Monday, August 31, 2009

News on the Laptop Search Front

There has been activity in DHS on Customs and Border Protection policy regarding laptop searches.

First, I tweeted a while back that the ACLU has sued Homeland Security for access to records regarding the searches.

On August 18, 2009 Immigration and Customs Enforcement issued a directive (7-1.6) on the topic. The ICE directive continues the policy that the border search of electronic devices does not require the consent of the arriving traveler and, by implication, does not require suspicion directed at that traveler. At any point during the search, the electronic device may be detained for further review including further review by another federal agency or a third party. ICE does say that the Special Agent has the discretion to copy the contents of the device for later review and return the original to the traveler. Searches are "generally" to be completed within 30 calendar days. If outside assistance is employed, the search must be completed within a reasonable time based upon specific factors stated in the directive.

Regarding the treatment of sensitive information, the directive requires ICE to treat confidential business information as such including invoking the Trade Secrets Act. Attorney-client privileged or work product information is to be brought to the attention of the ICE Office of the Chief Counsel or the United States Attorney's Office for consultation. Special care is also to be given to medical information and work-related information carried by journalists.

On August 20, Customs and Border Protection issued its own directive (3340-049) on the subject. The directive notes that "CBP will protect the rights of individuals against unreasonable search and seizure and ensure privacy protections while accomplishing its enforcement mission." It goes on to note that border searches may be conducted without individualized suspicion. Customs states that whenever possible searches should be conducted with the traveler present.

Regarding possibly privileged information, where the searching officer believes the information may be evidence of a crime or otherwise fall within CBP jurisdiction, the officer is to seek advice from the Office of Chief Counsel or the U.S. Attorney's Office. The directive creates pretty strict guidelines related to timing. Supervisory approval is required to detain the device after the traveler has been released. Detentions of more than five days require Port Director-level approval and detentions beyond 15 days require approval from Headquarters. Where information is encrypted, not in English, or otherwise not readily accessible, the CBP officer may seek technical assistance from another federal agency even in the absence of individualized suspicion.

Lastly, on August 25, DHS issued a Privacy Impact Assessment on the whole issue. This document reviews the legal authority and history for searches of arriving passengers and their possessions. It then paces this authority in the context of CBP's and ICE's mission to protect national security and enforce the law. Next, the document summarizes the information contained in the two directives.

Following that, the Privacy Impact Assessment discusses DHS Privacy Office Fair Information Practice Principles, which are based upon the Privacy Act of 1974. These principles are:
  1. Transparency: People should be aware that their information is being collected, used, retained, shared, and maintained.
  2. Individual participation: Typically, the Privacy Act requires individuals to be involved in data collection to ensure that it is accurate and complete. With respect to ongoing law enforcement investigations conducted by DHS personnel, this is impractical and might interfere with the investigation.
  3. Purpose Specification: DHS should specify the authority and purpose for the data collection. The authority for the search is well-established. To the extent that specifying the purpose for the collection may interfere with an ongoing investigation, this might be impractical.
  4. Minimization: The limited time frames for detention of devices minimizes the amount of data taken. Material that is formally seized is retained until a final determination is made with respect to the seizure.
  5. Use Limitation: Information should only be retained in furtherance of immigration, customs, or other law enforcement matters and once that matter is resolved, the material is returned or destroyed.
  6. Data Quality and Integrity: CBP takes forensic precautions to prevent the alteration of data. ICE must maintain data integrity to ensure the quality of evidence for later use in a criminal proceeding.
  7. Security: CBP and ICE have policies and procedure to prevent the unauthorized dissemination of the information. For example, CBP may examine the electronic device away from other travelers. IT system safeguards prevent unauthorized access to copies of data.
  8. Accountability and Audit:both CBP and ICE have oversight procedures in place to track the examination, copying, maintenance, and sharing of the detained information.
That is an all too brief summary of some pretty detailed documents. I recommend that anyone interested in this topic review them thoroughly. Moreover, travelers need to keep in mind that the authority for these searches is basically unquestionable. So, be prepared. You need to know your own criminal record and what is on your hard drive (including in your deleted files, temporary files, and internet cache) when you cross the border. Use good judgment in what you carry, treat the CBP personnel with respect, and keep in mind that your realistic chances of being randomly stopped are pretty slim.

All of this seems unlikely to mute interest in this topic. People are just too used to having all sorts of private and embarrassing information on their electronic devices. The problem for the civil libertarian looking for a policy change is that the type of information in which CBP is interested is in the possession of the least sympathetic characters out there: child pornographers and terrorists. This is not about some sorority girl keg stand photos. But, the reason that this is important is that the sorority girl (and the child pornographer) both have rights. At the border, though, those don't get you too far.

Saturday, August 29, 2009

Note to Rita Moreno: You are an American!

[Note: Yes, I screwed this up. Read the comments. Now, excuse me while I kiss this guy.]

In West Side Story, the Puerto Rican character Anita (played by Ms. Moreno) sings that she wants to be an American (in mixed 6/8 3/4 time). It turns out that she is. At least as far as the U.S. Court of International Trade is concerned.

OK, maybe that is an over statement.

In Puerto Rico Towing & Barge Co. v. United States, the ultimate issue is whether a port in Puerto Rico is a "port of the United States." The case involves the U.S.-flagged M/V Honcho, which operates out of San Juan.

Under U.S. law, there is a 50 percent duty imposed on the value of vessel repairs performed abroad on U.S. flagged vessels. One exception to this rule is for vessels that have no landed at a U.S. port for two years. Seeking to invoke this exception, the Honch argued that San Juan, Puerto Rico is not a U.S. port.

