Monday, December 29, 2008

.PR

Greetings from the customs territory of the United States, but just barely.

I'm annoyed at Google today because when I tried to search for something, it sent me to www.google.com.pr en espanol.  I understand that this is a feature not a bug and that it makes life easier for the locals.  But how come I can't get to my plain old Google?  When I manually enter the Yankee-centric address, I am redirected to the .pr version.  Happily, there is "Google.com.pr ofrecido en: English."

Note that the same thing happens with Blogger.  Google should set a cookie or profile tag with my preferred language and search page.

Here's a question to which I should know the answer.  Why are they letting me in duty free stores here?  As I recall (and I admit I have not looked at this for a while), the reason the proprietor of a duty-free store is exempted from duty liability is that the goods are being sold for export.  Last I checked, I was still in the customs territory?  What gives?  In this case, is it just about Commonwealth taxes?  This is from an official-looking web site:

Duty Free 
Puerto Rico is not a duty free island, although there are duty free shops at the airport. There is sales tax ONLY on jewelry. If you are returning to the U.S., because you’re still in the U.S., there is no duty to pay when you return home.

So duty is paid on imports to Puerto Rico (I knew that).  There are no duties due on goods shipped from the island to the mainland U.S. (I knew that too).

My guess is that the duty-free stores are just accouonting for export sales and non-export sales.  But, I may be unaware of some detail and I am on vacation so I am not going to look at the regulation.


Monday, December 22, 2008

One More Quick Item

An increase in the duty on cars imported into Russia has caused violent protests. Here is the New York Time story. Forget about all the academic arguments over whether high tariffs are good or bad for the local economy. I'm interested in that bust can't possibly sort it out in a blog post. I'm not, after all, a Nobel laureate with a New York Times column. No, I am just a customs lawyers.

What I do think is interesting is the comparison to the U.S. market. What do you think would have to happen to get Americans to take to the streets to protest an increase in customs duties? The U.S. has basically banned some forms of caviar, made so-called "conflict diamonds" contraband, and maintains high rates of duty on fancy foreign shoes. So, I surmise it is not luxury items that would cause a riot.

I posit that an increase in the effective rate of duty on Red Stripe, Corona, and Pilsner Urquell would cause an uproar among the pretentious young intellectual crowd. Keep in mind, I write this while sitting in this T-shirt. I think that makes me an over-the-hill pretentious intellectual wannabe.

For me, if this stuff lost its NAFTA status, I'd consider moving to Mexico.

New Lacey Tools

I'm short on time and I am pretty sure just about everyone has checked out of their business mindset for the holidays. Nevertheless, I'll give you this bit of news: APHIS has posted to its web site some tools for Lacey Act compliance.

Lacey Act Declaration form.

Plant classification database.

And here, for good measure, is the APHIS Lacey Act home page.

Wednesday, December 17, 2008

You've Been Voted Off . . . By CBP

Just when I thought things were getting dull, Wayla Guy tipped me to this story.

First, just so CBS knows, my firm has an office in New York and we are happy to come by for a meeting. We'll bring sandwiches if you want.

The story is that upon wrapping the 17th season of its reality show Survivor, CBS shipped a container of goods back to the U.S. The show had filmed in Gabon, West Africa. Note surprisingly, the shipment contained lots of Africana including animal skulls and hides, ceremonial masks, ostrich feathers, shells and various bones.

OK, first things first, people familiar with Fish & Wildlife regulations should have that tingling of Spidey-sense. What kind of shells and bones? Do we have a Convention on the International Traffic in Endangered Species problem? What were the masks made of? Could there be elements from protected species used to decorate those masks?

As John McLaughlin would say, Issue Two: The merchandise was apparently infested with termites and other vermin including some linked to Ebola virus. What? Skip APHIS and call the CDC right away. Ebola virus is supposedly the most deadly virus on earth. According to The Hot Zone by Richard Preston, which I highly recommend, people infected with Ebola quickly fall apart inside and bleed to death from every orifice of their body. Now, I am not saying Ebola was in the container, the story just says that there were pests associated with Ebola in the container. That's good enough for me to be wary. I hereby pass on any invitation to spend New Years Eve at Jeff Probst's house.

Issue Three: The manifest data for the shipment identified the goods as American Goods Returned. At first, I was floored by this. How could ceremonial masks and ostrich feathers be US goods returned? Then I started thinking about the importer. After all, this is CBS--a television production company. If there is one thing they are likely to have, it is a giant warehouse of props. They probably have stuff from Tarzan movies and old episodes of Daktari to recycle as Tribal Council chotzkes. So maybe they are are US origin. I certainly don't know. If it was actually US goods returning, I am sure that CBS has the necessary documents to support the claims.



Issue Four: The CBP spokesperson says in the article that ALL packages containing US goods are inspected to ensure that foreign merchandise is not commingled. Really? All such packages? Clearly there are more inspectors out there than I had known.

Last thing: Was that Erin Moran in Daktari the same as Joanie Cunningham in Happy Days and Joanie Loves Chachi? Who knew?

I will now extinguish my torch and leave Tribal Council.

Tuesday, December 16, 2008

Are We In the Holiday Doldrums?

Seems awfully quiet out there.

Washington is in pre-inauguration limbo and a lot of businesses are quiet either due to the economy, the cyclical nature of their business, vacations, or just the weather. It seems to me that there hasn't been much about which to write lately. (Perhaps I should post on whether it is worth sounding pompous to avoid ending a phrase with a preposition.)

So, I will pass on this item about festive articles. After years of litigation, Customs and Border Protection has issued new guidance on how to classify festive articles in the wake of Michael Simon Design, Inc. v. U.S. This guidance does not go to bakers' wares at issue in the ongoing Wilton case, nor does it cover costumes, which were previously resolved.

The upshot is that for entries post February 3, 2007 utilitarian articles like tableware, apparel, and bed linens are excluded from Chapter 95 by virtue of new Note 1(v). Following Michael Simon Design, the exclusionary note does not apply to entries prior to that date (although CBP argued that it should).

As a result, liquidation instructions appear to be as follows:

Entries prior to February 3, 2007

Utilitarian article with festive designs may be classified in 9505 as long as the design is closely associated with a festive occasion and they are unlikely to be displayed at other times.

Entries after February 3, 2007

Utilitarian articles with festive designs are to be classified according to constituent material and as tableware, linen, etc. pursuant to Chapter 95, Note 1(v). But (and this is a big but), if the design of the product is so closely associated with a festive occasion that displaying it at other times of the year would be unlikely (or "aberrant"), CBP is going to withhold liquidation pending the creation of a special Chapter 98 classification to guarantee rate-neutrality. What that is all about is the fact that if goods were previously properly classified as festive articles, the rate of duty should not increase when the classification changes as a result of the amended Chapter Notes. This has to do with the fact that the law requires amendments to be as revenue neutral as possible.

Keep in mind that your purely decorative (i.e., non-utilitarian) and festive merchandise stays in Chapter 9505.

Now . . . as the holiday season rapidly approaches and as I watch the snow pile up outside my window, I have the opportunity to expound on my personal, sure-fire test for whether something is a festive article. I call it the Rabbinical Test. Take any arguably festive article associated with Christmas or Easter and show it to a rabbi. If the rabbi says, "I would never have that in my house," it is a festive article. For example, take a serving platter in the shape of a snowman--top hat, corn cob pipe and all. There is nothing overtly religious about this item. Yet, everyone knows it is a Christmas item. If you tried to give it to a rabbi, the response (whether spoken or not) would be, "Oy, a chotzke I don't need. More mashugana chazerai from the goyim."

Take this pitcher. The only way it gets into my house is by accident. It's festive, and I'm not even a rabbi.

This works in reverse. If you show a Seder plate or Hanukkah sweater (if there is such a thing) to a priest and he says "I have no use for that," we know it is festive. Of course, you need to tailor the test for the festive occasion. I believe certain sects do not celebrate birthdays or Halloween, so they get those items for review. I think you see my logic.

Of course it will fall apart when Starbucks cleverly tries to get a Mormon to declare coffee a festive article.

Friday, December 12, 2008

New E-Mail & Twitter

For my side gig, I write technology columns for the Chicago Bar Association. I've been doing that for more than 10 years. The name of the column is "Riding Circuits." Lawyers will get the pun. One of my designated topics is online marketing. Lately, I've been reading a lot of over heated articles about the value of Twitter for lawyer business development. So, I set up a twitter account as an experiment.

