Tuesday, October 02, 2007

Ford Update

The District Court in El Paso has issued a decision denying Ford's motion to dismiss the complaint against it for failing to produce NAFTA backup documents. [I'll post a link when I have one. Feel free to put a link in comments.] Customs and Border Protection had issued an administrative summons to Ford requesting the documents. Ford refused to produce them on the grounds that the documents are not (a)(1)(A) entry documents. Instead, they are backup documents the certifying exporter is required to keep. Ford even pointed to one of CBP's internal manuals, which expressly stated that the importer is not required to keep backup to the CO.

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.


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