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.