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.