So far, I am unimpressed. I don't know who would want to virtually follow a lawyer around a mundane day. But, should you want to do so, feel free to follow me at http://twitter.com/customslawblog. I'm not going to commit to lots of tweets. We'll see.

While I'm at it, I created a new e-mail account for this blog. E-mail generated from my blog profile had been sent to my Riding Circuits account. I don't check that very often. This should work better. The new address is customslawblog@gmail.com.

Have a good weekend.

Thursday, December 11, 2008

Customs News of the Weird and Book Report

I did read The Lizard King by Bryan Christy and found it thoroughly interesting.  The book is about the legal and mostly illegal trade in reptiles.  I initially thought it would be too much like reading about work.  As it turns out, there was just enough familiar info to make the book interesting.  Don't take that to mean that you need to be a Customs (or Fish & Wildlife) geek to enjoy the book.  It is more about the characters than the law and enforcement. Still, you know you are too far into this when a passing reference to the Lacey Act makes you smirk.

And speaking of animal smuggling . . .

Yesterday, on the flight back from New York, I read this story.  It's short, so I'll just post it here:
A South African man accused of trying to smuggle hundreds of rare chameleons, snakes, lizards and frogs out of Madagascar inside his jacket and luggage was convicted Tuesday and sentenced to a year in jail. Jo van Niekerk, 29, a zoology student from Pretoria, was arrested in November at Antananarivo Airport with 388 animals, among them several species found only on Madagascar, including a fanged snake and a nocturnal leaf-tailed gecko. Around 100 lizards and frogs were pulled from the lining of his jacket, including a dead lizard, officials said.
100 lizards and frogs in your jacket seems crazy.  Read the book; when you see the amount of money involved, you'll understand.

Tuesday, December 09, 2008

Modern Communication

While I was flying from Chicago to NYC this morning, federal agents were arresting the governor of Illinois. When I landed, I and everyone else on the plane turned on their cell phone, Blackberry, iPhone, or Treo. At that moment, I overheard the flight attendant judging all of us for lacking the self restraint to be out of contact for a few hours. Apparently, anyone who turns on their phone when the wheels hit the runway has some sort of mental illness.

As the phones came on, the news of the arrest quickly spread throughout the plane. People spontaneously started discussing it. The out of touch flight attendant was suddenly interested.

The thing about it is that we will probably never be involuntarily separated from news again.

When I was in law school, the Challenger exploded during the day. Hours went by without any news of the event leaking into my brain. I found out on the train home when I read the paper over the shoulder of the guy ahead of me. That will never happen again. The kids in the law school classes I teach now sit behind laptops connected to the internet. The airlines are rolling web access out on planes. Airports of TV news running in gate areas. I have been on cruise ships in the Caribbean with perfectly acceptable internet access.

I realize that none of this is news, particularly to people who read or write blogs. But I think even the people who do not embrace technology, like my judgmental flight attendant, are marinating in data whether they like it or not.

Personnel Issues

Generally, I stay away from news involving Customs and Border Protection personnel behaving badly. There is no point in covering it as it does nothing to explain customs law and could conceivably make a bad situation worse for someone I might have to deal with in the future. So, it works both ways: its polite and it prevents future hassles for me.

I'm going to make a general exception here, without going into details. The first reason is that a loyal reader tipped me to the story. This indicates that it has some level of interest in the community. Second, it illustrates that the reality of compliance is often not the same as the government's abstract notion of compliance.


The story is that a CBP employee has been charged with employing an undocumented worker to clean her home. It is pretty clear that the CBP employee knew the legal status of the worker because the CBP employee advised the worker not to leave the county and try and re-enter. Here is the full story.

In the first year of law school, you have to learn torts. Intentional torts are the large and small attacks we face. Battery, for example, is the intentional, unauthorized, and offensive touching of another. (See, Prof. Trubow, I was listening.) So battery might be a punch in the face or a shoulder brush in the hall (assuming it could reasonably be considered offensive for some reason). What happens to first year law students is that they start to see battery, trespass, libel, and and other torts in perfectly normal human interactions. It takes a while for students to figure out that technical torts (or crimes for that matter) are not always pursued by the victims or authorities because they don't really matter and aren't worth the resources.


Sometimes, people find supposedly principled reasons for failing to comply. Ask any kid with a bunch of illegal music downloads why he or she should not pay damages to the copyright holder. You will get a bunch of tired justifications. "Information should be free," for example, or "the record labels make enough money."


The immigration laws in this country are very similar. At the retail level, where individuals hire baby sitters, housekeepers, and landscapers, the cost of compliance is high. Verifying status is not easy for individual employers and authorized workers are likely to be significantly more expensive. I am not making an excuse to justify it, just pointing out a fact. Large employers with resources and expertise should absolutely be held accountable. All I am saying is that human nature may well dictate that going 55 on the highway is not really expected when everyone around you is doing 70.


In her personal life, this CBP employee was acting like most Americans. Of course, when that behavior comes into direct conflict with her government position, the outcome will not be good. The real question, it seems to me, though, is whether the law needs to be aligned with the realities of modern America.


Does this apply to customs compliance? Should giant importers be given a pass in the name of trade facilitation. While there certainly may be circumstances in which CBP should exercise discretion, in the ordinary course, probably not. But, what about the new or unsophisticated importer? I hope CBP keeps them in mind when drafting regulations and rulings. I hope someone is looking out for the individual or small company who is, in all likelihood, just acting like a regular person.

Wednesday, December 03, 2008

Sailing to Cuba? Do not Pass Go.

UPDATED TO FIX LINK (I hope).

I generally stick to customs law here, but in real life I do export and trade work as well. With that in mind, here is a story I should have covered earlier. It's a sailing story, and I like those. It is also an international trade enforcement story, so that makes it doubly interesting. It seems that the Bureau of Industry and Security charged Michele Geslin and Peter Goldsmith with violating the export control regulations for helping to organize a regatta to Cuba. According to BIS, that constitutes exporting their respective vessels to Cuba without a license and that is illegal. Apparently, BIS had gone so far as to show up at the launch party to explain that export licenses were required for any vessel intending to visit Cuba. The result was a fine of $11,000 each and the denial of export privileges for three years.

The details are interesting. But, more important is that the reported decision is instructive in its explanation of the process. Read it and you'll learn about charging letters, the roles of the Administrative Law Judge, the Recommended Decision and Order, and the role of the Undersecretary of Commerce in reviewing the ALJ decision.

Related to this, I heard today that post-election polling is showing a major shift in the opinions of Cuban-Americans with respect to the Cuba embargo. Apparently, the hard line is melting. Given the important role Florida plays in presidential elections, it will be interesting to watch whether U.S. policy toward Cuba changes.

Monday, December 01, 2008

Cool New HTSUS Tool

Here is an online tool only a compliance geek could love:

Harmonized Tariff Schedule Online Reference Tool

The ITC has launched a cool site that makes navigating the Tariff Schedule easier and links 10-digit HTS numbers to related Customs and Border Protection rulings.

Thanks, ITC. We appreciate the effort.

Tuesday, November 25, 2008

10 + 2: Back On Topic

By now it is old news that Customs and Border Protection has published the interim final rule on the new Security Filing popularly known as 10+2. I'm going to assume that if you find you way to this blog you know what 10+2 is all about. If not, read this 55 page notice. So, I'm just going to post a few observations:

Regarding enforcement, Customs has said that it will show restraint during a transition period as importers and carriers implement 10+2 systems. This restraint, though, is dependent on a showing that importers are making satisfactory progress on good faith efforts to implement the requirements. This period of flexibility will last for about a year from the effective date of the rule. That means until about January 26, 2010. After that, an importer's compliance efforts can be considered as a mitigating factor in an enforcement action.

In case you are wondering, enforcement of 10+2 (technically known as Importer Security Filing, Vessel Stow Plan, and Container Status Message Requirements) will apparently rely mostly on liquidated damages claims. This means new conditions need to be added to customs bonds requiring that the principal (i.e., the importer) comply with the reporting requirements. Failure to comply might result in liquidated damages equal to the value of the merchandise. Similar requirements will be added to international carrier bonds. Violations relating to the vessel stow plan may result in liquidated damages of $50,000. Violations relating to the container status message may result in liquidated damages of $5,000 for each violation up to $100,000 per vessel arrival.

Customs has expressed a willingness to be flexible with respect to some of the required data. According to its Fact Sheet:
In lieu of a single specific response, importers may submit a range of responses for each of the following data elements: manufacturer (or supplier), ship to party, country of origin, and commodity HTSUS number. The ISF must be updated as soon as more accurate or precise data becomes available and no later than 24 hours prior to the ship's arrival at a U.S. port.

