Saturday, December 29, 2007
Monday, December 24, 2007
According to this news item, Customs and Border Protection seized a shipment of picture frames with opium concealed inside the frames. Seem like good police work in the ordinary way, but is even more surprising considering that it was a UPS shipment at the UPS hub in Louisville. Given the volume passing through that border, it is amazing the shipment was caught.
In other seizure news, you won't be getting your Aqua Dots from Seattle nor will you get your fake handbags from Atlanta.
On an unrealted note, today I saw the movie No Country for Old Men. It is a really good movie if you are interested in well-made character studies of the criminally insane and slow talking Texans. I mention this only to note the poor showing Customs and Border Protection had in the funny characterization of a Border Patrol Agent on the U.S.-Mexico Border. Given the merger of the Border Patrol into CBP, I need to add this to my list of movies featuring appearances by Customs.
Thursday, December 20, 2007
It seems that someone smuggled several bricks of marijuana into the U.S. from Mexico by submerging them in bottles of pickled jalapenos. Perhaps they figured no Gringo would stick his or her hand into the jar just on a hunch. Or maybe the thinking was that a dog could not smell through the peppers to find the pot. Hard to tell. Either way, Customs and Border Protection did its job and found the drugs.
But, Dude! I wonder whether . . . you know . . . the weed . . . if smoked . . . would have had a spicy Chili's Tex-Mex kind of harsh to kill the mellow. Only Otto Mann would know for sure.
Now I am hungry.
Wednesday, December 19, 2007
The current Bush administration created a pilot program to permit authorized Mexican trucking companies to operate in the U.S. Now the funding for that program is at risk in Congress. Based on this article, it seems that Mexico is getting fed up with waiting and is contemplating retaliation. Under NAFTA, retaliation means imposing duties on U.S. merchandise shipped into Mexico at a level equivalent to the harm Mexico suffers as a result of the truck blockade.
This is not good news for the farmers and ranchers who ship goods to Mexico duty-free under the NAFTA.
Monday, December 17, 2007
As you know, Customs & Border Protection has been pursuing a $42 million recordkeeping penalty against Ford for failing to produce backup documents supporting certificates of origin from a Mexican supplier. For background see this earlier post.
Earlier today, and despite winning a preliminary ruling, CBP agreed to settle the case for zero penalty from Ford. The settlement is done and a stipulated dismissal has already been filed with the District Court. According to industry sources, the only statement the government has made regarding the substance is that it is re-evaluating is policy regarding NAFTA recordkeeping.
This is tremendously good news for NAFTA importers. As I have said previously, we all owe Ford a debt of gratitude for fighting the good fight. Ford's counsel deserves congratulations as well.
Friday, December 14, 2007
While we're at it, I was also quoted in the November 19 edition in a piece on NAFTA enforcement. That article is online, but you'll need a JOC username and password to get to it.
Also, as long as I am engaged in shameless self-promotion, I will be speaking at the annual Georgetown Law CLE International Trade Update. Last year, we had lots of fun with an oral argument on whether Luke Skywalker and Han Solo are human for purposes of customs classification. This year is sure to be a good program; although my part will be a more mundane discussion of internal reviews and prior disclosures.
Thursday, December 13, 2007
In U.S. v. National Semiconductor, the CIT (via Judge Musgrave) went back to the question of what interest might be due on unpaid duties where the violations were the subject of a prior disclosure. In a typical disclosure case, the importer pays the duties and the only penalty is the interest on the withheld amounts. The avoidance of larger penalties is the value of the the disclosure process. I blogged about this case previously when Judge Musgrave both declined to mitigate the interest penalty and ordered the importer to pay compensatory damages to make the U.S. whole for the loss of the time value of the money. That decision was overturned in part and sent back to the CIT for a new determination that does not award compensatory interest.
Now, in the remand decision, the Court of International Trade, at the urging of the United States has awarded pre-judgment interest in addition to the interest penalty under 19 U.S.C. § 1592. The basis for this is the Court's conclusion that the interest penalty is not punitive but is a form of liquidated damages. Liquidated damages are generally considered to be compensatory. Prejudgment interest, according the the Court, also makes the U.S. whole and is, therefore, appropriate.
The result may be legally correct. I suspect the Federal Circuit will see this issue as well. If the decision becomes final, it is certainly not going to encourage prior disclosures.
Another interesting case is Esso Standard Oil Co. (PR), v. United States, which may well be the last of its breed. This is a 520(c) case. This particular provision of the law allowed importers to request reliquidation of an entry up to a year after liquidation but only to correct mistakes of fact and inadvertences. The problem was that everyone who missed a protest date styled their claim as a mistake of fact or inadvertence and 520(c) cases became exercises in creative writing for lawyers and hair splitting for the courts. The whole mess was repealed when the protest period was extended to 180 days.
This case involved a clear mistake. Customs collected Harbor Maintenance Tax on transfers between the U.S. Virgin Islands to Puerto Rico. This was improper. Since 1988, the law had exempted these shipments from HMT. Despite that, Customs did not get around to changing its regulations or the automated systems until sometime after 1997. Looking at the regulations and relying on the automated system Esso, went right ahead and paid.
I suspect a lot of judges may have ruled differently than did Chief Judge Restani. The easy path for this case would be to say that when the "importer" paid the tax, it was making a judgment as to the legal requirement and, therefore, this is a mistake of law rather than a mistake of fact or inadvertence. The Court, however, started with the recognition that the law surrounding HMT is a mess; it is unclear that Congress fully contemplated how it would be administered. The Court then held that the payment under these circumstances was an inadvertence; defined as an oversight or involuntary accident.
The inadvertence, however, was not just the payer's failure to note the change in the law. Interestingly, the inadvertence (read that as "oversight") was also Customs' failure to update the regulations and its affirmative collection of a tax that was not legally owed. Ultimately, the Chief Judge said, "It is simply inexcusable for the master of the Customs laws to fail for almost a decade to amend the applicable regulation that governs the conduct of port officials collecting HMT and to continue to authorize incorrect software."
If that's the law, Customs and Border Protection ought to take a look at 19 CFR 10.16(c)(3), which purports to limit painting U.S.-origin components in a foreign assembly operation for purposes of 9802.00.80 to preservative, non-decorative painting. That has not been the law since 2004 when we won this case. Now I wonder how many importers have continued paying duty on painted U.S.-origin components.
