Monday, June 25, 2007
Lately, however, I am busy looking at how commuters carry their stuff. I have a Topeak quick release road bike seat post rack and small bag with mini panniers. That bag is perfect for carrying a change of clothes--assuming I leave pants and shoes in the office. It also lets me carry a bunch of gear including tools, a tube, and a CO2 inflater. What I can't carry is work. More specifically, I can't carry my laptop or any papers I am not willing to fold or roll. I want to rectify this situation so I can ride more often.
I have been shopping for a briefcase style pannier like this one from Arkel or this one from Jandd. Yesterday, I went into a bike shop and asked the staff about it. The three or four guys in the store unanimously voted for a messenger bag.
I used to ride with a backpack, but I hated it. I did not like things shifting around on my back and it got hot. I have never used a messenger bag.
So, I ask you. Does anyone out there have any advice on the pannier vs. messenger bag dilemma? Keep in mind that I want to carry clothes, legal-size files and occasionally a computer. And, before I get any smart-alek responses, I do know how to put files on flash drive or send them via e-mail. This usually comes up following a trip or weekend when I needed to take my computer.
Thursday, June 14, 2007
Apparently some in Congress think the common practice of refunding indirect taxes when goods (or services) are exported discriminates against U.S. sellers and service providers. Congressman Pascell (D-NJ) recently introduced HR 2600 which, if passed, would apply a tax on goods from “any country” that imposes an indirect tax and grants rebates of the tax on export. Although many countries do this, it appears to apply to Canada's Goods & Services Tax. The problem with this system, according to the bill, is that the refund serves as an export subsidy, which, if applied to a direct tax, would be countervailable under WTO rules. I have no earthly idea how big an issue this is, but folks from Maine (for example) are probably irked. The bill includes a caveat that this will all be moot if the U.S. has its way at the WTO negotiations on border tax measures.
While we are on Canada, my friend Cyndee Todgham Cherniak, a prominent Canadian customs lawyer, tips me to this case. Hoang v. Minister of National Revenue. Canada, like the U.S., prohibits the carrying of certain amounts of currency into the country unless it is properly declared. Poor Mr. Hoang was apparently driving around the border when he made a disasterously wrong turn and accidentally crossed into the U.S. He turned around before going through the U.S. check point. On his return to Canada, he told CBSA he was not in possession of more than CA$10,000. Unfortunately, CBSA found (and seized) the CA$70,000 in his car. Oops.
In the Federal Court of Canada, the only real issue was whether Mr. Hoang needed to report the money if he did not have the subjective intent to either export it to start with or import it. The court looked to the common meaning of the word "import" and found that it was a physical act not requiring any specific intent. Thus, the seizure was upheld.
In Agfa Corp. v. United States (Slip Op. 07-80), the question was whether the tariff definition of “photographic plate” trumped the understanding of that term by essentially everyone in the world. Think fast—picture a photographic plate in your head. If you are older than the digital age and have even a passing knowledge of photography, you conjured up an image of exactly what Agfa claims is a photographic plate. Everyone knows a photographic plate is a transparent piece of rigid material (usually glass) coated with a light-sensitive material. I’m not sure, but I think this is the same technology Matthew Brady used to take pictures during the Civil War.
Agfa imported photomechanical (or “photolithography”) printing plates of aluminum and a photosensitive polymer or emulsion layer. Apparently, they are not transparent. Agfa claimed the merchandise was not properly classified as photographic plates but as printing blocks or plates. Essentially, Agfa asked the court (via Chief Judge Restani) to limit the tariff term “photographic plates” to photographic plates as that term of art is known in the trade.
This is essentially a commercial designation argument, although it is not really. Commercial designation comes up when the claim is that the common and commercial meanings are not the same and that the commercial meaning should prevail. Here, the argument was simply that “photographic plate” is a term of art with a distinct and well-known meaning.
Agfa’s problem, however, was that the legal notes to the tariff include a definition of “photographic” that is broader than the Matthew Brady process. It includes any process by which images are formed by the action of light on a photosensitive surface. That is broad enough to encompass photolithography. Given the legal notes, the Court had no choice but to apply the tariff definition rather than the understanding of Ansel Adams, William Wegman, or Man Ray. The fact that the notes include examples of plates made of non-transparent materials including paper also did not help.
The moral of this story is simply that the Chapter and Section Notes control the interpretation of the tariff terms, even if they contradict the prevailing understanding of the meaning of a term. In other words, if the WCO and (in theory) Congress say a photographic plate may be made of cinder blocks, the fact that everyone knows that is stupid won’t help the poor importer of photosensitive cinder blocks.
Wednesday, June 13, 2007
I needed to go to Washington for a meeting tomorrow morning. My 4:00 PM flight was delays for want of a flight attendant. That delay meant we got off the ground at about 4:45, which would have been fine had a line of thunderstorms not been headed for DC. We circled over Pennsylvania until we were low on fuel, at which point we landed in Harrisburg. No, there was no time for sightseeing there. I'm not sure what sites there are to see, but we were not allowed off the plane.
Forty-five minutes and one tank of gas later, we were off to DC. Rather than a 7:00 PM arrival, I got to the hotel at 10:30.