For example, questions had been raised about changes in the ship to party that might occur while the goods are in transit. So, that flexibility might be helpful.

There will also be some flexibility on the timing of reporting certain data. Again, according to the Fact Sheet:


The ISF will also need to include two data elements that must be submitted as early as possible, but no later than 24 hours prior to the ship's arrival at a U.S. port. These data elements are:

  • Container stuffing location; and
  • Consolidator
One last thing that surprised me: there were comments filed suggesting that CBP adopt a 100% screening of cargo approach in lieu of this data collection. I get that 100% cargo screening would reduce the risk of the tools of terrorism reaching the U.S. in a cargo container. I also get that the 10 + 2 proposal is intended to improve CBP's ability to target risky shipments and avoid delays for legitimate trade. What surprised me was that someone commented in favor of 100% screening. Usually when this comes up in informal conversation the context is that anyone in Congress who thinks that 100% screening is a good idea does not understand trade and that it would lead to devastating delays. I'm not certain that is true. There are pilot screening programs ongoing, so we need to see how they work. I'm just registering my surprise that someone went on the record suggesting it as an alternative.

What do you think, is more screening a better alternative to the Importer Security Filing and Additional Carrier Requirements?

Saturday, November 22, 2008

More Spore

I can't resist posting this.


I received a customer survey request from Electronic Arts. I have detailed my problems here. I was very happy to respond and let them know that the game still does not work and their customer support has been less than effective. But, when I clicked the link, this is what I got:




Thursday, November 20, 2008

Back from Judicial Conference/ABA Survey

I'm back from the Court of International Trade Judicial Conference. We had a good time, as always. It was down at the South Street Seaport, which has its touristy aspects but still reflects old maritime NY.

I moderated a panel on New Developments in Customs Law. Basically, we talked a lot about rule making and modifying policy. The point of most debate was the extent to which Customs and Border Protection can find ambiguity in a statute that the Court has found to be clear on its face. I say they can't but opinions differed. The speaker on this point will say that is an unfair characterization and I am willing to be corrected, but that is what I took from it. Another point of debate is what counts are an interpretive ruling and decision for purposes of triggering the notice and comment requirements for revoking or modifying a ruling under 19 U.S.C. 1625. I think it was an interesting panel.

I would be more than thrilled if folks who were there would consider this a space to continue that discussion. If you were there and have a thought, please drop a comment.

Papers from the panels have been posted here. My paper is here. My topic, which did not get discussed, is whether it makes sense to apply the test for persuasiveness from Skidmore to non-binding WCO materials. It makes a certain sense to me. Thanks to Christine Martinez who took a bunch of scraps of text and random thoughts and turned it into the article.

Also, the American Bar Association has asked me to post this link to a survey on law firm business in the current economic environment.

Sunday, November 16, 2008

Spore: Guerrilla Tech Support

I bought a copy of the PC game Spore for Jr. It seems like a cool way to learn about evolution (at least a cartoonish version of it) and any game that does not involve broadswords is an improvement. But, the darn thing does not fully work.

Normally, I am the go-to tech guy in my family. I generally can solve most PC issues and I am not put off by moderately complicated tasks like swapping out hard drives or setting up wireless networks. Overall, I would say I rank in the above average category for computer literacy. That is why it is so annoying that I can't get this thing to work. Specifically, I cannot log in to the game. It does not recognize that my computer is solidly connected to the internet. This means we can only play with local data and--importantly--can't get the patches to update the game.

I am not griping about this without having put in effort. I have done the following:
  • Sent a screen shot of the error message to EA
  • Sent a DirectX diagnostic log to EA
  • Configured my Windows Firewall to give Spore permission to access the internet
  • Configured by McAfee firewall to do the same
  • Configured my wireless router to open the required ports
  • Confirmed with my ISP that they are not blocking any ports
  • Set a bunch of netsh global parameters that I honestly do not understand
  • Located the Spore patch on an independent server and applied it


I'm about done. I thought I had struck gold when I found this handy article entitled "Why Spore Won't Work." The article (and a million complaints on the Amazon Spore forum) point the finger at terrible digital rights management features built into the program. Still no luck.

The truly obsessive are having a field day at Amazon.

For me, the bottom line is just whether my kid can play the full game. If not, I have been ripped off for $50 (maybe $20 since we get value from the local aspects of the game). I don't really care too much about whether there is DRM software included, provided it does not interfere with functionality or the operation of my PC. In other words, if EA wants to protect its intellectual property they have every right to do so. Hell, I'd be happy to help. But, if by doing so, they end up with a crappy product, they will lose customers. Some of them will be like me--on the brink of about 10 years of video game buying. This does not seem like a good strategy for a compay with stock that has traded at $60 this year but is now down to about $20.

So, rather than continue my already long and fruitless correspondence with Matteo and Manpreet in tech support, I am turning to my readers for the indulgence to let me rant and on the chance that just maybe one of you can help a guy out. And, should anyone at EA see this, feel free to drop me an e-mail. I am not above retracting this you make things right.

Thursday, November 13, 2008

Update: National Semiconductor

Remember National Semiconductor? This is the penalty the Court of International Trade awarded interest on unpaid Merchandise Processing Fees under 19 U.S.C. 1505(c). This provision is the law that gives Customs and Border Protection the right to collect interest on unpaid duties and fees. The Court also assessed a $10,000 additional penalty under 19 USC 1592(c)(4)(B)(i.e., the prior disclosure statute).

The Federal Circuit reversed that decision and remanded for a new determination. According to the Court of Appeals, 1505(c) does not provide authority for the Court to award interest as part of a penalty case. The second time around, the Court of International Trade awarded the maximum penalty allowed in the prior disclosure (i.e., the interest owed) plus pre-judgment interest. Today, the Federal Circuit affirmed the maximum penalty and reversed the pre-judgment interest. Here is the opinion.

In analyzing the maximum penalty, the Federal Circuit noted that how the Court of International Trade weighs the factors in coming to a penalty amount is within the discretion of the lower court. The Federal Circuit found no abuse of discretion and upheld the penalty.

The more interesting part relates to pre-judgment interest. First, the Court held that pre-judgment interest is not available for awards of punitive damages. Since, section 1592 sets up a penalties scheme, it is clearly punitive. Further, where the amount of the claim is uncertain, pre-judgment interest is not permitted. This is interesting. The Court held that the interest penalty in a prior disclosure is not necessary fixed at the full amount due. Further, if there is litigation, the amount of the penalty is up to the trial judge. Consequently, at the time of the penalty notice, the ultimate penalty is not fixed. Based on these two factors, the Federal Circuit reversed the award of prejudgment interest.

NYC Seminar Update

Here are the details for the December 10 seminar in New York.

Saturday, November 08, 2008

NYC Seminar

On December 10, 2008 I'll be speaking at a seminar in Manhattan.  It will be me and my partner Rick Van Arnam talking about Customs enforcement, penalties, and compliance.  It's a half day.  The International Compliance Professionals Association is co-sponsoring.  The details are:

December 10, 2008
8:00 AM to 12:00 PM
Kitano Hotel
66 Park Ave (at 38th)
New York, New York 10016

$50 ICPA Members
$65 Non-members

8:00 Registration and continental breakfast

8:30 Part I – Understanding the risks Commercial Fraud and Section 1592
  • What constitutes a violation
  • Understanding the concept of materiality
  • Quantifying possible exposure
  • The prepenalty/penalty process
  • What is subject to mitigation vs. cancellation
  • The prior disclosure process
Understanding Section 1595(a)
  • When does it apply – admissibility issues, currency,
  • trademarks etc.
  • Understanding the seizure/forfeiture process
  • Avenues of relief from remission to court
Special Situations
  • Demands for redelivery
  • Marking duties
  • Enforcement of other agency’s laws
  • Avenues for relief
  • Record keeping violations and the assessment of penalties
Liquidated Damages flowing from Bond Violations
  • When does this apply
  • What is the process for relief
  • Canceling demands
10:30 BREAK

10:45 Part II – Managing the Risk in Your Global Supply Chain

How can companies safeguard against the types of problems discussed in Part I?

Managing the issues within the company
  • Training
  • Understanding when a possible problem could arise
Driving the compliance measures back to the exporter
  • Training
  • Contracts and indemnity agreements
  • Quality control
11:40 Part III – Reverse Seminar: A group-wide discussion on
the issues and what practices are being implemented to
enhance compliance.

To register send an e-mail to me at lfriedman@barnesrichardson.com.  You either send a check or pay at the door.  I'll post an official flyer when I can.