Motorola, Inc. v. United States, is the last case. This is a Federal Circuit decision finishing up litigation over the classification of cell phone battery components. The interesting part of this case is that it cleans up a bit previously left dangling over whether two pre-importation ruling letters are sufficient to create a "treatment" requiring Customs and Border Protection to go through the steps of modifying or revoking the ruling before acting inconsistent with it. Turns out, to Motorola's bad fortune, that they are not. These PRL's apparently have very limited application. Too bad, it was a nice argument.
Think about this the next time you buy a print or a coffee mug at a museum gift shop. No one, anywhere owns the copyright to a Da Vinci or Rembrandt. The question is whether taking that public domain piece of art and placing it on a coffee mug, sweatshirt, or note pad creates a new work. Even if it does, the public domain parts of the new work (i.e., the original painting, which is the true value of the chotchky) can be taken and re-used at will. It's in the public domain, so you already own it.
Also, remember that works by Picasso, Jasper Johns, Jackson Pollack and many other artists still remain under copyright. So don't go into business selling Edward Hopper Nighthawks-brand baby wipes and say I told you to do it.
For good measure, I give you this picture by Hieronymous Bosch, who has been dead for almost 500 years. Thus, I feel safe that it is in the public domain.
Monday, December 10, 2007
Sure, I am less snarky than David Lat of Above the Law and not nearly as prolific as Denise Howell of Bag & Baggage, Lawgarithms, and Between Lawyers. Nor am I as high-brow as Mr. Becker's and Judge Posner's The Becker-Posner Blog. But, so what? What do those guys know about the tariff classification of control knobs for appliances? Nothing, I tell you; and that is not an uncomplicated topic.
I will soldier on. No doubt, like van Gogh or Pauly Shore, my true genius will only be recognized after my death.
Wednesday, December 05, 2007
Rep. Nancy Boyda of Kansas announced that she plans to introduce the NAFTA Accountability Act this week. The bill contains five conditions for continued U.S. participation in NAFTA. Those conditions and the U.S. party responsible for the determination are:
- Gains in U.S. jobs and living standards (by the Secretary of Labor)
- Increased U.S. domestic manufacturing (by the Secretary of Commerce)
- Improved health and environmental standards, with respect to food imports and to U.S.-Mexico border areas (by the Secretary of Agriculture, the Administrator of the Food and Drug Administration, and the Administrator of the Environmental Protection Agency)
- Reduced flow of illegal drugs from Mexico and Canada (by the Attorney General)
- Mexican democracy and human freedoms (by the President)
As best I can tell from this summary, the point of the bill is to punish U.S. consumers (including manufacturing companies), U.S. exporters, Mexico, and Canada if the U.S. does not experience an improved standard of living and increased domestic manufacturing. Somehow, I missed those parts of NAFTA that control business cycles, imprudent mortgage lenders, business conditions in China and India, the price of fuel, health care expenses, and a million other variables that make up the economy.
Tuesday, December 04, 2007
Wednesday, November 28, 2007
While we're at it, David Brook's recent New York Times piece covered similar ground and, more important, took a much needed pot shot at Lou Dobbs.
Finally, here is more on the great Honduran sock debate.
Tuesday, November 27, 2007
A more interesting story is this piece from the New York Times. Famous luxury merchant Tiffany has sued famous online auctioneer eBay to force eBay to get counterfeit merchandise off its web site. This creates some interesting questions concerning eBay's role in the transactions. eBay argues, I'm paraphrasing here, that it just provides a communication channel connecting buyers and sellers. The way eBay sees it, the seller is liable to Tiffany, not eBay. Tiffany, of course, disagrees. Among other things, it points out that eBay profits from the sale of fake merchandise on its site.
Assume that eBay is held liable as a contributory infringer, what exactly is it supposed to do? Tiffany (and Nike, and Coach, and Rolex, etc.) have the expertise to identify fake merchandise. eBay does not. Further, eBay has no way of physically examining the merchandise private parties all over the world offer for sale on its site. Of course, neither does Tiffany.
The problem for eBay is that a difficult business process is not in and of itself a legal defense. Getting customs valuation correct is hard, that doesn't mean importers don't have to do it. I'm not making light of this; both Tiffany and eBay have a serious problem. Perhaps the judge will find that eBay's profits are so remote from the actual sale that it is not liable. That would make more sense if eBay charges a flat fees for posting. I'm not sure how their pricing works, so I am not offering an opinion. This will be interpreting to watch as it might have a fundamental impact on eBay's business model and the liability of Internet service providers large and small for the sale of counterfeit goods over their services.
Customs and Border Protection stopped a driver on the southern border attempting to illegally enter a U-Haul full of cheese and two parrots. Upon being pulled over for secondary inspection, the driver readily confessed to smuggling the merchandise. One must wonder (at least I must), if the two categories of contraband are somehow related? Do the birds like the cheese? Were the parrots destined to become part of some nasty domestic bird pannini ? We can only hope the Department of Agriculture tells us the details.
This goes in the category of proof that I may not be that bright:
I have not been on my bike in a while, a long while. Recently, I bought a new trainer so I can pedal in my basement through the dark and cold winter. Two nights ago I decided it was time to get on the bike. That's smart. The not-so-smart part is that I made that decision immediately after dinner, which consisted of a burrito and (uncharacteristically) a beer. As you might imagine, no personal bests were accomplished.
Also showing my lack of common sense, I have had a self-inflicted bad eggnog experience. I like eggnog. This is not exactly a product I grew up drinking and my experience is limited mainly to grocery store nog of the cardboard carton variety and an exceedingly potent version made by a law school professor of mine. Either way, I like the stuff. The problem is, store bought eggnog is not good for you. Even the "lite" variety is not a particularly healthy choice. Thus, I was happy to discover soy nog ("snog?") in my grocery store. A comparison of the nutrition labels indicated it is a healthier choice. To save you all aggravation and disappointment, let it be known that soy nog stinks. The stuff has the consistency of milk and very little taste. Here is confirmation in a Slate article, although my offending nog is of a different brand. Don't say I did not warn you.
On the other hand, these people seem to like it for those same reasons.
