Tuesday, April 29, 2008

Recent Decisions

The courts have been busy. Here are some recent decisions of note:

U.S. v. Arnold. This decision comes from the Ninth Circuit Court of Appeals and involves a border search of Mr. Arnold's laptop. This is an issue we have covered previously (here and here) and seems to be of growing concern to the general public. The question presented to the Court was whether Customs and Border Protection may examine the electronic contents of an arriving passenger's laptop without reasonable suspicion that it contains evidence of a crime.

When Mr. Arnold arrived at LAX from the Philippines, CBP selected him for secondary review and asked him to open his luggage. There is no reason given for his selection. CBP then asked Mr. Arnold to turn on his computer, ostensibly to see if it worked. When the computer had booted up, a second CBP officer reviewed photographs stored on the computer and found an image of two nude women. Note that there is nothing in the decision to indicate that these women were underage or that the photo was legally obscene; it was just two nude women. With that, the computer and Mr. Arnold were turned over to Immigration and Customs Enforcement agents. After several hours of questioning and a thorough examination of the computer, ICE found numerous images depicting child pornography.

At his trial, Arnold's lawyers moved to suppress evidence from the computer arguing that the search violated the Fourth Amendment because CBP had no reasonable grounds to believe the computer contained evidence of a crime. Arnold's argument was based on the unique nature of computer data. First, because the storage capacity of a computer is so large, Arnold argued that the search was analogous to searching a person's house. Second, because the computer can be used to record deeply personal information, it acts as an extension of an individual's brain and is entitled to strict protection. The trial court agreed and suppressed the evidence. The government appealed.

The Ninth Circuit began its analysis with the oft-cited premise that searches made at the border are reasonably simply by virtue of the fact that they occur at the border. This, obviously, does not bode well for Mr. Arnold. However, the Court also noted that CBP may not engage in searches without reasonable suspicion where the search infringes on the interests of human dignity and privacy. Generally, that means body cavity searches, but it may extend to other invasive searches. Searches of property might require suspicion if they are particularly destructive or offensive.

From this, the Ninth Circuit held that the trial court's sliding scale of intrusiveness was improper. CBP need not conduct searches in the least restrictive means available and there is no distinction between "routine" and "non-routine" border searches. Consequently, CBP does not need reasonable suspicion to search a laptop (or other electronic storage media) at the border. Further, a laptop, despite its storage capacity is not a home in part because it is mobile and in part because one cannot live in a laptop. Lastly, the Court held that there was nothing particularly offensive about the means of the search nor were Mr. Arnold's First Amendment rights in the material sufficiently violated to require an exception to the border search doctrine.

On to something more likely of direct relevance: classification. In Airflow Tech. v. U.S., the Court of Appeals for the Federal Circuit reversed a decision of the Court of International Trade concerning the classification of straining cloth. The decision is, frankly, not that interesting. However, along the way the CAFC made a couple important general points that Customs and importers should keep in mind.

First, the Court said that when faced with clear language in the Harmonized Tariff Schedules, contradictory language in the Explanatory Notes is irrelevant. Specifically, the Court said this: "when the language of the tariff provision is unambiguous and the Explanatory Notes contradictory, 'we do not afford [the Explanatory Notes] any weight.' Michael Simon Design, Inc. v. United States, 501 F.3d 1303, 1307 (Fed. Cir. 2007)." So, if the World Customs Organization wants to limit a tariff item, it needs to draft the language to accomplish that limitation. Putting broad language in the tariff and then a limitation in the Explanatory Notes will not accomplish that.

Another interesting point in the case has to do with WCO opinions. When faced with a contradictory WCO opinion, the Federal Circuit held, "We are similarly not bound by the WCO opinion, see Cummins Inc. v. United States, 454 F.3d 1361, 1366 (Fed. Cir. 2006), and, to the extent that its interpretation of subheading 5911.40.00 differs from ours, we find it unpersuasive."