Wednesday, November 05, 2008

Totes, ISA, and Origin Updates

A few things worthy of note:

Totes Rehearing Denied

The Court of International Trade has denied dual requests for a rehearing in the Totes case challenging the constitutionality of gender-specific rates of duty on gloves.  You probably remember that the Court previously dismissed the case on technical grounds but permitted the plaintiff to refile if its case.  My earlier post on that is here

In the motion for rehearing, the plaintiff asserted that the discrimination is facial and, therefore, plaintiff need not plead discriminatory intent or effect.  For its part, the United States argues that the case should be dismissed on jurisdictional grounds because the plaintiff never filed a protest of the underlying liquidations.  This is the "exhaustion of administrative remedies" argument, and it fails here.  The Court holds that there is no decision by U.S. Customs and Border Protection to protest.  The importer is not challenging the tariff classification nor the rate of duty applicable under any CBP program. Rather, the challenge goes to the statute itself, and CBP certainly can't decide not to enforce a low because it is unconstitutional.  This was worked out in the Harbor Maintenance Tax litigation.

The Decisive Utterance here, seems to be this: "When seeking to challenge a provision over which Customs has no authority or discretion, a plaintiff need not file a protest and then invoke jurisdiction under section 1581(a); such a plaintiff may instead rely upon section 1581(i)."  That means, in this case, there was no need to exhaust administrative remedies.

Turning the to plaintiff's argument, the Court refused to find facial discrimination in the HTS differentiating between "Men's" gloves and "Other" gloves.  The Court essentially held that the differential in rates of duty related to the product and not to the party paying the duty.  According to the Court, any importer of Men's gloves pays the applicable duty whether that importer be a man, woman, or child.  Thus, the discrimination is not facial and the pleadings need to assert either discriminatory intent or effect.  Having failed to plead that element, the case is dismissed.

One last thing, the CIT also denied Tote's request for an immediate appeal to the Federal Circuit.  So, the action stays at the CIT and we will continue to wait and see whether this decision becomes final and, therefore, appealable.

In case you are wondering, I capitalized Decisive Utterance because it is the name of the school paper at The John Marshall Law School, where I got both my J.D. and LL.M.  The story goes that the somewhat legendary dean Nobel Lee (who needs a Wikipedia entry) used to tell students that in every reported decision there is a succinct statement encapsulating the reasoning.  That is the decisive utterance.  Finding it, according to this law as treasure hunt pedagogical approach, is the task of the student. 

ISA to Include Product Safety

I missed the Customs Symposium this year.  One of the announcements was the extension of the Importer Self Assessment program to cover product safety issues.  Here is a link to the Product Safety presentation.  The presentation is pretty useful in that it contains information on import enforcement issues related to Consumer Product Safety Commission and Food & Drug Administration regulations, plus the Product Safety ISA.  Among the benefits listed for ISA-PS are:
  • Fewer safety tests
  • Faster access to laboratories for testing
  • Permitted destruction rather than redelivery
  • Special training
The ISA-PS pilot program will require that participants submit a questionnaire response for review by both CBP and CPSC.  Participants may be subject to review at a domestic or foreign location.


Country of Origin Rule Changes

Customs has gotten around to updating the country of origin rules for NAFTA and certain textiles.  These are the rules found in Part 102 of the Customs Regulations.  I call them "country of origin rules" only to distinguish them from the preferential rules of origin under the various free trade agreements.  The notice is basically a laundry list of  changes.  But, if you are doing NAFTA Certificates of Origin or importing textiles or apparel, it behooves you to check that the country of origin rule hasn't changed.

Memo to Mr. Obama

Congratulations. In the coming months you will have many important decisions to make. Not the least of which will be your Homeland Security team. Feel free to call.

Sunday, November 02, 2008

Unintended Consequences

Warning: Off Topic

First, I am peeved at myself for taking the small chainring off my bike. I had a three-ring crank set and took the small ring off to save weight. This image will give you an idea of what I am talking about, although it is not my exact gear.

It turns out that the relatively minute amount of weight is completely unnoticeable. I would do much better trying to take 20 pounds off the saddle (if you know what I mean) than saving a few grams on the bike itself. Moreover, on those occasions when my chain jumps off the chainring, it now becomes almost hopelessly entangled in the lugs where the granny ring used to attach. It is very annoying. I know I need a new chain and that I should lubricate more often, but I still find this makes me feel very stupid. To make matters worse, I have no idea where that chainring went; so I can't replace it.

So, to avoid a similar fate, I as this question: Does anyone have experience with rigid boom kickers in lieu of a topping lift? If that question makes no sense to you, don't sweat it. But, If you know the difference between a topping lift and a downhaul and have used a boom kicker, let me know what you think. My curiosity stems from the fact that I have swapped out my main for a fully battened, loose footed version that is slightly wider aloft. That means the topping lift sometimes get stuck on the sail leach. Specific experience with a poptop Catalina 25 would be most valuable.

Who is Unfailingly Complicit?

A while back, an anonymous reader posted a comment to my post about the case in which Customs and Border Protection summarily denied a protest relating to the detention of merchandise in an origin case. The original post is here.

The issue I raised came down to whether Customs and we should assume that importers who end up presenting fraudulent origin documents to CBP are victims or accomplices. Obviously, there will be cases in which either one will be correct. But overall? What do you think?

The commenter said this:

The importer is almost unfailingly complicit when these types of dual documents are used. And these companies have no reservations in challenging adverse determinations against their false documents because the government does not have the resources to verify overseas production (ICE did not and will not take this kind of case, leaving CBP to its own devices). Attempts at informed compliance in these instances do not lead to future compliance as you suggest; it acknowledges Customs' inability to successfully prosecute violators, notifies them of possible investigative action, and emboldens them to open shell companies to import with or otherwise brazenly continue defrauding the government. Hiding behind the facilitation of legitimate trade and complaining that Customs is playing "gotcha" is always a nice route to take when you know the government can't prove your culpability.

My experience just does not line up with that. Companies, at least the ones that I have had the pleasure of dealing with, do not want to waste the considerable and time and effort it takes to fight with CBP. Keep in mind that, for the most part, the presumptions favor Customs and the importer needs to prove the origin of the merchandise. Customs, and the lawyers at Justice, can go a long way simply by raising questions as to origin. Plus, despite what the commenter suggests, my experience is that CBP will be more than happy to pursue a case at least as it relates to marking penalties, liquidated damages, or 1592 penalties. I agree that getting an Assistant U.S. Attorney interested enough to pursue a forfeiture case is another story, but I have been there as well (although in the copyright context).

I certainly respect the commenter's opinions and I would really like to know if that person is in CBP. Individual opinions are formed by experience. My experience differs; so, therefore, do my opinions. I genuinely believe that if CBP helped importers identify fraudulent documents, compliance would improve. Maybe, to provide a level of comfort to CBP, that information could be shared only with ISA members or some other select group and subject to some sort of non-disclosure agreements. I know people might call that naive, but I say, "So?" Trust can be a valuable commodity in business and in government. Working to build trust can earn dividends for both sides.

Tuesday, October 28, 2008

Rulings of Interest

Greetings from Canada! I am up hear to speak at the IECanada conference tomorrow. I wish I had more time to stay, but I am doing a travel hit and run to Toronto. I need to be in Chicago on Thursday to speak at a World Trade Center NAFTA event. It's nice to be asked, but October has been a little ridiculous.

On the plane, I read a couple rulings that I found interesting.

First, H021886:

The facts are the kind of oddball thing that only comes up in this area. None of my friends out there writing contracts or litigating injuries will ever see a case like this. Here is how Customs and Border Protection describes the merchandise:

The merchandise at issue is identified as the "Maison Tropicale." It is a structure constructed from sheet steel and aluminum. It was designed by the French architect Jean Prouvé in 1949 and produced in 1951. The Maison Tropicale was created in response to a French government-sponsored competition beginning in 1947 to develop ideas for low cost housing for the French colonies. It measures 59 feet by 32 feet by 16 feet tall and features fork-shaped portico supports of bent steel and an outer shell of aluminum. The walls are made of a series of sheet-metal panels that slide into different positions on overhead tracks. The panels feature 27 portholes of blue tinted glass. Maison Tropicale was built in sections which were shipped from France to the Congo to be assembled on site. Only three Maison Tropicales, of slight varying design, were constructed as it proved to be more expensive than what could be built locally and it did not appeal aesthetically to its intended constituency. The Maison Tropicale was restored after years of abandonment and neglect. It was imported for the express purpose of being put up for sale at auction.



