Friday, June 26, 2009

New from the Wild West

I tweeted this story (see my problem?) but it was recently tipped to me from another lawyer, so I'll give it some coverage here.

It seems that Jesus Argandona has been sentenced to a year in prison and a $200,000 fine. His offense: arranging the illegal export of $600,000 in blank CDs into Mexico. Two others received lesser sentences for similar offenses involving the use of a bonded warehouse to illegally export CDs from China to Mexico.

This raises a question that I'm not willing to investigate. Maybe one of you has the info handy. What's the duty on blank CDs going into Mexico? It must be pretty big to justify this level of criminal enterprise. Is the problem that there is an antidumping duty order in Mexico? This whole thing seems kind of crazy to me. Maybe In Mexico, Philips brand CDs are particularly desirable.

Wednesday, June 24, 2009

Master of My Domains

I'm starting to wonder about what belongs on this blog. For that, you can blame Twitter.

I find I am posting the odd bits of customs related news here because I can toss off a tweet about it just as efficiently. If you're not following me, I'm at I'm also more likely to tweet random bits of nonsense over there.

That means this blog is starting to look more like a place to find reviews of Court of International Trade and Court of Appeals for the Federal Circuit decisions. That's not my intention. I want this to be more broadly focused on compliance as well serve as a spot for the occasional off topic musing.

I'm not sure where this leads (that makes it a MonsterQuest). I have recently registered two new domains: and Those represent two of the more substantial parts of my practice and interests. Maybe I'll start narrowing the focus here. For now, those URL's redirect here.

I'm interested in knowing what you think. Is it better to leave everything here? Should I quit tweeting to be sure everything is in one place? Should discussions of court cases be someplace else? Let me know what you think.


Gilda Toasts US in Court

Gilda Industries v. U.S. has been going on for a while now. The underlying issue is whether the U.S. properly assessed retaliatory duties on Gilda's imported toasted breads as part of the EC-Beef Hormones dispute. In this version of the case, Gilda is claiming that the authority to impose those duties expired in 2007 and it wants a refund of duties it improperly paid.

The genesis for this case is a dispute between the U.S. and the European Commission over a rule prohibiting the importation of hormone treated beef into Europe. The WTO found the ban to lack a scientific basis and authorized U.S. retaliation. The U.S. implemented that retaliation in the form of 100% duties on a number of products including toast (which, by the way, I find an odd product to import).

Under the law (specifically 19 USC sec. 2417(c)) any retaliation in effect will automatically expire after four years unless the affected domestic industry requests an extension. In an earlier effort to get out from under the duties, Gilda lost because a request had been made. Now, four years later, it appears no such request had been made. According to the government, the retaliation did not expire by operation of law because the USTR failed to provide notice of that possibility.

The Court of International Trade (via Senior Judge Musgrave) disagreed. According to the Court, the statute clearly states that retaliation is limited to four years absent a request for extension. Thus, the interested industry should have known of the possibility. Further, other sections of law relating to the USTR clearly link public notice to USTR action). Consequently, the Court did not want to insert such a linkage where Congress had not.

Thus, the retaliation expired by operation of law in 2007. Duties paid as a result to the Beef Hormone dispute after July 29, 2007 were improperly collected. The Court ordered the entries reliquidated to provide refunds to the importer.

So, if you have been paying duties under this retaliatory regime, fire up your lawyers. You might have a refund coming your way. The U.S. will almost certainly appeal and there is no guarantee that this case will stand. But, you should still consider getting your claim before the CIT. Failing to do so in a timely manner might result in your inability to recover at all.

Friday, June 19, 2009

Late News: Canada Rulings/Tire Decision

At the moment, I am continuing my tour of places called St. John. St. John, USVI, is one of my very favorite places on the planet. A few years ago, I was thrilled to get an invitation from the CBA to speak in Saint John's and only slighted disappointed to discover it was not the Caribbean Bar but the Canadian Bar talking about a meeting in St. John's Newfoundland. St. John's turned out to be a lovely seaside town with good fish & chips. Today, I am in Saint John, New Brunswick, which is an entirely different seaside town in Canada. This one is famously on the Bay of Fundy, home of 28 foot tidal swings. I was slightly worried that I would make the wrong connection in Toronto and end up in the wrong John. I am thinking of making a swing through San Juan, Puerto Rico on the way home.