I'm now at the Helix, a fairly swanky spot that stops serving food at 10:00. After a long interrogation of the front desk, I determined that my best option for food was to order a pizza. Starving, I was not willing to wait that long. Having spent five hours on the plane finishing The Terror by Dan Simmons, I was having serious thought of eating first my shoes and then the left leg of whoever is in the next room. After a second interrogation of the front desk, I discovered that there is a 7-11 a block away. Dinner!
Ah yes, the fancy expense account dinner: Dannon peach smoothy, plastic wrapped turkey on wheat, and chips. Ain't this the life.
Tuesday, June 05, 2007
In the Customs context, things would seem to be a bit different. Importers have the legal obligation to exercise reasonable care. That means the importer is the surgeon. The patient is Customs & Border Protection. The trouble for importers is that CBP also has an important role is determining what constitutes reasonable care. It's like the patient telling the doctor what constitutes negligence.
I'm thinking about this because Customs recently published a new Informed Compliance Publication on transfer pricing. Transfer pricing, as you probably know, is the price in a sale between related parties. Customs is always suspicious of related party prices because there is the possibility that the price was affected by the relationship and, therefore, does not reflect the true value. Since customs duties are almost always based on a percentage of the value of the merchandise, Customs wants to get the value right.
Yes, importers have to exercise reasonable care in reporting value. I get that. The statute requires it and Customs has the job of at least initially interpreting the law it enforces. But, is it asking too much?
The new ICP on value puts a lot of obligations on an importer in the name of reasonable care. According to CBP:
When the import transaction is a related party transaction, the importer must use reasonable care to determine whether transaction value is acceptable based on either the application of the circumstances of sale test or the test value method. This determination is necessary so that the importer can declare the proper value upon entry.
What that means is that before an importer makes a related party entry using transaction value, it needs to investigate and confirm that the relationship did not affect the price. The ways an importer can do that vary depending on the circumstance. They include:
- Showing records of arms length negotiations
- Proof that the price is adequate to recover all cost of production plus a reasonable profit
- Proof that the price approximates the price in transactions to unrelated parties for identical or similar merchandise
By itself, that is pretty hard. The realities in bigger businesses is that this sort of information probably exists but is not readily apparent to the customs compliance staff before entry. The information is usually there because many companies pay a lot of money to consultants to establish a transfer pricing policy to make sure the valuation passes muster with the IRS for tax purposes. Some companies go further and enter into an Advanced Pricing Agreement with the IRS to get prior governmental approval of the transfer price. In the past, companies relied on the studies or APAs to give them confidence that transaction value is applicable. And, as a result, import compliance people didn't worry too much about proving the applicability of transaction value. After all, it seems reasonable to assume that a million dollar study by a fancy accounting firm to satisfy IRS transfer pricing issues, should also cover you for customs purposes.
Seems reasonable--except that Customs is making the rules. The ICP notes that there are different statutory considerations between tax and customs valuation. Also, the tests applied by each agency differ. From this, Customs posits that a transfer price study or APA is not enough to establish reasonable care for transaction value purposes. Further, it may only be useful for the underlying data the accountants used because some of that data might be applicable under the customs laws. Now, with this ICP, Customs has told the trade that it needs to engage in independent and possibly separate analysis of transfer pricing prior to entry or for there to be any demonstrable evidence that transaction value in not applicable.
Other parts of the ICP are surprising including the notion that a reasonable profit is to be judged by the profit earned by the parent company, not necessarily the seller. There are plenty of corporations where the parent might be highly profitable or losing money like a drunk in Vegas while a subsidiary is doing exactly the opposite.
Another issue raised in the ICP relates to test values. One way to prove that your transfer price is acceptable is to compare it to the value in other transactions of similar or identical merchandise to unrelated buyers. In the ICP, Customs is reminding people that a test value is only useful if it has actually been applied by Customs. At a minimum, that would mean that an entry was made and liquidated.
Don't get me wrong here. Customs has read the statutes, regulations, and its prior rulings. It has a sound legal basis on which to make these statements. The issue is that it did not have to do so. It could have exercised some discretion and said that although an APA or transfer pricing study is not directly applicable and is not proof that transaction value is applicable, it will consider it as strong evidence.
This strikes me as further evidence of the creeping movement back toward strict commercial enforcement. That's fine; it is part of Customs' job. But, what I hate is that "reasonable care" has turned into a tool by which Customs seems to get to define reasonable care as what it wants importers to do. That means importer might have to do their own transaction value studies. It also means you can't take a NAFTA CO at face value. And, the place where this all started is that you can't accepted the representation of a seller as to the GSP status of goods. What used to be the subject of post-entry audit is now, under the guise of reasonable care, a pre-entry obligation on importers. I'm not sure this is a good turn of events for importers.
The last aspect of this problem is that ultimately, only the courts can tell Customs that it has overstepped. At some point, a case will come along in which the Court of International Trade or the Court of Appeals for the Federal Circuit tells Customs that its interpretation of "reasonable care" is unreasonable. That is going to be a tough case to win, but it is going to happen.