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.