On to the news of the day:

Speaking of Canada, at long last, Canada Border Services Agency is starting to post summaries of its classification ruling decisions. You can see the dozen or so they have posted so far here.

Also of interest may be the fact that the US International Trade Commission has voted to permit safeguard remedies against passenger car and light truck tires from China. This finding gives President Obama the opportunity to craft a remedy to protect US producers. An interesting aspect of this kind of case (called a 421 case) is that it does not target unfair trade practices. Instead, it focuses on the inability of the domestic industry to adjust to rapid changes in trade. The ITC will propose a remedy to the President. In its petition, the US industry requested import quotas. Here is a press release about the decision. It does not appear that the decision has been published.

Tomorrow, I fly home very early.

Tuesday, June 16, 2009

Questions Predominate in HTSUS Classification

Value Vinyls, Inc. is an interesting classification case in that it all turns on the meaning of one word. As Groucho might say, it's a simple word you hear every day (well maybe not every day). The word in question is "predominate." Specifically, item 3921.90.11 of the Harmonized Tariff Schedule of the United states covers products "with textile components in which man-made fibers predominate by weight over any other single textile fiber." The problem for the Court of Appeals for the Federal Circuit is that the merchandise contains only man-made fibers.

Can man-made fibers predominate in a sea of man-made fibers? Is there a majority where there is no minority?

A split Federal Circuit held that there is. The Court focused much of its attention on the conversion from the old TSUS to the current HTSUS. Apparently, the corresponding TSUS provision (355.81) included products made wholly of man-made fibers. The TSUS provision covered articles that were "wholly or in chief value" of man-made fibers. Because the TSUS language expressly covered products wholly of artificial fibers, the corresponding HTSUS language requiring that "man-made fibers predominate" should have the same meaning absent express Congressional intent to the contrary. Given that the transition from the TSUS to the HTSUS was supposed to be revenue neutral, the CAFC affirmed the CIT and said that a material that is wholly of man-made fibers is also predominately of man-made fibers.

To get to that conclusion, the Federal Circuit had to discuss an older Court of Intrernational Trade Case called Semperit Indistrial Products (1994). Semperit dealt with similar language in 4010.91.15 relating to conveyor belting. In Semperit, Judge Carman said "defendant's contention that the subheading's provisions for 'situations where other textile fibers may be present with man-made fibers does not mean that articles in which only man-made fibers are present are precluded' fails to embrace the comparison implicit in the term 'predominate' between two or more parts." The CIT concluded that the plain meaning of predominate required two or more materials for comparison.

No judge of the Court of International Trade is bound by a decision of another judge. Also, a CIT decision does not bind the Court of Appeals. So, there is nothing wrong with the result in Value Vinyls. Reasonable minds can disagree.

Which brings me to the reasonable mind of one Robert W. Gettleman, U.S. District Judge of my own Northern District of Illinois. He sat by designation on this case and filed a dissent. First, I need to say to Judge Gettleman, welcome to my world. I bet your clerks were not too excited about having to wade through not just the HTSUS but also the TSUS and the conversion documents.

Judge Gettleman appears to have come at the decision with something of an outsider's perspective. He seemed less concerned with the conversion from the the TSUS to the HTSUS or with rate neutrality. He focused on the language in the disputed provision. Specifically, he wrote that "The plain meaning of 'predominate' is unambiguous. It necessarily 'contemplates a hierarchy between two or more elements' and 'incorporates a comparison between two or more entities and a determination that one of the entities outweighs the other.'" The internal quotations come from Judge Carman in Semperit. He went on to note that "The change in language from 'wholly or in chief value' in the TSUS, to 'predominate by weight' in the HTSUS evidences intent by Congress to change the meaning of the subheadings, not just the method of measuring the goods as the majority suggests."

