Sunday, September 10, 2006

Last Bit on Ford

I've read the two CAFC decisions on Ford's penalty cases. You can too, just click here and here.

I promised I would comment on them. I lied. I am only going to comment on one issue from 05-1584. It has to do with declaring post-entry price adjustments. Customs tried to hit Ford with a penalty for failing to declare at the time of entry that its values reflected "provisional pricing." That is, at the time of entry, Ford allegedly knew that the price was not final and failed to alert Customs to that fact.

The Court of International Trade had previously ruled in 1997 that 19 USC § 1484 requires importers to disclose contract terms that might impact the correct duty calculation. But, the Court went on, no penalty could be assessed because Customs had not provided consistent guidance on this issue and, as a result, importers had no notice of the requirement to report. This comes from United States v. Hitachi Am. Ltd., 964 F. Supp. 344, 387 (CIT 1997).

Taking up the issue--the CAFC says for the first time--the Federal Circuit held that § 1484 does impose on importers the obligation to disclose variable pricing agreements to Customs as part of "such other information as is necessary to enable [CBP] to properly assess duties . . . ." But, the Court noted the lack of any regulations instructing importers exactly how to report this information. Customs apparently presented no evidence that it has required this type of information to be reported. Thus, due process under the Fifth Amendment precludes imposing a panalty on Ford for violating this "requirement." It is not clear what portion of the $17 million penalty relates to this part of the case, but it is a nice win for Ford (OK, and its lawyers too). It is also not clear how an importer excercises reasonable care knowing there is a statutory requirement to report something and possibly no means of doing so.

There are now lots of ways this issue can be handled, for example, ACS Reconciliation lets importers flag entries when the value is not finally known at the time of entry and complete the entry process 21 months later. For unliquidated entries, a Supplemental Information Letter might do the trick.

The real question for importers is whether the price change is reportable. Transaction value is the the total price paid or payable for the merchandise when sold for export to the United States. So, if at the time of the sale, the importer knows the price is not fixed, there is an argument that the importer should report that fact. But, what if the deal looks like it is firm and the price changes only after the sale because of some unforeseen? Well, there seems to be a solid argument that the price at the time of sale for export reflected a legitimate value for the goods and, therefore, no change is required to the value for duty. Who says? Well Customs does. See HQ 54462 (Mar. 11, 1992).

2 comments:

Anonymous said...

From Paul Vandevert:

It's very interesting to me that so many regard the CAFC decision in 06-1584 as a "win" for Ford. Yes, it's certainly better than where Ford was at the CIT, but the CAFC still affirmed the "at once" violation, holding Ford to a voluntry term that it proposed and Customs did not accept.

But, maybe this is only because I'm way too involved in these cases.

Your comments are good. Thanks.

Larry F. said...

Paul:

No question about it, I was looking at this from quite a bit more distance than you. The point I made is almost entirely academic. The "win" did not prevent Ford from having to open its checkbook.