The importer wanted the "piece" classified as a collector's piece of historical interest in Heading 9705, rather than a a prefabricated building. The importer argued that the piece is of historical interest because of its influence on later architects and its connection to the renowned designed.

It seems to me that if the Tate Modern is interested in this thing, it is a collector's piece. No such luck. Customs believes that articles of historical interest must relate to a particular period, like a Civil War cannon. Further, Customs seemed influenced by the fact that the piece was to be auctioned off for private use, rather than placed in a collection (although it might be after the auction). Accordingly, CBP classified it as a building subject to a 2.9% rate of duty.

In a blatant plea for attention, I ask any Pulitzer Prize winning Chicago Tribune architecture critic to give me guidance on this. Is the Maison Tropicale an article of historical significance to collectors? If so, why?

Next issue: What's its value? I'm guessing it's a lot. Frankly, it is late and I know almost nothing about architecture, but if you pulled a judge with an appreciation for this sort of thing . . . .


Next, H0223504:

This just goes in the category of "You learn something every day." The merchandise is a spring action replica of an M-16 rifle. Here's a picture. Basically, the upshot of this is that replicas of guns are classified as if they were the real thing. For some reason that strikes me as odd. Does that apply in other areas of the tariff schedule? Is fake fur classified as if it were a deceased mink? Is I Can't Believe It's Not Butter actually butter for tariff purposes?

Here's another questions: Exactly what does someone do with a spring-action M16? This is what you do with the electric version:

Wednesday, October 15, 2008

Another Notice Case

Western Power Sports is one of those cases that just stinks of underlying policy issues. The gist is that Customs asked the importer to verify the origin of apparel it had imported. In response, the importer produced “delivery records, employee time cards, and other production-related documents.” After reviewing the documents, Customs found they failed to substantiate the origin claim and issued the dreaded Notice of Redeliver. Western Power protested and Customs and Border Protection denied the protest apparently stating that the documentation was falsified.

In the Court of International Trade, Western Power claimed that the general denial of the protest without specifically listing the reasons for the rejection violated constitutional and administrative law rights.

According to the Court, the constitution only requires that the agency alert the interested party to the issue and provide a reasonable opportunity for the interested party to object. Since the protest denial stated that documentation did not substantiate the claimed origin, the notice alerted Western Power to the issue at hand. Further, the protest denial alerted Western Power to the availability of judicial review in the CIT. Thus, everything was constitutionally kosher (which is a phrase I like better than “constitutional muster”).

Regarding administrative law rules, Western Power argued that Customs is required to provide a rationale for its decision. This follows, in part, from CBP regulation 174.30, which says that a protest denial shall include “a statement of the reasons for the denial . . . .” The Court held that the blanket statement that the documents did not support the claim is sufficient for this purpose.

OK, I get that as a legal determination. Here’s the problem: has CBP advanced the ball in any way that facilitates legitimate trade? Let’s assume that some of the documents were falsified. There is no reason to doubt that. It is probably safe to say that the importer is not responsible for that fraud. If Customs worked with the importer to help it understand what was wrong with the documents and to spot false paperwork, Customs would be facilitating future compliance. Also, the importer might be able to cure the defects (although that seems likely in the case of fake rather than missing documents).

But Customs has a legitimate reason not to do that. If importers know how to spot false documents, then they might also know how to make better false documents. That, of course, would make it much harder for Customs to engage in necessary enforcement activity. Customs, therefore, has grounds to just say, “Sorry, fake documents.”

Does this approach lead to bigger issued? Does it lend credibility to the feeling that Customs wants to play Gotcha with legitimate importers? I don’t believe that is true, but it makes it look that way.

So, I ask you, should Customs be running seminars entitled “Spotting false business records for textile importers?” If not, it sounds like a business opportunity for somebody.

Illegally Importing Liquor, Lying About Exports is Customs Business

Miguel Delgao lost his brokers license when it was discovered that he had been part of a scheme to import liquor into a bonded warehouse where paperwork was prepared showing it was to be exported. But, instead of being exported, the liquor was diverted back to the U.S. without the payment of federal liquor taxes.

Apparently, Mr. Delgado does not argue that his conviction on 14 counts of violating 26 U.S.C. § 5601(a)(11) was proper. He might, but that is not the point for us. What he argued at the Court of International Trade was that his felony convictions did not relate to the importation of merchandise nor did they arise out of the conduct of customs business. 19 U.S.C. § 1641(d)(1)(B).

To cut to the chase, the Court disagreed. First, the fact that the plan was never to export the goods from the warehouse but to divert them to the U.S. commerce does not mean the plan did not involve exports. Rather, the statute only requires that exports be involved or closely related to the transaction and this was related enough. Further, the Court pointed out, the goods involved had been exported previously and were relanded before diversion into the U.S.

The Court also found that the completing the documents showing the putative exportation was an activity arising out of the conduct of Mr. Delgado’s customs business.

Cancel My Subscription to the Bulletin

The Customs Bulletin is a publication with a long and important history. Through the Bulletin, Customs and Border Protection provides notices to the trade regarding important decisions of the Court of International Trade, changes in policy, and new regulations. It also includes a bunch of mundane but important stuff like exchange rates. I’d venture to say that besides the Federal Register, the Bulletin is Customs’ most important and most “official” means of communicating to the public. If something is in the Bulletin, I’m willing to bet that Customs assumes importers are aware of it.

In Travelers Indemnity v. United States, the Court of International has, as far as I can tell, let us all off the hook when it comes to knowing what is in the Bulletin. The facts are important here, so I will summarize.

Travelers was the surety for an importer of televisions subject to an antidumping duty order. At the time of entry, the importer deposited estimated dumping duties 1.38%. Liquidation of the entries was suspended during litigation. After all the litigation was final, the assessment rate was set at 7.43%. During the course of litigation, the importer dissolved, leaving the surety on the hook for the resulting increase in duties (up to the limit of the bond).

The relevant timeline goes like this:

May 27, 1997 final termination of all litigation, suspension lifted
October 22, 1997 Customs published the final judicial decision in the Customs Bulletin
February 4, 2005 Commerce sent liquidation instructions to Customs
March 18, 2005 Customs liquidated the entries

When Travelers received the bills, it properly asked itself “What happened between May of 1997 and March of 2008?” This question is relevant because under 19 U.S.C. 1504(d), entries not liquidated within six months of the lifting of the suspension are deemed liquidation by operation of law at the rate applicable at the time of entry.

For deemed liquidation to occur, Customs has to have notice of the lifting of the suspension. Previous cases have held that the Courts’ publication of their decisions do not constitute notice to Customs. Why? I don’t know, but it is true.

But, what about the Bulletin notice. Surely, if Customs knows enough to publish notice of the decision it can follow the results of the case. Apparently not.

This is what we learn from Travelers:

Customs’ officials are trained to rely on the electronic message from Commerce for liquidation instructions

Customs employees charged with liquidating merchandise do not receive copies of the Bulletin

Customs employees charged with liquidating merchandise are not responsible for reading the Bulletin

Customs employees charged with liquidating merchandise are affirmatively trained and instructed not to rely on it

The government prints 2,421 copies of each Bulletin, 2,000 of which are sent to CBP employees

The timing of the Bulletin’s publication of “Decisions . . . Concerning Customs and Related Matters of the Federal Circuit . . . .” is inconsistent

Based on these facts, the Court of International Trade concluded that the Bulletin is not an unambiguous source of information FOR CUSTOMS EMPLOYEES. In other words, CUSTOMS EMPLOYEES are not deemed by law to know the contents of the Bulletin and, therefore, CUSTOMS EMPLOYEES can’t be required to act according to the information it contains. So, the deemed liquidation period did not start to run until February 4, 2005 and the merchandise was properly liquidated at the final assessment rate.

You know where I am going with this, right? If the agency that puts out the Bulletin has gone to federal court to say that it is inconsistent in publication, not widely circulated internally, not used as an authoritative source, and generally not considered legal notice, then why should the rest of the world be held to anything in the Bulletin. What happens when CBP publishes a notice in Bulletin that it is changing the classification of some merchandise? Does the importer who did not act accordingly get to argue that it exercised reasonable care because the Bulletin is not widely circulated and is considered unreliable by Customs? To me, that seems to follow from this case.

Now, there are some fine points to consider. First, when Customs is serious about some change in policy or regulation, the notice goes in the Federal Register. The Courts uniformly agree that a Federal Register notice constitutes legal notice. Also, Customs might be able to show actual knowledge of something in the Bulletin. So, obviously, fact matter. Still, I am surprised Customs and Justice took this position in litigation.

