Wednesday, August 30, 2006

Bike News from the Trib

It's been a lousy summer, cycling wise. I have not had many opportunities to ride and my waistline is complaining about it. A got a flat about three weeks ago and did not get around to fixing it until Sunday. I hope to make up some miles in the fall, but I am not promising myself or anyone else.

In the meantime, there were some interesting cycling stories in the paper (by which I mean the Chicago Tribune) this week. The first was another story on the sudden popularity of fixed gear bikes. Read that here: Look, Ma! No brakes Chicago Tribune.

I may have mentioned that I final rode one of these. It belongs to my nephew who seems to be smack in the demographic in which fixies are popular. He is a 22 year old college kid living in Chicago. Riding it was disorienting at first. Even the process of getting on the bike required additional though. My usual habit of rolling forward while jumping on and then clicking into the pedals did not work because the pedals did not stop when I applied pressure. They just kept rotating and smacking the bottom of my shoe. Once I got going, everything was fine until I decided I needed to turn around. Normally, I would coast, brake, and turn. Of course, the first two items on that list were not options available on bike. I slowed my cadence to get to a safe turning speed and headed back to the house. Fixie riders claim their bikes make them "more connected to the ride." I get that. All the same, I will stick with brakes and gears to avoid being more connected to the pavement, or a parked car, or a moving truck.

Here is another story. This one is about a guy on the South Shore train line in South Bend returning to Chicago (apparently after a ride). He was ousted from the train for not having his bike properly stowed. As a result, he ended up with a $150 cab ride back to Chicago. The train company ended up refunding his fare (both for the train and the cab) since they let him get to South Bend to start with. The odd thing is that Metra, the major commuter railroad around here has a bikes on the train policy. The Metra policy continues to prohibit open bikes during rush hour, but they should get credit for the policy they have adopted. The South Shore might want to do a little benchmarking with Metra on this issue.

Saturday, August 26, 2006

Festive Articles

Over the years, Customs and the courts have struggled with what constitutes a festive article for classification purposes. If merchandise is closely associated with a holiday, it might be a festive article and, therefore, duty free. So, that sweater you are importing at a high rate of duty might be much more profitable if you embroider it with a turkey carrying a musket and wearing a pilgrim's hat.

Usually, one would think that it would not be so hard to make this determination. There is a simple reason why there are no items bearing images of snowy evergreens, Santa, candy canes, snowflakes, or reindeer in my house. As much as some people may argue that these symbols are devoid of religious meaning, everyone knows they are Christmas decorations. I don't have them in my house for the same reason you likely do not have a menorah or dreidel.

If I were a litigating a festive articles case involving Christmas goods, I'd call a rabbi to the stand, show him or her the merchandise, and ask "Would you ever have this in your house?" If the answer is negative, it is a festive article. Same goes for decorated eggs, chocolate bunnies, and chicks. Don't try and deny it, they are Easter symbols.

The Court of International recently looked at this issue again in Michael Simon Design, Inc. v. United States. The merchandise was apparel that the plaintiff wanted classified as festive articles in Chapter 95 of the tariff schedule. Because the merchandise is utilitarian rather than strictly decorative, Customs wanted it classified as wearing apparel in Chapter 61 or 62. One of Customs' main points was that in 2003, after this merchandise was entered, the WCO amended the Explanatory Notes to make clear that apparel is not included in the definition of "festive articles."

To be a festive article, merchandise needs to do the following:
  1. Be closely associated with a festive occasion,
  2. Used or displayed principally during that festive occasion, and
  3. Have a physical appearance so closely associated with the festive occasion that displaying it at other times would be aberrant.

The Court, via Judge Barzilay, quickly rejected Customs' reliance on the revised Explanatory Notes. The reason for this is that the revised section of the Notes is inconsistent with prior decisions of the Court of Appeals for the Federal Circuit (specifically Park B. Smith and Midwest of Cannon Falls) . The Notes are not binding on the Court; decisions of the Federal Circuit are. Thus, the Court followed the Federal Circuit precedent and permitted utilitarian apparel to be classified as festive articles.