Saturday, November 17, 2007
The issue here was whether protests were timely filed. The case is more complicated than most because the relevant liquidation was a reliquidation and the only notice of reliquidation was an off-line binder in the customhouse that was separate from the normal binder of printouts generated by ACS. Later, after generating bills for unpaid duties, Customs placed ACS notices in the binder of bulletin notices. What we have here is a first liquidation notice separate from the electronic status report, separate from the paper courtesy notice, separate from the binder of regular liquidation notices, and then a second notice in the regular binder with an icorrect reliquidation date. Is that a failure to communicate?
The Court of International Trade dismissed the plaintiff's challenge to its denied protest finding both that the reliquidation was valid and that the first liquidation notice, while sloppy, was legally adequate notice.
On appeal, the plaintiff's first argument was that reliquidation did not really occur until Customs and Border Protection ran the entries through ACS and corrected the amounts to be billed. This was later than the liquidation date noted in the bulletin and within 90 days of plaintiff's protest. Specifically, there were two errors in the notice. First, one entry that was entitled to GSP was listed as needing to be reliquidated. Second, the amount of duty owed on a second entry was corrected at the time of billing. The CAFC found that these correction of minor discrepancies after liquidation did not amount to liquidation.
If you are interested in this part of the decision, you need to read the case in detail. I have some doubts about whether Customs had finally determined anything until it prepared bills for the importer. But, the CAFC found that liquidation had occurred and the protest clock was running.
I think the more interesting issue is the question of notice. The law has long been clear that the official notice of liquidation is the posting in the customhouse at the port of entry. The notice must be in a place conspicuous to a prudent importer. The question here is whether the second "off-line" binder of notices was conspicuous particularly given that the regular ACS binder did not provide notice to check the other binder. The CAFC found that the reasonable importer would know that off-line liquidations occur and would have looked for that binder.
The next question was whether the off-line notice needs to be on or designated as Custsoms Form 4333. The CAFC found that the binder contained all the necessary and relevant information regarding the reliquidations. Thus, the failure to designate the form as such did not invalidate the notice.
This is one of those unfortunate cases where the law does not help the sympathetic plaintiff. It is hard to tell from the case as published, but it seems safe to assume that had the protest been filed on time, the plaintiff would have been entitled to refunds. Customs made a hash of communicating with the importer. Part of the blame for that goes to Congress, which routinely lets the GSP lapse and the renews it retroactively. But what is the outcome? The U.S. received duties to which it is not entitled as a result of a liquidation and re-liquidation that many reasonably importers might have misunderstood.
Maybe it is time to replace paper bulletin notices with electronic notices of liquidation. At least that would eliminate arguments on whether a notice was conspicuous, on the proper form, or delivered to the correct address. There is, however, a much bigger question of whether individual entries should really be the basis for all subsequent dealings with the importer. A common analogy goes that if the IRS worked like Customs, you'd have to file a tax return after every pay check and fight the taxes collected on each pay check individually. Given the number of entries at issue for most importers, it seem like CBP's activity summaries, reconciliation, and similar programs are just nibbling around the margins of the problem. Maybe Congress needs to take the big bite and revamp the law to permit post importation reporting without individual liquidations.
Wednesday, November 14, 2007
The thing about having a job to do as a professional is the ability to exercise discretion. Digging ditches is an honorable profession. But ditch diggers rarely get to decide how deep or wide to dig. They follow directions and do what is required for the particular job. It is left to some engineer to determine what this particular ditch needs to look like.
To some extent the same goes for Customs and Border Protection. There are times when the "by the book" or "just following procedure" approach does not make sense. One example is the story noted above where a fire engine from Quebec was trying to enter New York to keep a building from burning down. CBP ran the vehicle and the firefighters through the normal process and held the truck up for 8 minutes. Apparently, one of the firefighters had a criminal record. OK, that makes sense if he was in a Winnebago with a bunch of frat boys and a keg. But this was a firetruck responding to a fire.
I'm sure CBP is not happy with this either and I am not trying to pile on. But, I think some people in CBP may have lost site of when and how to exercise discretion. That is a very important skill for government employees, particularly law enforcement officials. In some ways, it separates good government from a bureaucratic mess.
I was going to leave this alone, but it is getting a lot of press coverage. Bottom line is that an ambulance carrying a cardiac patient to a hospital in Detroit from Windson was also stopped at the border. The cause seems to have been a computer generated requirement for a more intensive review. I understand that there is an international border involved and that an ambulance (particularly a private one) might be used as a ruse to get bad guys into the country, but there should be a way to avoid treating an ambulance with lights and sirens going and a nearly dead guy in the back the same as a bus of conventioneers returning from the Windsor Ballet.
Monday, November 12, 2007
Breaking up a scheme right out of a 1960's sitcom, CBP found a man in a suitcase in the back of a car crossing in from Mexico.
Finally, Customs arrested a man entering the U.S. from Canada who is wanted on an Interpol warrant for war crimes in Croatia. The strange thing about this arrest is that the guy was driving a tractor-trailer bound for Florida carrying what I assume was a commercial shipment of recreational benches and soap. I assume he was working in Canada as a trucker.
Friday, November 09, 2007
What I find interesting is the number of people, mostly bloggers, who insist on calling new free trade deals--particularly in the Americas--an expansion of NAFTA. See here, here, and here. Its not true. NAFTA is a free-standing deal as are the deals with the CAFTA-DR group and the pending agreements with Columbia and Panama. The main reason this is not an expansion of the NAFTA is that for companies wanting to take advantage of the NAFTA and also CAFTA, for example, the Canadian and Mexican content counts against them.
The Peru agreement, if passed, will require that merchandise originate in the U.S. or Peru. The rules of origin will generally require that non-U.S. and non-Peruvian content be processed to produce significant changes in the material and add significant value in the U.S. or Peru. So, a company that is heavily invested in Mexican content or manufacturing as a means of establishing NAFTA origin, will be in worse shape when trying to qualify goods for preferences under the Peru agreement. In some ways, all these new agreements are the anti-NAFTAs, not an expansion of it.
I know that some of these writers are thinking that these new agreements in the western hemisphere are an attempt to build a Free Trade Area of the Americas. If it ever gets off the ground, the FTAA might reasonably be called an expansion of the NAFTA as Canada and Mexico would be included in a free trade area stretching from the Yukon to Tierra del Fuego. But, that deal has little momentum. These deals create a patchwork of competing trade agreements that is a far cry from an integrated hemispheric trade bloc.