This is one of those cases in which reasonable people can come to reasonable but inconsistent conclusions. Personally, I'm not confident that the sentence, "Bowling balls are the balls used predominately in bowling," makes a lot of sense. What I mean is "Bowling balls are the only balls used in bowling." [Note to family in New England: Candlepin is still bowling and the balls are still bowling balls. Also, my grandfather is in the Hall of Fame. How about that?] But from a legal standpoint, there is a real question as to what Congress intended.

So what are importers to do? The practical effect of the CAFC decision may be to effectively overrule Semperit even though the Court distinguished, rather than overruled it. Importers looking for clarity and predictability will look to the Court of Appeals for guidance. However, Judge Carman's decision in Semperit remains in place. So, if your issue is four-square covered by Semperit, think hard about standing your ground. What is left of Semperit is an issue for reasonable minds to sort out in a later case.

Friday, June 12, 2009

Quick Updates

While I hate to do this, I also know that I don't have time to blog all these stories. Plus, there is no reason for me to summarize what is easily digested. So, here is a page slap. Feel free to complain in the comments.

The fight to bear knives continues.


Thursday, June 11, 2009

Heartland Retroactive

Heartland By-Products is a case that has generated more controversy and new law than most.

To make sense of what follows, you need to understand how appeals work at the Court of Appeals for the Federal Circuit. After all the briefing and oral arguments, the CAFC announces its decision, usually in a written opinion. After that, either side has a period of time in which to seek a rehearing. If no rehearing is requested, seven days after the last day a request might have been made, the Court issues a mandate. If a rehearing is requested, the mandate issues seven days after that process ends. So, basically, the mandate comes after the decision and is when the CAFC says it is officially done with a case.

When last we discussed Heartland, the Court of International Trade had held that its decision in a 1581(h) declaratory judgment action was effective until finally and officially overturned on appeal. Consequently, Customs and Border Protection could not, while the case was not finally on appeal, liquidate entries contrary to the CIT's decision. It is important to note, the decision on the classification was ultimately reversed, so at issue was whether the Federal Circuit's decision has retroactive effect, making those liquidations valid despite the then technically in force CIT decision to the contrary. The CIT held that it did not and that any liquidation or reliquidation contrary to its decision, regardless of the ultimate CAFC decision, was invalid.

This decision from the Federal Circuit reverses that aspect of the CIT decision. The CAFC pointed out that, as a basic legal proposition, its decisions have retroactive effect on all non-final cases. Thus, once it announced a decision, all subsequent liquidations had to be consistent with that decision.

Heartland argued that 1581(h) creates a special circumstance that is an exception to the general rule. Looking at the statute, the CAFC found no basis for such an exception. That raises the possibility that a successful litigant in a 1581(h) challenge to a CBP ruling might win at the CIT, enter merchandise, and then have the classification retroactively changed by the CAFC. The Court of Appeals agreed that such a situation might arise and noted that an appropriate protection is to seek an injunction against such a liquidation until the classification is finally decided. Moreover, since the whole purpose of 1581(h) is usually to challenge a pre-importation ruling, it would be unusual for there to be actual entries at issue. Liquidations of actual entries would normally be challenged under 1581(a) on the basis of a denied protest. In this case, because the underlying ruling was a revocation notice, things were a little squirrely from the start.

There was a second issue raised about liquidations or reliquidations after the Federal Circuit announced the decision on the classification but before the mandate issued to make that decision final. This issue, however, became moot when Customs agreed that its policy is to abide by the CIT decision until it is officially reversed. Thus, the CAFC did not have to decide whether its decision has any legal impact between the decision being announced and the mandate.

Sometimes, it's Just a Screw

I started my career in as a customs lawyer under the old Tariff Schedule of the United States, before anything was Harmonized. Under the TSUS, it was a common and legally sound argument that merchandise could not be classified in a heading if it was "more than" what that heading describes. So, a screw that had been hollowed out and had holes drilled in it to allow oil to flow through it would probably not be a screw, because it was "more than" a screw.

In the Harmonized Tariff Schedule era, the more than argument has been replaced by various aspects of the General Rules of Interpretation. Rather than say that this merchandise is more than a screw, today we would say that "screw" only partly describes the article so we need to look to whether it has the essential character of a screw.