The Court then looked at the sixteen styles at issue. For all but one, it found the design to meet the criteria for being festive articles. Most were pretty obvious including nativity scenes, jack-o-lanterns, devils, spiders, ghosts, and bats. I'm not sure what festive occasion involves angels, but I also did not see the actual design. Maybe the angel was sitting on top of a lighted evergreen. Customs won on a black cat motif on the grounds that the particular images are not so intrinsically linked to Halloween that wearing them at other times of the year would be aberrant.

The Court went on to apply the notes to Section XI that exclude articles of Chapter 95 from headings 6110 and 6202. And, the Court found no applicable exclusion in the notes covering Chapter 95. Thus, Judge Barzilay held that all but one of the styles is festive.

A couple side notes on this case. First, it was a Barnes/Richardson case. Congratulations go to Alan Goggins.

More substantively, Judge Barlizay's deference analysis bothers me. She gets to the right result but, I think, the phrasing is wrong. As I understand the law, every Customs decision is entitled to Skidmore deference. In other words, it is not like Chevron where the Court must first find ambiguity for deference to attach to the regulation or decision. The question under Mead and Skidmore is more limited--how persuasive is the decision? If it is unpersuasive, applying Skidmore deference, the Court need not follow it. But, under Skidmore, if the decision is logical, consistent with other decisions, and generally has the indicia of persuasiveness, it is entitled to greater deference. Either way, Skidmore deference has attached. This distinction may have no practical significance, but it seems meaningful to me.

Monday, August 21, 2006

Liquidation Nation

Liquidation is an odd concept in many ways. Liquidation is the final accounting of the amount of duties, fees, and taxes owed on an entry of merchandise. Each entry is liquidated individually. If your salary were subject to liquidation, you would have to file a tax return every pay day and wait for a tax bill or refund on each return. It is kind of crazy. Customs is experimenting with tools to move away from the entry-centric process. The programs include ACS Reconciliation and Periodic Monthly Payments and Statements. But, in today's environment, it is still important to understand liquidation because the liquidation of an entry triggers a number of deadlines. The most important deadline being the time to file a protest to challenge a decision of the Port Director.

Two recent Court of International Trade Cases have taken a look at the importance of liquidation and an importer's obligation to track liquidations carefully.

In Gerdau Ameristeel Corp. v. United States, the importer of steel rebar from Turkey sought to challenge final results of an antidumping duty administrative review. The problem for the plaintiff was that Customs liquidated the entries. When that happens, the law is pretty clear that liquidation of the entries eliminates the only remedy for an error in an antidumping review. That remedy would be ordering a remand to the International Trade Administration of the Department of Commerce to fix it. If there is no remedy available, there is no case. Consequently, the court dismissed the case for a lack of subject-matter jurisdiction.

So, what should the plaintiff have done? It should have asked the court for an injunction to prevent the liquidation. That would have given it time to proceed with the challenge. These injunctions are pretty standard and the court routinely grants them. So routinely, in fact, that it is a bit ridiculous that parties need to ask for them. Congress should go ahead and face facts by automatically granting an injunction during the period in which a party can commence the action in the CIT. That would prevent a lot of grief in those times when Customs liquidates unexpectedly early.

Bottom line on this case: liquidation in a dumping review case will likely moot out your challenge. Get an injunction.

The second case is Samuel Aaron, Inc. v. United States. This is one of those lousy set of facts that makes one wish there were still true courts of equity that could say, "You clearly lose under the law, but you really are in the right, so we'll make it better." The problem here was that Customs reliquidated some entries to correct an error made in the crazy process of re-authorizing the GSP after it lapsed. For whatever reason, Customs did not send an electronic notice or paper courtesy notice of the reliquidation. Instead, on February 8, 1999, it placed paper notices (that were not on the prescribed form) in a binder in the room used for public postings of liquidation notices. But, these particular notices of reliquidation were not in the binders containing the routine notices. On April 30, 1999, Customs issued bills and an Automated Clearing House electronic notice relating to the reliquidations. The importer filed a protest within 90 days of the April 30 notice but more than 90 days after the February 8 posting. The question for the Court was whether the protest was timely.

What you really want to say to the government here is this: "Come on. You screwed the importer by messing up the GSP renewal and made the posting as hard to find as possible. Do you really have to stick it to the little guy?" Unfortunately, the answer will surely be, "Thanks for asking. We are stuck with the law as written. So, yes we do."