These are the kind of fundamental points that it is important to keep in mind when drafting protests and ruling requests and, when all else fails, when arguing in Court.

Thursday, April 24, 2008

Penalties: A New Priority

Recently, Customs and Border Protection officially designated penalties as a Priority Trade Issue.

I am putting this in the same category as the attempt to gut first sale valuation, the restrictive reading of lease-like arrangements in 9801, and the decision to bring the Ford recordkeeping case. That category is "Things that make little sense."

Read the notice. We need to dissect it a bit:

The trade fraud penalty process is a PTI because: 1) considerable CBP resources are expended to achieve modest penalty collections; and 2) a penalty is often the only tool available to CBP to deter non-compliance in the trade environment.

This seems to indicate that CBP wants to focus on collecting more revenue through its enforcement activity. What follows from that is that demands will be higher and mitigation less generous.

The Penalties working group will assist other PTI working groups in developing specific instructions for the assessment of penalties related to the individual PTIs, and will be responsible for providing Headquarters oversight of the sanction processes.

This implies, at least to me, that we are likely to be seeing more referrals of cases to Fines, Penalties, and Forfeitures as well as to Immigration and Customs Enforcement.

The sanction philosophy of the Trade Strategy is to assess penalties strictly according to Headquarters instructions, and to mitigate strictly within existing mitigation guidelines for cases involving PTIs.

Again, it looks like mitigation may be harder to come by in the future.

Cases involving PTIs are considered more critical than non-PTI cases for mitigation purposes, and deciding officials are encouraged to impose mitigated amounts that are at the high end of the mitigation ranges.

This is a little circular, but I think it means penalty cases involving "other" PTIs rather than referring to all penalty cases. The confusion here is that this notice calls fraud cases a PTI, so these cases necessarily include a PTI.

For the purposes of this PTI strategy, Trade Fraud will be defined as any entry or importation by way of false acts, information, or omissions including false information, false descriptions or material omissions contained in entry documentation.

This is where is gets a little scary. This seems to say that any entry by way of any false act, information, or omission will be considered fraud. It's not. That's just wrong. Fraud is, and always has been, defined as an intentional act. It is the intentional use of deceit, trickery, or dishonesty (generally false statements) to deprive another of some benefit. When a false statement is made unintentionally, that is called a mistake or negligence.

The customs penalty laws recognize the difference between a mistake, negligence, and fraud. A mistake is not a violation, simple negligence can result in a penalty, and gross negligence a higher penalty. Fraud, on the other hand, has the highest possible penalties and, accordingly, requires proof of intent or at least such reckless disregard for the truth as to approximate intent.

So what is Customs and Border Protection saying? It appears to be that negligent importers should expect to be treated as if they have committed fraud and that mitigation will, therefore, be limited. Frankly, I know and respect a lot of lawyers working for CBP and it strikes me that this cannot possibly be what was intended. Perhaps I am reading too much into this. It would be great to hear from someone with knowledge of CBP's decision-making and drafting process on this. As it stands now, it seems unambiguously opposed to the notion that Customs is supposed to promote legitimate trade facilitation. Again, that seems unlikely. If it is, then once again we are left to wonder why Customs felt this was necessary and what constituency they feel they are serving.

Please, my few faithful readers, tell me if I am wrong. I am willing to be convinced and hopeful that I will be.

Ground Breaking for the NAFTA Super Highway?

This New York Times article includes a photo pf President Bush, Canadian Prime Minister Harper, and Mexican President Calderon lifting shovels of dirt. In reality, they are planting a tree in New Orleans, site of what is likely their last summit as a group before the end of the Bush administration. The article discusses Mexican and Canadian views on NAFTA and the current political and economic climate in which NAFTA has become an election issue. The picture, no doubt, will soon be buzzing around the Internet as evidence that the three leaders are continuing to work on their secret plan to merge the three countries and build a gigantic super highway through the American heartland. All of this is supposedly being done under the watchful eye of the super secret Security and Prosperity Partnership and at the direction of the Council on Foreign Relations.