And that is the situation Honda of America found itself in at the Court of International Trade. The merchandise involved was oil bolts, which are essentially the merchandise I described above. The competing provisions were in Heading 7318 as screws or bolts and in Chapter 87 as auto parts.

The Court's analysis started with Section XV, Note 2(a) which defines screws, bolts, and similar articles of iron or steel as "parts of general use." Further, Section XVII includes a note saying that "parts" as used in that section does not apply to parts of general use. So, if the oil bolt is classifiable in 7318, it is excluded from Chapter 87.

The Court looked to the Explanatory Notes, the relevant Customs and Border Protection Ruling, and an Informed Compliance Publication to reach a definition of screw as meaning (essentially) an externally threaded fastener that must be torqued by its head. Apparently, the oil bolts at issue fit that description and are, therefore, screws of 7318.

Honda had a good argument based on a number of prior rulings that appeared to be inconsistent with this classification. Most important was a ruling on a brake cable that was cut to size and had end fittings making it apparently ready for use in assembly. Those cables, were classified in 8709 as parts despite being parts of general use of 7312. The reason for that, according to Customs, was an amendment to the Explanatory Notes that specified, based on a decision of the World Customs Organization, that such cables were auto parts. There being no corresponding amendment for oil bolts, the Court found the prior ruling to be unpersuasive.

Thus, because the screws--despite being specialized--are still externally threaded fasteners that need to be torqued from the head, they are screws and nothing more.

Tuesday, June 09, 2009

Small Business Trade Bill

The Chair of the Senate's Committee on Small Business has introduced the Small Business International Trade Enhancements Act of 2009.  So far, I can't  find the text on line, but the link goes to the Committee press release.  This link should work when the text is available.  

Among other things, the bill seeks to create an Assistant United States Trade Representative for small business issues.

Saturday, June 06, 2009

Lots of Legislation

See the update below on the Food Safety Enhancement Act and the FDA Globalization Act.

There are a few things making their way through Congress that might be of interest.

H.R. 2355 MOVEMENT Act

First of all, how hard does Congress work to come up with these catchy acronyms? This one is the Making Opportunities Via Efficient and More Effective National Transportation Act of 2009. Seriously, even if this is the best law ever, we should use it as an example to stamp out bad bill names and tortured acronyms.

The bill is intended to provide funding for projects to improve the movement of goods nationally, mitigate associated environmental damage, and provide supply chain security. The bill seeks to create the National Movement of Goods Improvement Fund. The funds for the fund come from moving about 71% of the presently collected Harbor Maintenance Taxes into the fund. That money can then be allocated to the Department of Transportation for certain projects to improve the transportation infrastructure.

Of more immediate interest to importers is section 202, which increases the Harbor Maintenance Tax to 0.4375 percent of value. That's up from 0.125 percent. For merchandise entering via a foreign port, the new HMT will apply at a rate of 0.3125 percent. I'm lookin' at you, Montreal. HMT will not apply to goods originating (in a technical sense) in Mexico or Canada.

H.R. 875 Food Safety Modernization Act of 2009

At least it does not have a silly name.

This bill would establish a Food Safety Administration within the Department of Health and Human Services. For food importers, note that the Bill creates the requirement that foreign food establishments register with the new agency annually. Registration will require the identification of the name, address, contact name, primary business activity, types of foods processed, and a 24-hour contact in the U.S. The bill gives the agency authority to inspect food facilities in the U.S. and in foreign countries and sets up recordkeeping requirements.

Section 208 covers imports. The bill attempts to create (in two years) a process for certification that food complies with U.S. standards by the foreign governments or independent certifying agents. For high-risk imports (like meat), the agency will be able to designate limited ports for entry. In five years, less risky categories that are not certified will only be able to enter through metropolitan ports with an accredited food safety lab. The agency will have authority to deny entry to food entered without the proper certification or from countries that do not cooperate with the proposed audit process.

UPDATE: This bill is not to be confused with the Food Safety Enhancement Act of 2009.  As it happens, it appears that this latter bill has more momentum behind it.  This bill is more comprehensive in that if covers food, drugs, and devices.  Like the Modernization bill, the Enhancement Act would create a registry of food facilities in the U.S. and importing to the U.S.  There would be an annual registration fee of $1,000.  Food facilities would need to implement safety plans to ensure safe production coupled with increased inspections.  The bill also includes certification by the exporting country government or authorized third parties.  