The Court came to the same conclusion. The Court first determined that the February 8 date corresponds to the final calculation of the amount owed. That makes it a liquidation if properly posted. Next, the court found that the binder in the room full of liquidation books was sufficiently conspicuous to be found and that the notice itself was clear enough avoid misleading the importer. Thus, the posting was effective. Consequently, the protest clock started running on February 8 and, therefore, the protest was late.

The importer's last gasp was to argue that the reliquidation notice was invalid because it was not on the proper form. The Court adopted a no-form-over-substance position and held that the information was properly communicated even if Customs did not use the technically required form. It was, therefore, a valid reliquidation.

What this means to importers is a simple reminder: track your liquidations and treat anything that smacks of liquidation as if it is the liquidation. You will likely lose your rights if you fail to file a timely protest of a so-called protestable event. Brokers have reporting tools to track entry status and the Customs ACE Portal has similar tools. Part of an importer's post-entry process should be to track entries and liquidations.

Wednesday, August 16, 2006

The Customs News

I am just back from St. Johns. As it turns out, that is Newfoundland and Labrador, not the U.S. Virgin Islands. When I was first approached about being on a customs law panel for the CBA, I had hopes that it was the Caribbean Bar Association calling. Turns out, it was my friends in Canada.

Much to my dismay, I did not spend enough time in St. Johns. My seatmate on the Montreal to St. Johns leg (a relatively young lawyer in the Canadian Department of Justice) piqued my interest with suggestions for side trips and restaurants. Approaching the landing, I could see the rocky coast and many small islands jutting into the Atlantic. It reminded me of summers spent with my family in Maine and New Hampshire. The Canadian maritime provinces are surprisingly remote from the U.S. east coast. To put it into perspective, consider that St. Johns' time zone is two and a half hours ahead of Chicago.

When I landed, I discovered anunexpectedlyy rugged and rustic town with a collection of Irish pubs and eclectic restaurants. Picture Gloucester, Massachusettss with a heavy dose of Dublin. Taking advice from the Justice lawyer, I dropped my stuff at the Delta hotel and walked down to George Street where I went directly to Kelly's Pub for what she informed me would be the "world's best fish and chips." I'd say they were certainly in the top three. I only remember equally good fish and chips in London and near the Manly terminal for the Sydney Harbor ferry. I ate the fish alone at the bar with a local Quidi Vidi Honey Brown Ale (or two) while a singer performed passable Simon & Garfunkel and The Kinks with an acoustic guitar. All together, a perfectly good dinner on the road.

The conference was interesting. Basically, it was a quick overview of customs and trade issues including safeguard actions, Canadian export controls, and penalties. My job was to explain reasonable care, U.S. civil penalties, and prior disclosure. The contrast with the Canadian Administrative Monetary Penalty System (AMPS) is interesting. AMPS is based on a laundry list of specific contraventions. Commit any contravention, and the importer is liable for a corresponding monetary penalty which may be zero or up to CA$25,000. The penalty increases for subsequent offenses. It is essentially a strict liability system.

The U.S. has a wholly different approach based a general prohibition on entering merchandise by the use of a materially false statement or omission. Penalties depend on the level of culpability from two times the duties owed for simple negligence to the value of the merchandise for fraud. Importers in the U.S. who discover a violation can limit their exposure to penalties via a prior disclosure (which I discussed here).

Happily, I did not get any questions about the softwood lumber dispute. There was agreement among everyone in the room that importers should be able to rely on facially valid NAFTA certificates of origin without having an obligation to engage in independent verification of the origin of the merchandise. That translates into saying that Customs' case against Ford Motor Company is bogus. Which it is.

Thursday, August 10, 2006

No Job Change Here

In case you are wondering, I have not changed jobs.

There is an unfortunate coincidence in that more than one customs lawyer named La*rence M. Friedman exists. The asterisk is there to note that the other one uses the deviant spelling with a "u". Henceforth, should the need arise, he will be referred to simply as U. Kind of like the W that resides in the Whitehouse.