Thursday, November 08, 2007
Section 15 of the bill states:
Section 17 (15 U.S.C. 2066) is amended by adding at the end thereof the
(i) The Commission may--
(1) designate as a repeat offender, after notice and an opportunity for a hearing, any person found by the Commission to have committed multiple violations of subsection (a); and
(2) refer any such person to United States Customs and Border Protection with a recommendation that the person's import license be terminated in accordance with that agency's procedures.
The subsection (a) referred to is the provision that allows Customs to refuse admission into the United States of merchandise that does not comply with U.S. standards, is defective, or is hazardous.
Here is the question, who is going to be a repeat offender? One would think that it would be the importer of shoddy merchandise. The problem with this interpretation is that importers almost never have anything called an "import license." There are exceptions for guns and other controlled merchandise, but an import license is generally not required in the United States.
Unless, of course, Congress is talking about customhouse brokers. Brokers are licensed by Customs to engage in customs business on behalf of importers. Is that the license the CPSC might recommend Customs and Border Protection revoke?
It seems impossible that Congress wants to force brokers, who are agents of the importer, to confirm that the importer's merchandise does not violate U.S. safety standards. That is just not part of their job, not within their normal skill set, and not a reasonable expectation.
On its face, it appears that this bill was originally drafted by someone with little if any knowledge of how trade works. It looks as if the bill was intended to allow the CPSC to prohibit importers from further importations. But, it seems that the brokers are the ones facing the sanction.
According to the National Customs Broker and Forwarder Association of America, the bill has now been marked up by the Senate Committee on Commerce, Science and Transportati0n. Apparently (and I admit I have not seen the amendment), the Senate decided to make it explicit that its intention is to go after brokers' licenses. This, of course, has the look of a face-saving move intended to send the message "We know there is no such thing as an import license; we always meant to target the brokers."
Geez. I am hopeful that someone will come to their senses before this sausage is thrown on the grill and served up Chicago style.
UPDATE (11/22/2007): Word on the street is that brokers have been removed from the line of fire of this loegislation. I guess someone on the Hill was listening.
Monday, November 05, 2007
Apparently, the aftermarket for Home Depot shopping carts in the Caribbean is robust enough to spawn their theft and smuggling out of the U.S.
Edwards confused on the borders of North America.
According to John Edwards, NAFTA has caused the recent flood of unsafe toys from China. I'm not sure why that would be given that China is a long way from North America.
Colbert on the North American Union.
Great fun and actual information. I can't and don't vouch for anything else on the linked page.
Sunday, November 04, 2007
Apparently, the U.S. industry did not appreciate this plan and it asked CBP to reconsider. CBP obliged and eventually revoked the ruling. Seeking to prevent the revocation ruling from becoming final, Heartland went to the Court of International Trade for a declaratory judgment that the revocation was invalid. This happened under 28 U.S.C. 1581(h), which gives the CIT jurisdiction to review negative prospective customs rulings if the importer can show the ruling will cause irreparable harm. This is tough to do. But, the CIT found irreparable harm and that the revocation was invalid. So, Heartland kept on importing.
The government, however, appealed. Importantly, it did not ask for a stay of the CIT's judgment. Eventually, the Federal Circuit reversed the CIT and held that the revocation was proper. Now, this leads to the current question: How should CBP liquidate the entries that Heartland made up until the Federal Circuit's decision was final (i.e., the time of "mandate")? Customs wants to liquidate at the higher out-of-quota rate. Heartland believes the CIT decision should apply to all entries up until the date of the mandate.
The Court of International Trade held in this most recent decision that the Federal Circuit's decision does not apply retroactively to nullify the 1581(h) decision. Rather, it applies only to entries made after the date of the Federal Circuit's mandate. Any other conclusion, according to the CIT would render its decision a mere advisory opinion without practical effect (and Courts generally don't like to do that). Thus, the Court required CBP to liquidate the affected entries in accordance with the original decision.
The wider impact of this decision is probably limited. First, this all might have been avoided had Customs sought a stay of the CIT's original decision until the Federal Circuit decided the appeal. Customs might also have been able to simply seek an agreement with Heartland to hold off on liquidations. But, the bigger point is that (h) cases produce judgments that have practical impact and results. They are, in effect, injunctions against contrary action by CBP until the Federal Circuit says otherwise. That seems to be new law for these unusual circumstances.
Tuesday, October 23, 2007
I don't really have much to add to this story. Chris Walla is in a band called Death Cab for Cutie, which, despite the heavy metal name, is a probably more of a power pop band. It seems someone crossed from Canada to the U.S. with a hard drive containing music files belonging to Walla. CBP apparently seized the merchandise as a commercial importation that was not properly declared. According to CBP, this had something to do with entering at the wrong port although I am not sure why one could not properly declare it at any port, but I rarely deal with passenger issues. Walla seems to have gone a bit ballistic and unfairly tarred CBP with the spectre of a political motive. Walla has the data, if not the HDD and, I assume, everyone is now playing nice.
Lastly, CBP pushed out another notice on how to support a claim under an FTA. If you read this blog reasonably often, you know this is making me nuts. This one relates to textiles and includes this gem:
Upon the request of CBP, importers who make trade preference claims for textiles and wearing apparel must provide sufficient records to substantiate their claims that goods meet the preference rule of origin for a country that has a FTA or legislated trade program.
The document then goes on to detail the documents necessary to support a yarn-forward, fabric-forward, cut to shape, or other rule of origin. According to CBP, importers should gather affidavits in support of these claims.
I get it: CBP wants importers to do this as part of exercising reasonable care. I also get that it makes verification much easier for CBP if they can get to the importer rather than the have to deal with the exporter. Finally, I get that CAFTA-DR, Australia, Chile, and other agreements have this sort of importer centered certification. But it is not true for NAFTA. Unless I missing something fundamental, NAFTA remains an exporter-based verification system.
I have said this before, but it strikes me that the U.S. should go back to Canada and Mexico and ask to change the rule to be consistent with the other trade agreements. I suspect Canada and Mexico are not interested. If that is true, maybe we should all proceed with the rules that were negotiated and let the importer rely on a reasonable review of the information within the four corners of the Certificate of Origin and leave it to the exporter to prove the claim.