Importantly, the Enhancement Act includes more provisions relating to customhouse brokers. Brokers will need be registered with the FDA as a food facility.  The fee has not yet been set. If problems occur, the broker's registration may be suspended or cancelled.  Broker facilities will become subject to inspection by FDA personnel.  

Unfortunately, there is also the Food and Drug Administration Globalization Act of 2009 (H.R. 759), which seeks to accomplish many of the same goals but seems to go more lightly on brokers.  These bills all seem to be in Committee.  Hopefully, something reasonable and unified will come out.

And, finally, S.730 The Affordable Footwear Act of 2009

This one is aptly named. The objective is to remove the tariffs on footwear. The drafters appear to have made an effort to carve out types of shoes not made in the U.S. That should help avoid domestic opposition.

The bill includes these interesting findings:

Congress finds the following:
(1) Average collected duties on imported footwear are among the highest of any product sector, totaling approximately $1,900,000,000 during 2006.

(2) Duty rates on imported footwear are among the highest imposed by the United States Government, with some as high as the equivalent of 67.5 percent ad valorem.

(3) The duties currently imposed by the United States were set in an era during which high rates of duty were intended to protect production of footwear in the United States.

(4) Footwear produced in the United States supplies only about 1 percent of the total United States market for footwear. This production is concentrated in distinct product groupings, which are not impacted by the provisions of this Act.

(5) Low- and moderate-income families spend a larger share of their disposable income on footwear than higher-income families.

(6) Footwear duties, which are higher on lower-price footwear, serve no purpose and are a hidden, regressive tax on those people in the United States least able to pay.

Monday, June 01, 2009

I'm a "Must Read" Blogger

The 3 Geeks and a Law Blog put together an early list of "must read" blog posts of 2009.  I made the list twice, at number 40 and and number 64 for my musings on what to look for in a new Commission of Customs and Border Protection and on C-TPAT marketing.  Yes, I self nominated my work, but it's nice to make the cut.

Counterfeits Transitting Alaska Seized in Mexico

Here's an involved story.

It seems a ship arrived in Alaska with three containers of shoes from Hong Kong headed for Guatemala and Nicaragua via Mexico.  The shoes were not to be taken from the ship in the U.S., which makes them FROB (Freight Remaining on Board).  Consequently, U.S. Customs and Border Protection had little control over them.

Immigration and Customs Enforcement, however, was able to determine that the shoes were counterfeits.  The brands involved include Nike and Adidas.  ICE worked with the American Embassy in Mexico City to ensure that the three 40-foot containers of almost 29,000 shoes were seized by Mexican customs authorities when the ship arrived at Manzanillo.

There are so many quick cuts from one location to another, shady Hong Kong business dealings, and a freighter voyage involved in this story that I expect to hear that Jason Bourne jumped from one of the containers and is now making his way to Chiapas.

Where's My Casket From?

That's a rhetorical question, because I don't care.  Whatever box my family puts me in will be just fine.  And, just so you see where I am headed, it strikes me that the dearly departed is the ultimate consumer of the casket.

In the May 29 Bulletin (see page 72), Customs and Border Protection revoked prior rulings on the country of origin marking of burial caskets.  The caskets at issue were marked with their China origin on the bottom panel.  All other surfaces of the caskets were finished.  In HQ H033598, Customs held this to be unacceptable marking because it fails to meet the requirement that the marking be conspicuous to the consumer.  The consumer (who is not the deceased but the person buying the casket for the deceased) could not easily find and read the marking on the bottom of the casket.  

For all those casket makers out there, CBP wants to see the marking on a sticker or hangtag in a conspicuous place when the casket is normally displayed to consumers.

Frankly, this makes sense.  If the average consumer can't lift the product and it is only marked on the bottom, then the marking is not going to be considered conspicuous.  Of course, the same is likely to apply to a lot of other heavy objects like furniture.  So, next time you are out at the local furniture store, look for origin marking on desks and let me know what you find.