Apparently U's firm recently sent out a mailing of some sort noting that he had become a partner. Congrats to U for that. But, more than a couple people seem to have been confused by it. U is not me. I am not U. I have not changed jobs and I am currently quite happy where I am.

While we are at it, I want to thank my parents for giving me what is apparently an exceedingly common name for lawyers.

I am not this Lawrence M. Friedman.
Nor and I this Lawrence M. Friedman.

Most of all, I am not this Lawrence M. Friedman. On balance, if I had to switch, I'd take his gig: Professor of Law at Stanford and author of well respected works on the history of law. Plus, Stanford sounds like a barrel of laughs. It's mascot is a tree that drinks from a flask at basketball games. Count me in!

Wednesday, August 09, 2006

Prior Disclosure

What do I think about when stuck at the airport for four hours? Beer, for one. But also the beauty of the well crafted prior disclosure.

Prior disclosures are interesting in that they are often the first line of defense when an importer discovers that some violation has occurred. But, making and perfecting a prior disclosure is sometimes not a simple task.

Prior disclosures are authorized by 19 USC 1592(c)(4). The law provides that:

If the person concerned discloses the circumstances of a violation of subsection (a) of this section before, or without knowledge of, the commencement of a formal investigation of such violation, with respect to such violation, merchandise shall not be seized and any monetary penalty to be assessed under subsection (c) of this section shall not exceed—

(A) if the violation resulted from fraud—

(i) an amount equal to 100 percent of the lawful duties, taxes, and fees of which the United States is or may be deprived, so long as such person tenders the unpaid amount of the lawful duties, taxes, and fees at the time of disclosure, or within 30 days (or such longer period as the Customs Service may provide) after notice by the Customs Service of its calculation of such unpaid amount, or

(ii) if such violation did not affect the assessment of duties, 10 percent of the dutiable value; or

(B) if such violation resulted from negligence or gross negligence, the interest (computed from the date of liquidation at the prevailing rate of interest applied under section 6621 of title 26) on the amount of lawful duties, taxes, and fees of which the United States is or may be deprived so long as such person tenders the unpaid amount of the lawful duties, taxes, and fees at the time of disclosure, or within 30 days (or such longer period as the Customs Service may provide) after notice by the Customs Service of its calculation of such unpaid amount.

The person asserting lack of knowledge of the commencement of a formal investigation has the burden of proof in establishing such lack of knowledge. For purposes of this section, a formal investigation of a violation is considered to be commenced with regard to the disclosing party and the disclosed information on the date recorded in writing by the Customs Service as the date on which facts and circumstances were discovered or information was received which caused the Customs Service to believe that a possibility of a violation of subsection (a) of this section existed.

Complicated, isn't it? There are lots of things to keep in mind when making a prior disclosure and the protection from penalties in excess of interest is only one.

First, your disclosure needs to disclosure the circumstances of the violation. So general statements that there may (or may not) have been one (or more) violations of a law or regulation, just won't cut it. You need to explain with some specificity what you did. But, you don't need to get into such a fine level of detail that Customs knows what you had for lunch on the day of the violation. Despite what you might hear from CBP, you don't even need to provide entry-level information (though doing so may make the disclosure much less painful).

Next, the disclosure needs to be before or without knowledge of the commencement of a formal investigation of that violation. Keep in mind, this is an "either or" situation. You can do the disclosure after the CBP or ICE has opened the investigation so long as you don't know about it. So, once you get the Notice of Investigation, you are sunk unless it relates to something else. If so, go ahead and make your disclosure of the other violation.

The regulations require that the disclosing importer tender the amount of unpaid duties to CBP. But, again despite what you may have heard from CBP, it is not necessarily the importer's job to calculate the duty owed. The regulations state that the tender must be made within 30 days of Customs' determination of the amount. So, you can make a disclosure and, to a degree sufficient to disclosure the nature of the violation, let Customs sort it out. Bad plan, but legal.

Generally, what you want is to get as many of your ducks in a row as possible before making the disclosure. To the extent you can do it, complete the calculation and gather supporting backup documentation. If you can present the disclosure to Customs in as neat a package as possible, the auditors will have to do less work. Your disclosure is, in that case, more likely to be accepted and completed with a minimum of interaction with Customs.