I am willing to be convinced that I am wrong about this. If I am missing something, let me know.
Thursday, October 18, 2007
By the way, for Google purposes, C-TPAT is the Customs-Trade Partnership Against Terrorism.
What you need to keep in mind is that Customs and Border Protection is the border enforcement arm for dozens of other government agencies including FDA and CPSC. An importation that is contrary to U.S. law is subject to seizure and forfeiture. That means you might lose your merchandise. There is also the possibility that your entry documents contain material false statement or omissions (such as the fact that the stuff is admissible). If so, you are subject to penalties for negligence, gross negligence, or fraud. Because there may be no revenue impact, the violations might result in very high penalties (20% or 40% of value for negligence).
A more common problem is the nasty "Notice to Redeliver." This is a notice from Customs that they want you to get the merchandise back to them. Often, that is impossible because it is long gone from the importer's control. When that happens, Customs can institute a liquidated damages action against your bond. This can be an expensive proposition and will make your surety very unhappy. This, by the way, is completely separate from a product recall notice.
A lot of what happens in these cases, from a customs lawyer perspective is working with the port to figure out if there really is a violation and what can be done to fix it. We like to ask questions like "How did CBP test for lead paint?" and "Is that the test industry would accept as accurate?" Assuming the product has a problem, we help negotiate a means of correcting it if possible. Maybe the issue is just a label and not a defective device. Can it be re-labeled and released? If not, you might be sunk.
The other side of this issue is the commercial relationship. If you bought rubber ducks from a supplier and end up losing them because they are covered in lead paint, the question is who is liable for your loss? Did you properly spec the product so that the supplier agreed to produce a lead-free duck? That is a breach of contract case. Who is liable for any injury your product might have caused? That has to do with indemnification and jurisdiction. Assuming you have pushed some liability onto the supplier, how will you collect? If China, Vietnam, El Salvador or some other country is your forum, is there a reasonable chance you will be able to collect in local courts? A lot of companies select the U.S. as the forum for enforcement. If you do that, will you ever be able to get access to the supplier or any of its assets in the U.S? This all relates the transaction, which is why you need a good deal lawyer negotiating your deal.
When your stuff gets hung up in customs, you need a good customs lawyer.
Sunday, October 14, 2007
Two things struck me as a I wandered among the decapitated ghouls, gravestones, and ghosts: Halloween is far more extreme than when I made the rounds of my neighborhood with my friends and a pillowcase for candy. The gore factor is very much ratcheted up. I guess this is the trickle-down of Hollywood special effects and makeup technology. But it is not just the realism, it is also the context. Look at this picture I took with my cell phone; it depicts a plastic human brain and a plastic severed hand packaged like meat at a butcher shop. There were hearts available as well. The nutrition label says that they are from the Cannibal Meat Market. I gather these are festive holiday decorations.
Wednesday, October 10, 2007
The United States welcomes the outcome of the Costa Rican referendum on the free trade agreement that Costa Rica signed with the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States (CAFTA-DR). "We believe, and history confirms, that countries that open their markets have greater success in generating economic growth and development. We are pleased that Costa Rica will be joining the other CAFTA-DR countries in reaping the benefits of greater regional economic integration and market opportunities that the CAFTA-DR provides. "We look forward to working with the Government of Costa Rica as it completes the necessary steps to implement the agreement, so that the CAFTA-DR can enter into force for Costa Rica as soon as possible.
Apparently, a Senate vote is scheduled for next week on the proposed U.S.-Peru FTA. The draft agreement has already been approved by the Senate Finance Committee and the House Committee on Ways and Means.
Monday, October 08, 2007
In the meantime, Exxon Mobile and Murphy have given notice of their intention to pursue NAFTA Chapter 11 arbitration against Canada. The issue is interesting because it relates to performance requirements and dovetails with litigation that is still pending in Canada. The basic issue is that the NAFTA originally allowed Canada to continue certain existing performance requirements. However, in 2004, the Canada-Newfoundland Offshore Petroleum Board imposed certain research requirements or, in the alternative, payments into a fund. Exxon and Murphy claim the new requirements are illegal performance requirements and violate a number of NAFTA provisions including:
- Article 1106 on performance requirements
- Article 1108 which prevents the amendment of grandfathered measures to create additional requirements
Here is a Reuters article on the claim. This will be interesting to watch.
I've been on the road a bit. When I get back, I'm sure there will be more to post.
Wednesday, October 03, 2007
Birds were recently seized from hunters after a bird flu outbreak in Canada.
Bloggers are reporting major anti-CAFTA demonstrations in Costa Rica leading up to the referendum on Oct. 7. Some report marches of as many as 150,000 demonstrators. This Rueters report says 100,000.
Tuesday, October 02, 2007
I am in London right now and without certain resources I often employ when crafting blog posts. Chief among those is absolute sobriety and sleep. Still, here goes: In administrative law, there is a principle that an agency action should be reviewed based on its underlying actual rationale, not a post-hoc rationale dreamed up by agency counsel for purposes of litigation. This is a bit like that. Everything about NAFTA verification practice up until now has been focused on the exporter. If you want proof, look at this presentation CBP uses. Compare the line item for Verification Notification for each agreement. See what it says? NAFTA is exporter based. The other agreements are importer based. That is a meaningful distinction based upon exactly what everyone thought the agreement was supposed to mean. That meaning was embodied in the Certificate of Origin (at Field 11), which put the onus on the exporter to maintain records and prove the validity of the CO. While you are at it, look at 19 CFR 181.72 relating to the method used to conduct verifications. You can see that it is focused entirely on the exporter/producer, which makes sense as that is the party that actually knows the origin of the merchandise.
Granted, the regulation says that inquiries to importers are not precluded. The regulation on Certificates of Origin also says the the importer is required to keep related records. But that does not seem like it should be enough to switch the burden of recordkeeping away from the party that expressly agreed to shoulder it. Which, by the way, is what the District Court held when it refused to dismiss the case.
