), the results are non-privileged. If the review is done under the direction of counsel for the purposes of securing legal advice, the results can be privileged. Note that the underlying business information is not privileged. What is protected is the direction from counsel on what to look at, the final report that conveys the results to the lawyer, and the lawyer's advice on what to do about it. If you think there is a problem, it pays to make an appointment with your in-house legal staff and see if they think they want to initiate the review. The prospects of getting some of it protected by privilege may be appealing.

Can I still do a disclosure after an audit starts?

Yes. You can make a disclosure up to the time Customs records that it has received information indicating that a violation has occurred. That is the official initiation of an investigation. You can make a disclosure after that, provided you can prove you had no notice of the investigation. It is often hard to prove a negative, but it can be done. To make matters worse, certain things create a presumption that you knew about an investigation. Those things include: inquiries from a Special Agent, a pre-penalty notice, or a seizure of merchandise.

An audit, including a Focused Assessment, is not an investigation and does not give you reason to believe an investigation has been commenced. So, if you happen to be sitting with an auditor going over some data and watch the auditor get all excited about some terrible error, go ahead and get that disclosure in. You still have the right to do it.

Can a disclosure ever make things worse?

Yes, in at least two ways. First, if your disclosure is incomplete or in some way invalid, it will not protect you. Instead, it will serve as a tip to Customs that something is wrong and they should start an investigation. Word to the wise: don't make a disclosure casually. It needs to be done right.

Also, if you make a disclosure of error X covering the past five years and then continue making error X for the next five years, you are looking at least at a gross negligence penalty. In the worst case, it could be fraud because once you made the disclosure, you knew it was wrong and continued to knowingly provide false information. That is bad.

On that happy note, Happy New Year to those of you on that calendar.

Tuesday, September 19, 2006

Busy at the Border

Two border stories worth noting:

A guy who deserted from the Marine Corp. 40 years ago was arrested driving in from Mexico through the port of San Ysidro. There has been a warrant for his arrest since 1966. Here is the story. If CBP has good enough records to catch this guy, how come they are constantly requesting that importers "reconstruct" entry documents for them?

This one is better. It has to be, because it includes the sentence "I've got monkeys in my pants." Here is that story. Apparently, a guy and his buddy were coming into the U.S. through LAX with a trove of banned wildlife and plants. "Buddy" was being searched by Customs when a tropical bird flew out of his backpack. It was at that point that he made the above-referenced confession to monkey smuggling. Seeing this, the other guy bolted from the line along with his own concealed cargo of Asian leopard cubs.

From there, the story gets murky. It is clear that the guy made it out of the customs area and apparently out of the airport. We know that because these events all happened in 2002 and the guy was just arrested. But, I can't say whether he took the leopards with him, or dumped them in the terminal. Also, there is no explanation as to why it took four years to arrest the guy, especially when his accomplice was in custody. And, how exactly does someone on the run get past Customs and out of the very controlled environment of an international airport? Keep in mind that this is still relatively shortly after 9/11. It boggles the mind. But, that is less inexplicable than stuffing multiple monkeys in your pants.

Search Routine

Sometimes we get into a routine of looking for information a certain way. I know people who strike out with Google and decide that there must be no information available anywhere in the world on the topic. The thought of other search engines, let alone actual books, never enters their mind. Others have the reverse problem. I have friends and relatives who make statements that scream "This can't be true. Google that!" and never think to check for accuracy. My problem is that I often check facts mid-conversation, especially (but not exclusively) while on the phone. No doubt this can be annoying.

Which brings me to something I noticed this morning. I may be the last customs professional to have noticed this. Generally, when I visit, I go to two locations. Most often, I click on "Legal" to get to something . . . well, legal. Other times, I go right to CROSS and look for rulings. This morning, my Newsgator aggregator told me there was something new on the CBP site. When I clicked, I was in the Customs Answers service. This is a nice knowledge base search tool similar to what technology companies use to provide online help. I have not reviewed much of the information here, but it seems like good general information particularly for the non-commercial importer and travelers.

As long as we are talking about online tools, I recently saw that the faculty at California Western School of Law is producing short legal analysis podcasts. They are called "Law in 10" and promise to be 10 minutes or less. There are not many posted yet, but it seems like a good idea for a law school.

Friday, September 15, 2006

Friday Question: NAFTA Preference Override

Someone from Italy visited my site this week via the search "NAFTA preference override." I am going to assume that means someone is sitting at a desk in Rome right now trying to make sense of the crazy NAFTA marking rules and, in particular, the NAFTA preference override. I'm here to help, paisano.

The first thing to understand is that the regular NAFTA rules of origin are designed only to tell you whether something is originating in North America. They do not tell you what country in North America. Normally, that would not be a big deal. Once you know it is originating, you could just apply the normal substantial transformation rules to figure out how to mark it. But, this is not normally. First, because Canada had a head start on duty reduction under the U.S. Canada Free Trade Agreement, the rates for Canada and Mexico were not always the same. Now, they are in all but a few sensitive products from Mexico. Second, there is a general understanding that Mexico and Canada did not like the substantial transformation rule because it is somewhat subjective. They wanted a more objective and, therefore, predictable test. And that is how we ended up with the NAFTA marking rules in 19 CFR Part 102 and, in particular, the NAFTA preference override in 19 CFR 102.19.

The NAFTA marking rules are applicable to all "goods of a NAFTA country." You know if something is a good of a NAFTA country by applying the same rules. Very circular. It is safe to assume that cuckoo clocks from Switzerland are not goods of a NAFTA country but if there is any content from or production in Mexico or Canada, you should run through the NAFTA marking rules to be sure.

Sometimes, stange things happen. You can run through the NAFTA rules and end up with more than one country as the country of origin. When that happens, and if the goods are NAFTA originating, then the country of origin is the single NAFTA country in which the goods last underwent more than minor processing. This is just a tie breaker provision.

The second thing that happens is that you might end up with the U.S. as the country of origin. That causes problems, although it should not. You might think that if you are importing U.S. goods from Canada that you could make a NAFTA claim. The problem is that you can't. There is no NAFTA rate for U.S. goods. You need to treat it as U.S. goods returned or make entry at the MFN rate. That is, of course, silly. There should be a "US" NAFTA code just like there is a CA and MX NAFTA code. That would allow for some flexibility at the border and permit uniform documentation for companies that move stuff back and forth a lot.

But, the way it works is this: if the country of origin turns out to be U.S., then the second part of the NAFTA preference override applies. Under that rule, the goods are treated as if they originate in the last NAFTA country in which they were advanced in value or improved in condition. But, this treatment is limited to figuring out duty. So, if you paint some U.S. origin rocking chairs in Canada, they keep their U.S. origin for marking purposes. For duty purposes, they are treated as if they come from Canada. This lets you make a NAFTA claim.

Make sense? No, it doesn't. Again, there should be a "US" NAFTA rate, but I don't write the rules.

There is a more lawyerly discussion of this on my firm's web site here.