Wednesday, October 08, 2008

Lacy Act Federal Register Notice

Here is a link to a notice published today (10/8/2008) in the Federal Register.  In the notice, APHIS sets out its planned phase-in of Lacey Act enforcement.

The notice says that APHIS is working with Fish & Wildlife to define crop plants and common cultivars, which are exceptions to Lacey Act reporting requirements.  In addition, the notice says that paper reporting will begin as scheduled on December 15 and that an electronic reporting system is planned for as early as April 1.  APHIS says there will be no enforcement actions for failing to file a paper declaration, although false declarations may result in prosecution.  After the electronic system is up and running, compliance will be phased in for groups of products based on a schedule APHIS has set.

Beginning April 1, 2009 (assuming the system is in place), APHIS will require electronic reporting for HTSUS Chapters 44 and 6.  Beginning July 1, 2009 APHIS will add chapters 47, 48, 92, and 94.  Depending on how things are working, starting September 30, 2009, additional chapters will be added.

APHIS plans to hold a public meeting on this on October 14, 2008.  Also, comments may be submitted on or before December 8.

Monday, October 06, 2008

Copyright Infringement? Seriously?




Look at this picture.
It was in an artist's sketch book when she returned from Canada. Customs and Border Protection questioned her for an hour to determine whether she was engaged in copyright infringement. Based on that picture!

I understand that what CBP was really worried about is corporate espionage. It's possible that the sketch was of some new and unreleased GM vehicle that she surreptitiously sketched at a proving ground in the wilds of Canada. But it's not.

The artist had done the sketch as part of a project involving a crochet cozy to cover an entire SUV to illustrate something about the evils of foreign oil. Whatever. That's why we have artists.

But is it credible that copyright infringement might have been involved? A copyright protects an original work of authorship stored in a tangible medium of expression, like a sketch on paper. It is infringement to copy the original work of someone else. Copying is defined as producing a work that is so similar that the casual observer would be willing to disregard the differences. Generally, utilitarian items like car bodies and Balinese dancer lamps are only subject to copyright to the limited extent that the artistic element is separable from the useful. So the giant eagle on my belt buckle might be subject to copyright, but the notion of a belt buckle is not.

So let's say this sketch was actually of a real SUV. Let's also assume that the SUV has some artistically muscular lines or swoopy curves that might be subject to copyright. Does this sketch really convey anything that is not generic about the SUV? Maybe if I was schooled in auto design, I'd see it. Maybe, but based on what I see in the auto press, this kind of industrial spying is generally done with telephoto lenses, not pen and ink.

On the other hand, it is possible that the CBP inspector was not concerned about infringing the design of a functioning 3-dimensional SUV body. Maybe she had previously seen a similar sketch by another artist. Is this substantially similar to a Picasso SUV sketch?

For the full story, click here.

Thursday, October 02, 2008

Updates and Apologies

I am feeling a little guilty about the lack of substance and insight of late. I won't make excuses other than to say that I've had my head in a recently filed appellate brief, some travel, and other distractions.

I do have some upcoming events that may be of interest. Preparing for these have been part of the distractions:

On October 16, I'll be in NY helping with a CITBA program on courtroom skills. This should be a fun program. We are going to be doing mock-trial segments in front of Judge Wallach who will tell the us all what we did right, did wrong, or could do better.

On October 29, I'll be in Toronto at the IE|Canada meeting to discuss customs valuation. Here are the details on that event.

October 30, 2008 I will be speaking on NAFTA at a program near Chicago sponsored by the World Trade Center of Illinois. Here is a link to the brochure.

Lastly, I'll be back in NY in November for the 15th Judicial Conference of the U.S. Court of International Trade. I'll be moderating a panel on customs law developments. The theme for the event is "Testing the Boundaries of Customs and Trade Litigation." The judicial conference is usually a fun meeting; if fun to you is being in a room completely packed full of customs and trade lawyers.

I have already turned in my Judicial Conference paper. The upshot of the paper is that the Court and lawyers appearing before it might benefit from a more objective test to determine the persuasiveness of WCO materials including the Explanatory Notes and WCO HSC rulings. To fill that gap, I propose applying the same Skidmore analysis the Court currently applies to informal ruling making from Customs. I'm not sure whether that idea advances the ball very far but it does build upon basic administrative law concepts.

Friday, September 26, 2008

Customs Law TV

On Wednesday, I did a talk for IPC, the trade association for the printed circuit board industry. The talk went well, I think. Afterwards, I sat down for a short interview about trade issues. You can watch that interview here. Note: The link takes you to a landing page. You'll have to click on the link on the right side of the page to get my interview.

Here are the highlights:
  • Profile is not the most flattering view
  • What is happening to my hair?
  • Remember when I exercised?
  • Do I always sound like Kermit the Frog?

Other than that, you can judge for yourself.

Tuesday, September 23, 2008

Good WaPo Article on Laptop Searches

This Washington Post article puts an interesting historical perspective on laptop searches. It is one thing to say, as I have, that the law permits the searches without probable cause. It is another to point out that Customs and Border Protection has had instructions out to the field setting limits on what can be searched, copied, and detained. This article talks about the evolution of that standard and the very real concern that CBP is sharing its information with other law enforcement agencies.

Monday, September 22, 2008

The Lizard King

This new book is not about Jim Morrison. Rather, it is the tale of reptile smugglers and the Fish & Wildlife Agent who pursued them. The author is Bryan Christy.

Here is a review from a paper in Malaysia, where much of the action apparently takes place. Sounds like a good read; although awfully close to work for pleasure reading.

Thursday, September 18, 2008

News Items

Giving New Meaning to "Magic Bus"

Customs and Border Protection seized 484 pounds of marijuana from a privately owned bus entering from Mexico. I am hopeful that Ruben Kincaide will be able to get Danny and Keith out of jail before their next gig.

If you don't get the hilarity in that post, you are under 40.

Practice Safe Computing

Finding irony in advice from DHS not to take your laptop abroad because a foreign government or private entity might compromise the privacy of your data.

CBP Returning Artifacts to Mexico

No word yet on the Elgin Marbles.

Lacey May Be Delayed

Reliable sources are telling us here at Customs Law Blog Central that enforcement of the Lacey Act Amendments will be delayed past the current December 15 schedule. Right now, we understand that the enforcement date will be April 1, 2009. Additionally, implementation may be phased in with the initial emphasis on "core" wood products such as lumber. Work is being done to determine whether an existing Fish & Wildlife database might be used to permit electronic filing of the required declarations. Lastly, debate continues over the actual and intended scope of the law and whether the relevant agencies have authority to define the scope through regulations (providing, for example, a de minimis exception).

More info is here. Note that the article linked in the previous post is 10 MB.

Remember, I am not a journalist nor am I your lawyer. This is just a rumor for now.

I will resist the urge to ask whether Cagney will be on time.

Friday, September 12, 2008

Follow Me!

Click the Followers link at the bottom to let me and the world know who you are.

Can You Say Chapter 20?

NAFTA Chapter 20 covers dispute resolution between the parties. Seems like Chapter 20 is going to get a workout.

The NAFTA requires the U.S. to open its market to Mexico-based long-haul truckers. This was supposed to have happened years ago. There has already been a dispute panel finding that the U.S. is in violation of the agreement. Hat tip to NAFTAclaims.com for the document.

So, it is somewhat depressing (you know, in a rule of law sense), that compliance has once again been dealt a serious blow. This time, the obstacle is the House Committee on Transportation and Infrastructure. Where was the opposition to this program in 1994 when both houses of Congress voted to approve it?

Note to students in my NAFTA class: PAPER TOPIC ABOVE!

Lacey Act Article

I've been in the Pacific Time Zone this week. Although it would be nice to say that I was surfing, sunning, and sailing, I was actually working. Still, it is always refreshing to see a palm tree and an ocean.

Speaking of palm trees, I did a piece on the Lacey Act amendments for the National Customs Brokers and Forwarders Association of America. I don't have too many details in the article, but I think this is important stuff. If you've been visiting this blog for any length of time, you know I tend to focus on the big picture and assume the details will get worked out in the trenches. So, the fact that I am actually worried about this one should mean something.

Personally, I think this is a bigger deal than the proposed uniform rules of origin.

Friday, September 05, 2008

Spore Creature

Yes, I am a geek at heart. No, I did not run out and buy Spore. But, I did work on a few creatures with my 7 year old. Here is Bluesox. Don't mess with him.