The article actually shows that both Canada and Mexico are comfortable with the NAFTA as is. That means it will be very difficult for a new American president to follow through on a campaign promise to renegotiate NAFTA. The funny thing about negotiations is that all parties need to have a reason to negotiate.

John McCain, of course, seems to understand that NAFTA is not a four-letter word.

Tuesday, April 15, 2008

The Pen Is Stronger

I found this Customs and Border Protection ruling to be interesting in a let's-keep-the-basic-in-mind kind of way. It involves the country of origin marking on pens. The pens were marked in raised letters on the barrel but the marking was in the same color as the pen. Customs calls this "blind marking." Also, the marking--as one would expect on a pen--was quite small; just 1/16 by 1/4 of an inch. Lastly, the pens were to be decorated with logos or slogans and were, at the time of importation, printed with an identifier for the pen style.

It's this last part that seems to have been the problem for the importer. Customs held that the small, blind marking was not sufficiently conspicuous. Part of its reasoning seems to be that the pen is designed and intended to have more conspicuous printing applied to it. Customs, therefore, required a better marking and suggested contrasting colors.

This is the great part: As evidence of acceptable marking, counsel for the importer placed before Customs a pen CBP distributed at an ACE event. If its good enough for CBP, the argument goes, it should be good enough for Jane and Joe Importer. Imagine the forehead slaps and rolled eyes among the lawyers at Customs. Unfortunately, rather than possibly own up to it, CBP said there was insufficient evidence linking the pen to Customs and that it would only consider the merchandise that is the subject of the ruling request.

Now I know why I have a drawer full of various CBP mouse pads, cup coolers, stress balls, and other assorted junk! [NOTE: SEE BELOW FOR MORE ON THIS STORY]

I should have updated the Colombia FTA story to reflect the Democratic move to block the vote under what everyone assumed were firm fast-track deadlines. But, I assume you have heard already. A story on that is here.

If you have time, listen to this episode of This American Life. It focuses on the fascinating story of the International Boundary Commission's fight to keep a homeowner on the U.S.-Canada border from building a wall within 10 feet of the boundary. The story takes an odd political turn and raises interesting questions about international law, policy making, and the power of the president.


I went through my drawer. Guess what I found, a pen CBP gave out that has a small blind marking and is printed with the Customs and Border Protection web address in a contrasting color. Here are exhibits A and B:

Monday, April 07, 2008

NAFTA Drawback is STILL Constitutional

A while back, this issue generated a lot of good comments. Thanks to the Federal Circuit, we can start that again.

In NuFarm America's, Inc. v. United States, the Court of International Trade held that the requirement that importers pay customs duties within 60 days of the export of goods to a NAFTA country that previously entered the U.S. under a duty deferral or waiver program did not violate the export clause of the Constitution.

The Federal Circuit agrees with the CIT's analysis of the allegedly offending regulation. According to the Court of Appeals, the regulation imposes a duty on the imported goods by reason of their having been imported. The exportation only triggers the timing of the payment of the import duty.

I'm still not 100% comfortable with this outcome. If this merchandise were imported to a non-NAFTA country, there would be no duty liability. The duty liability on attaches when the goods are exported to a NAFTA country. While I get that the duty is a normal customs duty applied to imported goods, the liability only arises when it is exported and then only to a NAFTA country. It strikes me that there more to NuFarm's argument than meets the eye.

President Forces Vote on Colombia FTA

President Bush has transmitted the U.S.-Colombia Free Trade Agreement to Congress. Under the requirements of the fast track process, this move forces Congress to vote on the deal within 90 days. Unlike most legislation, Congress cannot amend the bill; instead, this is an up or down vote to approve or reject the pact. As an aside, unlike a treaty, this goes to both houses of Congress rather than just to the Senate for ratification.

This will likely prompt a fight as most Democrats have come out against the deal. Here is a news story on the move.