This fact generally counsels against filing a very broad disclosure at the first hint of a violation with the thought that you will sort it out after you file it. Often, that proves difficult and, in some lucky cases, it turns out there was no violation at all.

But, sometimes, there is a real reason to race to get the disclosure in. Those times are generally any time you have reliable information that CBP smells a violation. Possible triggers might include:

  • Notices of Action changing classification or value. Go look at your past practice. Go now.
  • Census rejects for value or other reasons. Customs knows something is out of whack in your papers.
  • Informal visits of calls from import specialists relating to a particular product or practice.
  • Something that breaks bad in the course of an audit.
All of these are cases where you know that CBP knows facts that might lead it to dig deeper. That means there is at least a possibility of an investigation. Go start arranging your ducks into nice neat rows.

There are also times when a disclosure does you no good. You have to keep in mind that prior disclosure only covers 1592 violations. So, a violation that might lead to liquidated damages (e.g., a late file or failure to close out a TIB) is not going to get any benefit from a prior disclosure. There are times when the benefits are fuzzy. For example, in country of origin marking cases, the link to the documents is tenuous but you should check whether the origin declared on the CF7501 is correct. If the entry contains materially false or misleading information or omissions, you are in prior disclosure land.

Also, prior disclosure is not a cure all for bad information or compliance systems. If you start making frequent prior disclosures, it is likely that someone at CBP will take note. Don't use them to fix things that should be done through reconciliation, Supplemental Information Letters, or Post Entry Amendment.

This is, I know, a bit rambling. I have a terminal case of airport terminal fever. Luckily, we will be boarding shortly. Thus, I close out this rant with the following thoughts (which are not legal advice): Disclose carefully and completely when it will provide a benefit. Sometimes, making that call takes some thought.

Thursday, August 03, 2006

Broker Exam Tips

Anyone conducting customs business on behalf of another person needs to have a customhouse brokers license. To get that license, the applicant has to pass a written exam and a background check. The exam has a notoriously low passing rate; but, there seem to be lots of reasons for that. The test is hard. Plus, I've heard a lot of people take it cold in the hope that they pass because the credential can lead to job advancement.

If you fail, you can take it again. If you fail and you are not the kind of person to admit defeat, you can sue the United States in the Court of International Trade. That is what Mr. Harak did. He challenged Customs and Border Protection's answers to nine of the questions.

Tip 1: Don't think too hard. These are not trick questions.

For example, the first disputed questions was:

8. What is the correct CLASSIFICATION for assembled multifunctional all-in-one office equipment consisting of a copier, facsimile, scanner, and laser printer--including a media transport, control and print mechanism--that is capable of no more than 20 black and white pages per minute?
A. 8471.60.51
B. 8471.60.52
C. 8471.60.62
D. 8471.60.61
E. 9008.40.00
The right anser is B. The only difficult thing here is knowing that a multifunction unit like this is a printer, not a fax machine, copier or other device. But, in the provided answers, Customs basically said so by limiting the realistic options to 8471.60. You know it is fully assembled, has a laser print engine, and can print no more than 20 pages per minute. That means it is 8471.60.52. It can't be .51 because it is too slow. It can't be .62 or .61 because the question says it is fully assembled and the "other" category including .62 and .61 is for unassembled units.

The plaintiff, apparently, knew too much. There is a court decision on multifunction machines that classified them in 8471.60.62. The problem for him is that the facts differ. In that case, which was Brother Int'l Corp. v. United States, the machines were unassembled. In apparent reliance on that decision, he argued for answer C, and lost.

By the way, 9008 is for optical projectors and is there just to take up space.

One more example will suffice.

15. Goods arrive at the port of Philadelphia and are entered temporarily into the U.S. under Chapter 98, Subchapter XIII of the Harmonized Tariff Schedule of the United States. Nine months later, the goods are in Los Angeles and the importer wants them to remain in the U.S. for four more months. What action should the importer take?
A. File a consumption entry
B. File a written application for an extension on Customs Form 3173 with the Commissioner of Customs
C. File a written application for an extension on Customs Form 3173 with the director of the port of Philadelphia
D. File a written application for an extension on Customs Form 3173 with the director of the port of Los Angeles
E. Do nothing, because a Temporary Importation Bond already covers the goods.
What you need to know here is that goods can remain in the U.S. under a temporary importation bond for a year. You also need to know that nine months plus four months is more than a year. That makes E the wrong answer. Since the importer apparently only wants the goods to be in the U.S. for four more months (one should not assume it is willing to accept a permanent importation), A is wrong.