Am I the only one who's noticed that this is essentially the same game as Sim Earth, which I played 15 years ago? Much better graphics, of course.

UPDATE: Jr. found an Easter Egg in the free download of Spore Creature Creator. In the main screen that shows the galaxy, click and drag to spin the galaxy. If you spin it fast enough, in either direction, a human face pops up. It is Will Wright, the creator of Spore. So, in the context of the game, it is the face of God.

Wednesday, September 03, 2008

Always Aftfer Me Marbits

Once while wondering aimlessly in Whole Foods, I grabbed a sample "gourmet marshmallow." I was not expecting anything too different from the Campfire marshmallows we used toast as kids. I was wrong. They were great. They were much less sweet and closer in consistency to nougat than to what I had expected. Since then, I have learned that some people (but no one I know) make marshmallows at home. See here if you want to try.

In a completely different universe are those tiny colored rocks found in Lucky Charms. Over the years, I have referred to them as marshmallows or marshmallow bits. It turns out that is not correct. Instead, those "charms" are "marbits," which are described by Customs and Border Protection as dried marshmallow confections. Here is the full description from HQ H014873 (Jun. 5, 2007):

The samples are dry, brittle, multi-colored pieces, approximately ½-inch wide and ¼-inch thick, in the form of hearts, half-moons, hats, and other objects. The ingredients breakdown provided with your November letter states the pieces are composed of approximately 51 percent sugar, 19 percent water, 11 percent corn syrup, 10 percent dextrose, 7 percent corn starch, 2 percent gelatin, and less than one percent flavoring. The laboratory analysis found the sample contained 66.2 percent sucrose and 14.8 percent glucose on a dry weight basis.


Sounds appetizing, doesn't it? Funny thing is that in the context of a bowl of Lucky Charms, they rock.

Well, CBP has recently decided that its original classification of these marbits as food preparations not elsewhere specified or included was wrong. On August 8, 2008, CBP issued a notice (go to page 17) revoking several earlier marbit rulings and proposing to classify the products in HTSUS item 1704.90.35 as other confections, which is where CBP classifies marshmallows.

I just thought you'd want to know.

Thursday, August 28, 2008

The Cool War on Qat

Here is an interesting story from Philadelphia, Customs and Border Protection has identified that city as a distribution hub for qat (A/K/A khat). Qat is a shrub from the Arabian Peninsula and East Africa the fresh leaves of which are chewed for their stimulant effect. While legal in Yemen and elsewhere, quat is a controlled substance here. The interesting thing about this story is the generally low level of prosecutorial effort put into qat after the goods are seized.

Apparently, the anti-qat forces (if there are any) have got to get better media people. They need a Reefer Madness-style movie extolling the evils of qat and a clever commercial. "This is Haile. This is Haile's brain on qat."


Wednesday, August 27, 2008

Followup: US v. Ressam

A commenter to this post asked what the Supreme Court decided. While I should be watching Bill Clinton make nice with the Obama camp, I'll work for you my loyal readers instead.

You may recall that the issue was whether simply possessing explosives while making a false declaration to Customs was sufficient to constitute the crime of carrying an explosive "during the commission of a felony." The false statement was the felony. The defendant's argument was essentially that the false statement had nothing to do with the explosives. The Ninth Circuit Court of Appeal agreed that the "during" element means that the explosive has to have something to do with the felony.

The Supreme Court, in an 8 to 1 decision, disagreed with the Court of Appeals. Here is the decision. Mr. Justice Breyer dissented. He took the position that the Court's reading of the statute is overly broad and criminalizes behavior Congress did not intend to make criminal. His primary concern is that people have legal and legitimate reasons to carry explosives (which are defined as including a number on non-explosive chemical compounds). So, if a farmer carrying fertilizer happens to get the urge to rob a bank, he or she should be charged with bank robbery and not the added offense of also carrying explosives during the felony. A more worrisome example is the trucker carrying a load of diesel from Canada who fails to declare to Customs and Border Protection the presents he bought while in Canada.

Given the outcome of the case, please take my advice and be very careful about what you are carrying whenever you commit a felony.

Bike Stuff

The season is rapidly coming to an end for me. It's mainly an issue of darkness and the fact that September and October will be full of travel. I figure I have a few more good weeks of riding to work, so I better take advantage of them.

In the meantime, I totally want to figure out how to take a month off and do the Grand Illinois Trail. It's 535 miles, so in theory I could do it comfortably in 10 days and probably in a week. I bet it is hilly out west. I'm not used to that.

To add insult to injury, the boat gets hauled out soon.

I hate this time of year.

Tuesday, August 26, 2008

Quick Items Tuesday

First Sale Alive for Now

In yesterday's Federal Register notice regarding the data reporting requirements for first sale valuation, Customs and Border Protection tossed in the following statement with little fanfare: "CBP is withdrawing the notice of proposed interpretation." In other words, the effort to eliminate first sale valuation is dead for now. Despite that, Congress has mandated data collection, so that will go on. It is kind of like a movie I remover seeing as a kid in which a hand is separated from a dead body and continues on its merry way. Without a proposal to change the interpretation of "sold for export," this data is the tale wagging a dead dog. But, unless Congress acts, it seems CBP is stuck with the requirement. Frankly, this doesn't seem like a very big burden for importers. Let me know if I am wrong.

Farm Bill Lacey Act Amendment

I guess I should mention the other big data collection program. Under Farm Bill Amendments to the Lacey Act, plant and plant product imports will need to be reported and certified as not having been taken in violation of local law or regulation. This is going to be a hassle because it covers everything from paper products, to furniture, to wooden toys. December 15 is set as the start date for that program, which will require paper filings.

The New Zealand Problem??

I majored in Political Science at the University of Illinois at Urbana-Champaign (except that back then it was Champaign-Urbana). While there, I participated in an arms control and disarmament program because, at the time, it seemed vitally important. I did my honors paper on the then-tumultuous relationship between the U.S. and New Zealand. This was 1985 or so. NZ had kicked U.S. navy ships out of the country because the U.S. refused to disclose whether the ships were carrying nuclear weapons. This lead to a meltdown in the Australia-New Zealand-U.S. (ANZUS) Pact, which was a sort of NATO of the South Pacific.

Well, I don't want to get people too riled up, but it seem like New Zealand is trying to sneak into the U.S. commercial market via the backdoor of NAFTA, namely Mexico. Read this article. Tricky Kiwis. First they take the America's Cup, now they invade NAFTA.

Actually, this is perfectly legit. If a NZ company wants to do production in Mexico, that is good for Mexico and presumably consistent with the NAFTA's goal of encouraging investment in the region. I have no problem with that. I just think it is funny that all the NAFTA safeguards intended to prevent "export platforming" seemed to have been targeted at Asia. Instead, we might be seeing an invasion of Kiwi products. Other than Dame Kiri Te Kanawa, I'm not sure what that would be.

Wednesday, August 20, 2008

Admin Law Shout Out

My open thread on rules of origin got a nice hat tip from the Administrative Law Prof Blog, which I have added to my blog roll. I'll also tip you to Professor Nathan Cortez's blog for his Administrative Law class, which is just getting rolling. Maybe we can all follow along a pick up a few tidbits here and there.

For anyone in the Chicago area, my NAFTA and Free Trade Agreements class at the John Marshall Law School Center for International Law gets started September 12. It runs in a four-day seminar format. I run a very practical course that is long on compliance and short on theory. There's still room.

Friday, August 15, 2008

Open Thread: Uniform Rules of Origin

I know my open thread experiments never work. Nevertheless, I will soldier on once again.

I have been having a lot of discussions about Customs and Border Protection's proposal to implement tariff-shift based rules of origin and do away with the old substantial transformation approach. For background, see here.

Here is what I want to know? Do we think this is legal?

One argument goes that CBP has the authority to implement the marking requirements through regulations and that agencies have the ability to change their policies by changing regulations. They just need to go through the proper notice and comment steps and explain the change rationally. So this is routine and permissible.

Another argument goes that agencies can only regulate when given express authority or to fill gaps in ambiguous statutes. When the Supreme Court decided that an origin determination is made by finding the last substantial transformation, it removed the ambiguity in the statute leaving the agency without authority to regulate a different test. A contrary approach leads to the absurd result that Court decisions are meaningless except with respect to the individual case that was decided because agencies can regulate their way around any judicial interpretation.

Are there more arguments out there?

I know that there are lots of customs lawyers reading this. I also know people are often hesitant to talk about live issues that might end up in court. But come on, throw the trade community a bone. What do you think?

By the way, note that I affirmatively did not say what I think. Unlike the rest of you, I am not anonymous.