Everyone knows that NAFTA was set up with the exporter being the primary recordkeeper. Having apparently had second thoughts, Customs created the later FTAs with different language that does put the obligation on importers. If Customs wants that to be case, it should change the rule rather than litigate for the result. Using the general recordkeeping requirements and some vague invocation of "reasonable care" doesn't change what the spirit and the letter of the Agreement says and the reasonable expectations of the trade community. Everyone out there who is interested enough to read this post should thank Ford for fighting this fight.
By the way, nay sayers, I am not arguing that there is never a reasonable care obligation to reject a NAFTA CO. There are plenty of COs that fail the red-face test. Often, importers should exercise caution and go back to the exporter/producer for clarification or correction. That is not what we are talking about here. As far as I know, these COs looked fine on their face.
Last thing: How mad is CBP? This whole thing could have been averted by simply conducting a verification of the supplier. If the supplier does not have the records to support the certificates, Customs is well within its rights to deny the claims. End of conflict.
Friday, September 28, 2007
I am off to the ABA Section of International Law Fall Meeting. If you are in London, please come to my program on Thursday morning. It is called "Buying Trouble: Avoiding Purchasing and Outsourcing Traps in Customs, Trade, and Export Law." We are hoping for an excellent session. Here is a link to more info.
Tuesday, September 18, 2007
In the meantime, please read my most recent article for the NCBFAA CCSContact on-line magazine. This time, I made it to the front page. Enjoy.
Wednesday, September 12, 2007
Now comes the news that the Senate has voted to block appropriations necessary to support the pilot program. If signed into law, this would effectively stymie Mexico's efforts to provide international transportation services outside the border region.
Jeez. I get that this is a populist issue that can be spun as pro-safety, pro-jobs, and pro-environment. Personally, I am pro all those things. I also get that NAFTA as a whole is not particularly popular at the moment. But, can we take a step back and look at this legally? The U.S. (via President George H. W. Bush) agreed to let the trucks in. Are we going to live up to our word? Maybe not. If not, there will be consequences.
This is what Article 2019 says:
If in its final report a panel has determined that a measure is inconsistent with the obligations of this Agreement or causes nullification or impairment in the sense of Annex 2004 and the Party complained against has not reached agreement with any complaining Party on a mutually satisfactory resolution pursuant to Article 2018(1) within 30 days of receiving the final report, such complaining Party may suspend the application to the Party complained against of benefits of equivalent effect until such time as they have reached agreement on a resolution of the dispute.
What this means is that if we fail to implement this (again), Mexico might finally get fed up and decide to retaliate. If that happens, U.S. exporters or service providers benefiting from NAFTA in Mexico might lose those benefits up to the point necessary to offset the loss to Mexico. Under Article 2019(2), the penalty should first affect the same sector if practical. So, this may be a lousy time to be a U.S. transportation or logistics company operating in Mexico.
It's been a while since we have had a good old fashioned trade war. But it seems like the wind might be blowing in that direction.
Monday, September 10, 2007
Back in 1994, the U.S. agreed to eliminate this obvious choke point in the supply chain by giving Mexican trucks the right to make deliveries throughout the U.S. in the same way Canadian trucks do. It's right there is the agreement as part of Chapter 12 which states, at Article 1202:
Each Party shall accord to service providers of another Party treatment no less favorable than that it accords, in like circumstances, to its own service providers.
The treatment accorded by a Party under [the above] paragraph means, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded, in like circumstances, by that state or province to service providers of the Party of which it forms a part.
That means that Mexican truckers who follow essentially the same rules as U.S. truckers, get to provide trucking services in the U.S. Yes, the true standard is "treatment no less favorable than" that accorded U.S. truckers, but as a practical matter that usually means the same.
Funny thing, Mexico, until now, never got access to American roads. The Agreement was the subject of law suits dealing with everything from the environmental impact of the additional trucks to the the relative safety of Mexican versus U.S.-based trucks. An odd assortment of interests from the Teamsters to the Sierra Club tried to stop the Agreement from being implemented. In 2001, a NAFTA Arbitration Panel held that:
On the basis of the analysis set out above, the Panel unanimously determines that the U.S. blanket refusal to review and consider for approval any Mexican-owned carrier applications for authority to provide cross-border trucking services was and remains a breach of the U.S. obligations under Annex I (reservations for existing measures and liberalization commitments), Article 1202 (national treatment for cross-border services), and Article 1203 (most-favored nation treatment for cross border services) of NAFTA. An exception to these obligations is not authorized by the “in like circumstances” language in Articles 1202 and 1203, or by the exceptions set out in Chapter Nine or under Article 2101.
The Panel unanimously determines that the inadequacies of the Mexican regulatory system provide an insufficient legal basis for the United States to maintain a moratorium on the consideration of applications for U.S. operating authority from Mexican-owned and/or domiciled trucking service providers.
That decision was not enough to get the trucks rolling either. It is not entirely clear whether there was a single factor that got this moving. But, the pilot program is starting and Chicago, apparently, will be one of the first metro areas to see Mexican license plates on cargo trucks. Here is a Tribune story on the topic.
So, what does one do with this information? Assuming you can find a trucking company willing to participate in the pilot program, the question is whether it makes sense to forgo the El Paso, Laredo, San Diego, or other distribution center and drop ship to your big customers in Massachusetts or Oregon (to pick random locations). It might. But, it might also upend long-term contracts with warehouses and other service providers. It is, however, one of those developments that raises questions worthy of consideration by traffic and transportation managers.
UPDATE: North Dakota Senator Byron Dorgan has moved to block appropriations for the Mexico truck pilot program. Here is his press release. Dorgan points to the "spectacular crash" of two trucks in northern Mexico on Monday as evidence that the program will increase the danger to Americans. The apparent implication being that there are no sleepy, over worked, and under trained truckers in the U.S. like here or here.
Wednesday, September 05, 2007
Buying Trouble: Avoiding Purchasing and Outsourcing Traps in Customs, Trade and Export Laws
Tracks: Customs/Trade, Corporate/Finance, Corporate Counsel
Corporate outsourcing of manufacturing and services is growing rapidly. Many American and European companies have expanded their purchasing horizons to include unfamiliar suppliers and service providers in possibly unfamiliar countries. Companies new to international procurement, including companies outsourcing production and service functions previously done in-house, face a complicated array of legal questions and compliance hurdles. These range from establishing the proper customs value for imported merchandise to avoiding violations of the export control laws by the disclosure of regulated information. This seminar will provide an overview of the issues and practical advice on minimizing liability in the expanding global marketplace.