So, the only real question is where does one submit the request for an extension? The answer is clear in 19 CFR 10.37. The Port Director at the port of entry may grant an extension. Thus, C is the right answer.

Plaintiff did not select C because the answer did not include a reference to certain exceptions from the extension regulation. But, nothing in the facts implicates the exceptions.

Again, the plaintiff thought to hard. The best answer is the one that fits the facts given in the question, not the assumptions one can make about them.

Tip 2: If you fail, don't sue the government. You will almost certainly lose.

The standards in these cases mean the deck is stacked against you getting your license this way. There are no facts in dispute in these cases, just the answers. If there were a fact question involved, Customs' determination would be upheld unless it is unsupported by substantial evidence on the record. With respect to the legal questions (which is what is really at issue here), Customs will win as long as its answer is not "arbitrary, capricious, an abuse of discrention, or otherwise not in accordance with law." For any lawyer, that is a tough row to hoe. For a pro se litigant (and these cases often are pro se), it is even tougher.

Tip 3: Study hard for the next test.

Tuesday, August 01, 2006

Border Searches and Your Laptop

I have not spent too much of my career on passenger issues. They come up now and then, but for the most part, they get resolved at the border when the Inspector seizes the offending Cuban cigars, Jamaican herb, or dried rhino horn. The most common passenger issue we see is the failure to declare $10,000 or more in currency coming or going. People call a lawyer when cash is being seized.

Stuart Romm, on the other hand, called a lawyer. Mr. Romm spent some time surfing the internet from his Las Vegas hotel before heading to British Columbia which, unfortunately for him, is across a border. Another unfortunate fact was that Mr. Romm has a criminal record involving the exploitation of a child by means of a computer. Not that this is relevant, but he was also the subject of an indefinite suspension from the practice of law by the Massachusetts bar.

The Canada Border Services Agent asked Romm to turn on his computer and examined it. CBSA discovered that Romm's computer internet history showed visits to child pornography sites. Romm was denied entry to Canada and sent back to Seattle.

In Seattle, Immigration and Customs Enforcement Agents interviewed Romm. ICE also conducted a preliminary forensic analysis of the laptop and discovered a number of deleted images of child pornography. More detailed forensic analysis showed additional images of child pornography had been deleted from Romm's internet cache. In all, 42 images from his hard drive ended up being displayed to the jury. Which, I bet, was fairly uncomfortable for all involved.

Romm's first argument, and the only one relevant here, was that the forensic search violated his fourth amendment rights to be free of unreasonable search and seizure. Sorry, Stuart, that does not work.

The courts have long recognized an exception to the fourth amendment for border searches (including international airports). Under this exception, Customs may conduct a routine search of anyone (or everyone) entering the United States. The government has no need ofr tricky things like probable cause, reasonable suspicion, or a warrant. Romm did have one interesting fact in his favor: he never actually got into Canada. The Ninth Circuit Court of Appeals did not buy it. Rather, the Court held that he physically crossed into Canada even if he was not legally admitted into Canada, and that was enough.

Romm also argued that the border search exception should be limited to searches for contraband acquired while abroad. Since Romm was never able to acquire anything in Canada due to his "official restraint," he reasoned, the search was illegal. Again, the Court disagreed and used the oft quoted language "searches made at the border . . . are reasonable simply by virtue of the fact that they occur at the border." For those who care, that is from U.S. v. Ramsey, 431 U.S. 606, 616 (1977).

And that is really it in a nutshell. When you cross the border, you do not have the fourth amendment rights you might expect when, say, the police knock on your door. You cannot decline consent to the search and make the Inspector go get a warrant. You need to turn over your bag and your laptop. There are some outer limits to the Inspector's authority, mostly involving the length of detention. You can read a little about that here. But, really, do you want to be the next test case?

The Romm opinion is here.

Next: How not to pass the customhouse brokers exam.