Weirdest Customs News of the Weird Ever

In the past, customs news of the weird has usually focused on people smuggling live animals or dead humans into the country. This story has none of that exotica, but it is truly weird.

It seems that a customs broker on the southern border has been going to banks--including the Federal Reserve Bank--and directly to the Bureau of Engraving with large amounts of dirty old cash to exchange for crisp new bills. By "large amounts," I mean around $20 million in $100 bills from the 1970s and 1980s. The story as to the origin of the money seems to be somewhat fluid and a criminal investigation is underway. We do know the money came from Mexico. Oops, that's a problem. While finding money and exchanging old for new currency is perfectly legal, importing it from Mexico without the proper disclosures is illegal. It appears this customs broker overlooked that legal requirement.

It's a crazy story. I know I have readers in the brokerage community in Texas. Does anyone have any inside info on what is going on with this case?

Thursday, August 14, 2008

Survey Says . . .

Here are some of the results of my web poll about this blog.


  • 56% of you visit one to five times per month and 21% visit one to seven times per week.


  • 65% of you get here via a saved shortcut, favorite, or similar method.


  • 93% of you are customs compliance professionals. The remainder must be my family and the occasional visitor wondering about bike panniers.

  • 53% of respondents are in industry, 18% in law firms, and 15% in in-house law departments.


  • The top three areas of interest are customs law, trade law, and related litigation.


  • While a large majority find my off-topic posts to be "not a problem," a vocal minority find them annoying and a slightly larger minority apparently find them witty and charming.


  • A number of you had helpful suggestions for the Blog Roll on other useful web sites. I'll get around to adding some links. I'll admit to some hesitation to post links to direct competitors, especially without a reciprocal link. I need to work that out in my own head.


  • Happily, 62% of respondents have visited my firm's site.


  • Non-US survey responders were from Canada and the UK but about 95% were from the U.S. I find this a bit interesting because my traffic reports show visitors from all over the world. I have even had a visitor from a research station in Antarctica. This map shows the locations of my last 100 visitors:

As to things I can do better, here are a smattering of responses:



A picture of the sail boat (Thanks, Dad. See below)



Publish more frequently (I'll try)



Better follow up to earlier posts (Point taken)



More on CIT and CAFC decisions (Really?)



My work :) (That can be arranged, for an appropriate fee.)


Refueling dock at Reefpoint, Racine, Wisconsin




Where I sleep. It's not unlike of coffin.




Racing a storm into DuSable Harbor, Chicago.


Monday, August 11, 2008

Laptop Searches Update

On July 31, the Securing Our Borders and Our Data Act was introduced by Representative Eliot Engel with Representative Ron Paul on as a co-sponsor. Here is a press release on the bill, which is intended to limit Customs & Border Protection's authority to search digital data without reasonable suspicion that the data holds evidence of a crime.

Here is the full text of HR 6702.

This is an interesting issue that seems likely to dog CBP for a while. I think it is safe to say that your average American does not understand the current law on border searches. I also suspect that many would be outraged if they did. That said, the Supreme Court has been clear in stating that border searches are reasonable because they are border searches. Unless Congress acts, people better be prepared to turn over their data when they arrive in the U.S. As the wise man once said, if you would not want the information on the front page of the Chicago Tribune, you should not carry it across the border.

All that said, I do wonder about what is actually happening at the border. Inspectors have a lot of discretion in deciding who to search and to what degree. I have no reason to think that CBP is abusing that discretion. But the media seems to have latched on to this pretty tightly. It seems like CBP needs to get out ahead of this on the PR front if it wants to avoid a nasty drubbing in the court of public opinion.

Thursday, August 07, 2008

Back at My Desk

Well, I should say "a" desk.

Due to the dearth of comments, I gather nothing of particular importance happened while I was gone. I guess that is good.

I started my week away with the move of our office to new space within the building. The sad part of that story is that even when you move within a building, you still need to pack. The new space is a much better configuration than what we had and represents a more modern view of office design. By that, I mean it more closely represents my view of office design. As a result, I have a very nice office with a view of the Chicago River. I also have about 30% less floor space than I had. At the same time, I claimed a desk that is about 50% larger than my previous desk. Can you do that math? Apparently, I could not.

I am now sitting with my back to the long wall and my right side to the window. This is not an ideal arrangement. I am looking at a wall and would rather look toward the door. The desk takes up an inordinate amount of room. So much so that the movers, who were a bit slap happy at close to midnight, laughed as they tried to situate it for me. Now I need a new desk and, frankly, have limited interested in going shopping. I would like one or more of those Walter E. Smithe brothers (that may be a Chicago-centric reference) to miraculously show up with a desk for me. I'll be in one of their clever commercials if they do, I promise.



On my vacation jaunt I learned a couple things:
  • Southern Indiana is riddled with caves.
  • Daniel Boone had a younger brother named Squire who explored some of those caves.
  • The Cincinnati area has an inexplicable obsession with a pork and oatmeal sausage called goetta. I even attended Goettafest 2008, although I declined to partake.
  • When it is hot, a water park beats an amusement park.
  • Never let someone who has no kids tell you whether a roller coaster is suitable for an 7-year old.
  • Graeter's makes an outstanding black raspberry chip.
  • XM radio rocks.

Monday, July 28, 2008

News To Me

I'll be off line for a week or so. If anything of interest to readers of this blog happens, feel free to post it in the comments. I'll do my best to catch up on my return.

In the meantime, here is a topic for discussion:

SSAB v. United States: Another case of good law making for a bad result?

One other note, as of tomorrow, my office is relocating to another floor of the same building. If you need to send me anything, the new suite number is 1020. All other contact info is the same as it has been for the past nine years. And, just to gratuitously vent about moving a law firm: What a hassle!

Thanks for listening.

Friday, July 25, 2008

Goodbye Substantial Transformation, Hello Tariff Shift

Customs and Border Protection has published a Notice of Proposed Rule Making today proposing to do away with the time-honored substantial transformation test for determining country of origin. I'm sad. I like this rule. I like it for precisely the reasons that CBP wants to do away with it.

The substantial transformation rule states that merchandise originates from the country in which it last changed its name, character, or use. The first articulation of this test was in a 1908 Supreme Court decision involving Anheuser-Busch. The question was whether cleaning and coating beer bottle corks (!) produced U.S.-origin corks. The Court held that the corks remain foreign because no new product emerged from the operations in the U.S. The most famous substantial transformation case is U.S. v. Gibson-Thomsen (1940) in which the Court of Customs and Patent Appeals found that wooden brush blocks and toothbrush handles without bristles became articles of the U.S. when bristles were added.

This approach has given importers and their lawyers a fair amount of leeway in arguing over origin. Finding a name change is gold. When that fails, you need to look for more subjective changes in character and use. This has led to a variety of strategies including things like whether the imported merchandise is a "producer's good" as opposed to a "consumer's good."

As early as the NAFTA negotiations in the early 1990s, it was clear to some (I suspect mainly in Canada and Mexico) that this test was too unpredictable. As a result, NAFTA introduced the concept of tariff-shift based origin rules. Keep in mind that we are not talking about the preference origin rules of HTUS Note 12(t). For this purpose we are talking about the so-called NAFTA Marking Rules of 19 CFR Part 102.

In today's notice, CBP has pulled the trigger on its long-stated desire to apply the NAFTA Marking Rules across the board. The only exceptions will be where an international agreement requires the use of substantial transformation. So the preference origin rules under NAFTA will not change. Also not proposed for change are preference determinations for goods--other than textiles and apparel-- under the U.S.-Israel and U.S.-Jordan FTAs. For other FTAs and programs that rely on origin determinations, the Part 102 rules will apply in addition to the other requirements of the programs.

So, you might be wondering, what about the Generalized System of Preferences? Remember that the rules for GSP require a substantial transformation (or double substantial transformation for non-BDC materials) plus 35% value added and direct shipment. Under this proposal, the rule will be based on tariff shifts, 35% value added, and direct shipment.

At first blush, I'm not sure I see much to complain about here. In a case called Bestfoods, the Federal Circuit said that CBP has the legal authority to dispose of substantial transformation. And, from an administration perspective, this will likely produce more predictable results for importers. The real trouble, of course, will be in the implementation details. There are very likely to be pockets of importers who are suddenly going to have to mark as foreign products they have been selling in the U.S. without origin labels. Based on my experience, this will drive the marketing people nuts. It will take some time for those issues to surface. Now would be a good time examine your origin determination process and see what might change. Comments are due in 60 days on September 23, 2008.