Co-Sponsoring Committees:Customs Law Committee, International Corporate Counsel, and International Trade, Export Controls & Economic Sanctions Committee
Lawrence M. Friedman (Moderator), Barnes Richardson & Colburn, Chicago, IL
Milton B. Whitfield (Speaker), Haynes and Boone, LLP, Washington, DC
Darryl Jackson, Assistant Secretary of Commerce for Export Enforcement, US Department of Commerce, Washington, DC
Paul Gray (Invited), Chairman, HM Revenue & Customs, London, England
Dalton Albrecht, Miller Thomson LLP, Toronto, Canada
Tim Hesselink, Simmons & Simmons, Rotterdam, Netherlands
I'm behind on blogging some interesting CIT opinions. I'll try my best to get to those soon. Not much else of interest has happened. For those of you in the business of importing items controlled by Fish & Wildlife under the Convention on the International Traffic in Endangered Species, here is a 94 page Federal Register notice to sink your claws into.
One other point of note, CBP announced that it is ending the Supplemental Information Letter process but continuing the Post-Entry Amendment process. This may not mean too much as the two things had effectively merged into on form called an SIL/PEA. Under the revised program, PEAs are due no less than 20 days before the scheduled liquidation.
Hope that is enough to keep you happy for now. More to follow.
Friday, August 31, 2007
1. Fox News laughs off the North American Union (as it should).
2. This is one peeved Customs and Border Protection employee.
3. What the heck is this? It looks like something Dr. Evil would dream up. "I shall call it: Aqua-Lung." I understand the theoretical benefits of smuggling with a submarine. I also understand that a fast boat would be useful for this endeavor. But why would someone want a semi-submarine? The thing is still visible and must be slow. Maybe the thinking was that it would be literally below the radar. I hope CBP publishes a picture of this thing out of the water.
Have a good long weekend.
Tuesday, August 28, 2007
Monday, August 27, 2007
Saturday, August 25, 2007
I spent today cutting and pulling up soaked carpet. It was, I am certain, the hardest manual labor I have ever done. My muscles ache. I feel like I have the flu. I have more to do tomorrow.
The paint is bubbling and literally falling down the wall. The doors are already warping. I need to figure out how to disinfect and prevent mold. I am told we need to cut down the dry wall at least part way up the wall.
Usually, I keep references to family to a minimum. But, I need to say my wife toted wet dead weight today as well as I did. Also thanks to all four grandparents for entertaining Jr. My brother is coming to help tomorrow.
This is going to sound studip, but I am half comatose, so what the hell. Usually, I am not shy about spending money to solve a problem. I have tried to hire someone, but almost no one is available. Those that are available say they can't do anything until we have power. I am thinking about New Orleans and the people who lost everything and could least afford to rebuild. I feel stupid saying so, but I have a better feel for what they experienced and the inconceivable magnitude of their tragic loss.
Friday, August 24, 2007
The Great Chicago Hurricane of 2007 brought 70 MPH winds through my neighborhood. More than four inches of rain fell in only an hour or so. This follows a solid month of rain, so the ground was saturated the water had nowhere to run, except into my basement.
For those of you not familiar with the midwest, it is flat here. Water accumaltes under foundations. To avoid basements that resemble turtle habitats, we have sump pumps. These pumps are great so long as you have power. In my case, that was right up until the neighbor's tree fell over and toppled a utility pole. The power line was literally yanked from my house. Water filled the basement quickly to a depth of about 8 inches. Enough to float paint cans and action figures. We spent the day moving wet junk to the curb and using a borrowed generator to run our pumps. It is late, I wrenched my back, and now I am going to sleep.
Thursday, August 23, 2007
My train home was delayed. Think about that. How much rain does it take to delay a train--by 50 minutes? There was high water on the road home. I was only confident I would make it when I followed a Civic through the water.
When I got home, I found the power and phone out and toys, carpet, and the botton six inches of a not inexpensive sofa floating in my basement. I am at a loss. I don't know where to start. I put on sailing foul-weather boots and moved dry stuff to higher ground. Now I am waiting for a plumber at close to midnight. It is going to be a long weekend.
Saturday, August 18, 2007
Ford told the Customs Service about the error but was, nevertheless, the subject of a fraud investigation that lasted almost four years. During that time, apparently very little investigating actually happened. Customs extended liquidation of the relevant entries and finally liquidated them almost four years after the date of the last entry. Ford protested the liquidations arguing that the entries had liquidated by operation of law. Not surprisingly, CBP denied the protests. In a prior decision, the Federal Circuit held that Customs delay was unreasonable, that the entries had liquidated by operation of law, and that Ford was entitled to a refund of the $5.3 million.
While all this was going on, Ford executed a series of waivers of the statute of limitations. Each waiver but the last included a notation from Customs that is was "acknowledged and accepted." The last, however, only said "acknowledged."
Showing terrific creativity, the government turned around and tried to get its $5.3 million back through a penalty action. The reasoning appears to be that even though Ford did not owe the money because the entries were liquidated as entered, the entries were still negligently made and the U.S. was denied revenue as a result. That makes some sense under the facts.
The U.S. appealed from the Court of International Trade decision to dismiss the case on the grounds that (1) the U.S. never "accepted" the statute of limitations waiver and (2) the penalty case was precluded by the earlier CAFC decision that liquidations had been unreasonably delayed.
In what was likely a gut wrenching moment for Ford, the CAFC reversed on both those points. First, regarding the waiver, the CAFC held that a waiver of the statute of limitations is a unilateral act by the potential defendant. It does not require any "acceptance" from the government. In other words, a waiver is not a contract; carbolic smoke balls notwithstanding. [Note to readers: that gratuitous comments was for the lawyers out there. They are rolling on the floor laughing at this moment.]
Regarding whether the prior CAFC decision precluded the government pursuing a penalty case, the Court was equally to the point. The Court held that nothing in the prior Ford case had anything to do with whether a penalty could be brought under 19 USC 1592. It dealt only with whether Customs could collect the duties four years after entry when liquidation had been unreasonably delayed by an investigation that did not get very much attention from Customs. Thus, the Federal Circuit reversed the CIT's "issue preclusion" decision.
Alone, these holdings by the CAFC would have been worse for Ford that the re-issuance of the Edsel. But, the CAFC had one additional point to make. Simply put, you can only violate sec. 1592 if your negligence, gross negligence, or fraud results in some injury to the U.S. even if there is no revenue loss. In this case, the U.S. could have collected the $5.3 million had it liquidated the entries in a timely manner and denied Ford's protest. Instead, the U.S. let everything get stale, which ultimately cost it the opportunity to recover the money. In other words, because Ford's negligence did not prevent the U.S. from collecting the money, there is no way for the U.S. to try and recover it in a penalty case.
Thursday, August 16, 2007
Thanks also to those who publicly and privately expressed concern for either my physical or mental condition following my car vs. bike altercation. I'm fine.
Lastly, in lieu of a new post, I point you to a new column in the online journal of the NCBFAA Educational Institute called CCSContact. Scroll down to page 3 to find the article.
I'll blog that NAFTA ruling shortly.
Tuesday, August 14, 2007
The larger conspiracy to be investigated is why the author, Christopher Hayes, did not bother to cite my own groundbreaking work on this topic.
Monday, August 13, 2007
H007168 (Aug. 2, 2007)
When a sale occurs before importation, when does the seller retain enough of an interest to act as importer of record? Good question. The statute requires that the importer of record be the owner or purchaser of the merchandise (we're not talking about brokers and agents here). 19 USC 1484. Customs, in a suprisingly business-friendly exercise of discretion, has defined "owner" as including someone who retains a "financial interest" in the merchandise. In this case, the seller retained a security interest in the merchandise inteneded to make sure it eventually gets paid. According to this ruling, that was sufficient to make it an "owner" with the right to make entry.
W563475 (Nov. 3, 2006)
Calling Tom Cruise! The Church of Scientology imported some electrical devices known as "E-meters" used to "audit" COS members. Unlike CBP auditors, Scientology auditors use the e-meter to locate spiritual travail and, one assumes, eliminate it. The question presented was how to classify the gizmos.
The Church had classified the e-meters as "other instruments for measuring or checking voltage, current, resistance or power, without a recording device: other" in 9030.39.00. The applicable rate is 1.7%. The Church argued for classification as religious articles in various provisions of heading 9810. Customs, however, found that the e-meters are not "an appurtenance or adjunct of an alter or pulpit."
Generally, I don't refer to the lawyers involved in an issue. However, I note that the COS was represented by my friends at Grunfled, Desiderio, Lebowitz, Silverman & Klestadt. That may provide context to their next argument, which was that the e-meter is analogous to "prayer shawls, bags for the keeping of prayer shawls and headwear of a kind used for public or private religious observances . . . . " The thinking was simply that tallit and yarmulkes have no non-religious function and neither does the e-meter. Consequently, they should be classified the same way. Customs found the language to be clear and skipped counsel's reliance on legislative history.
The last traditional customs argument was for classification as a religious scroll or tablet of wood or paper, commonly called a Gohonzon, which the e-meter clearly is not.
After CBP rejected that argument, the COS pulled out the big guns: the Religious Freedom Restoration Act, 42 USC 2000bb et. seq. This law makes it illegal for a federal agency to substantially burden the exercise of religion through a generally applicable rule without a compelling governmental interest. Customs, however, distinguished a case in which a banned hallucinogen was needed for religious sacrament from a simple duty on the imported equipment. Doing so, it found no substantial burden. Thus, the classification stays as an electrical meter.
This, of course, is teed right up for very interesting litigation. I'm not sure I'd go with RFRA as my main point though. I'd be looking at why a yarmulke or Gohonzon gets to be duty free but not an e-meter. Assuming the importer has standing to assert the claim, this sounds like another equal protection case to me.
I also wanted to review W563043 (Oct. 18, 2006), which seems to involve a pretty contentious NAFTA issue, at least according to the blurb I read. It is not up on CROSS. If anyone has a copy, please pass it on to me.
Friday, August 10, 2007
So far, so good.
Then I was hit by a car.
Obviously, I am OK. I think that makes me some sort of official member of the urban biking club.
What happened was simple and all too common. I was on Lawndale in Evanston where almost all of the intersections are 4-way stops. Almost all. As I approached an intersection, I saw a silver Toyota approaching and did what I always do at 4-way stops: I looked at the driver, slowed, and proceeded through the intersection confident he would stop. He didn't. Next thing I knew, I was swerving and braking trying to avoid the bumper. The bike hit the front passenger side and I went forward and to my right. I landed hard on my right palm and right knee then the back of my helmeted head.
The first thing I heard was two women who were on the sidewalk screaming. I took off my helmet and banged it on the ground in frustration. The helmet, by the way, probably kept me from needing a lot of stitches in my head. I got up and saw that my knee was bleeding.
The driver came around and we had a brief discussion to determine that I was not seriously hurt and he was OK too. He seemed pretty shaken up. My lawyer-brain had immediate thoughts about excited utterances and state of mind exclamations. Nevertheless, I apologized and pointed to the stop sign on my side of the street. We parted without exchanging any information.
My bike is fine. I rode the last mile and half home. I'm sore and suspect I am going to hurt in the morning. I'm glad I wear a helmet and I am going to have a new respect for stop signs.
This morning on the ride in to work, I got a flat at Granville and Broadway. Lucky for me, I have new tire levers, a fresh tube, and CO2 cartridge. It took me 10 minutes to change the tire, re-inflate and be on my way; dirty hands and all.
This, of course, raises a question. Is it good karma that I went to the store the night before I needed the very supplies I was buying? Or, did I curse myself be being prepared? B y the way, there is a big gash in my tire, so it looks like I need new tires as well.
Thursday, August 09, 2007
By the way, how is it that I can only generate a single comment to the last post? I know (generally) who reads this blog. I know that there are lots of customs lawyers, business people, and government folks visiting. Throw me a bone people! It takes some effort on my part to inform and entertain you. Only one of you was inspired enough by the stuffed animal/radio image to know I was thinking that the Whirlpool case should have discussed composite goods. Thanks to that anonymous comment poster for covering for me.
Keep it up and the rest of you will get nothing but links to You Tube videos of this guy.