The problem for the plaintiff in this case is that 19 USC sec. 1401(h) defines "United States" as including "all Territories and possessions of the United States except the Virgin Islands, American Samoa, Wake Island, Midway Islands, Kingman Reef, Johnston Island and the Island of Guam." Other statutes and regulations also define Puerto Rico as part of the United States and San Juan as a port. Thus, the exception does not apply.

And now on to a monsterquest where I raise questions but do not answer them:

Why are the Virgin Islands exempt? Is it because we bought them from Denmark rather than won them from Spain?

Is there any reason to hang on to Kingman Reef, which is a largely submerged atoll?

If the highest peak on Johnston Island is only 44 feet above sea level, is it fair to call it "Summit Peak?"

I am NOT a Collections Lawyer

There are lots of legal specialties. There are space lawyers, oil and gas lawyers, internet lawyers, and customs lawyers. There are also collection lawyers. These are the people you go to when you are having trouble collecting on a debt. They work for banks and other creditors. It is a fairly complicated area of law. I am not a collections lawyer. Unfortunately, there is an apparently well-known collection lawyer named Lawrence M. Friedman in Chicago (he may have retired by now). Occasionally, a police officer shows up at my office to serve a summons to that Lawrence Friedman. It always raises my blood pressure just a bit until we figure out what is going on.

I raise this only to address the enormous amount of e-mail I am now getting about collections law. Most other lawyers in the country are getting the same e-mails. They come primarily from Asia and supposedly on behalf of companies seeking counsel to help them collect delinquent payments from U.S. customers. This would be bread-and-butter work for a collections attorney, if it were real.

The sad reality is that these e-mails are a scam directed at lawyers.

I get as many as five of these a day, every day. Some go into my spam filter, some into my junk folder, but others make it through to my inbox. My question is whether this can possibly still be a worthwhile endeavor for the scamming spammers. Once I get that much mail on a single topic, whether it is an allegedly naked celebrity or a weight-loss plan, I know the mail is worthless. Plus, when was the last time a real potential client picked a lawyer out of the aether and addressed the mail to "Counselor" or "Dear Colleague?"

I hope this is coming to an end. I would like my inbox back.

Tuesday, August 25, 2009

Don't Do the Crime . . . .

Entrapment is a funny legal concept. People who feel that they got a ticket or were arrested when the police used unsporting means often claim entrapment. But, hiding a police car behind a hedge to catch speeders is not entrapment in the technical sense. It's a trap, but not a defense. Why? Because the speeder was speeding and obviously was perfectly willing to do so. The hidden cruiser did not make the driver speed.

I'm thinking of this because I noticed in today's Federal Register that a local man has been debarred from exporting due to violations of the International Traffic in Arms Regulations. Here is the Immigration and Customs Enforcement press release from his sentencing last year.

This guy worked at O'Hare and had security clearance to go just about anywhere. ICE was tipped off that he would, for a fee, arrange for the illegal export of currency on commercial airplanes. In a sting operation, ICE did that a couple times, but did not arrest him. Instead, they asked whether he would be willing to arrange to get some cellular network jamming equipment out of the country. Now the criminal has already proven to be a criminal willing to engage in conspiracies and actual smuggling, so I am not sympathetic to him. But look at what ICE did. They found a guy who was violating the currency reporting laws and asked him to violate ITAR. After he did it, they asked him to do it again with night vision scopes. Then, they arrested him.

Again, it's not entrapment. The guy is a dirt bag who deserves to be in jail. But, it is creating the circumstances in which a criminal has the opportunity to commit a more serious crime that never would have occurred otherwise. I know this is basic police procedure, but it seems a little wrong. What if the local PD found a burglar and did not arrest him. Instead, they asked "Hey, are you willing to kill a guy for me?" If he agrees, there is a conspiracy to commit murder. If the cops get lucky, there might even be an attempted murder.

Somehow, that makes me queasy. Which just makes me glad I am not a criminal defense lawyer and should make the public glad that I am not a prosecutor.

Monday, August 17, 2009

Going Incognito

I'll be unbloggable for the remainder of the week. Just to make sure you miss me, I'll leave you with these bits of interesting information to discuss among yourselves.

First, I will not be doing an analysis of Depersia v. U.S. I've talked about broker license exam appeals before and there is not much to say.

Second, here is an interesting article from today's New York Times on a shake up in Mexican Customs border personnel. The intent is to fight corruption and staunch the flow of drugs (one assumes northward).

Third, everybody should read this from the Journal of Commerce. The Customs Reauthorization Act of 2009 would do more than provide funding to keep the agency running. It would go a long way toward refocusing the agency on commercial facilitation. I breathe an anticipatory sigh of relief. Among other things, the bill would create a new position of Principal Deputy Commissioner for facilitation. A different deputy commissioner would be responsible for security and non-trade enforcement. More detail is available on my firm's site. I'd give you a real link, but the Library of Congress' Thomas page appears to be down at the moment. You can follow the bill via GovTrack here. Should it come back up, the Thomas link is this.

Have a good week.

Thursday, August 13, 2009

CAFC Remands Broker Penalty Case

On August 11, the Federal Circuit issued an opinion in UPS Customhouse Brokerage. We have covered this case a number of times including here, here, and here. The really interesting question in UPS is whether there is a statutory limitation on the penalties that can be assessed against brokers. UPS has argued that 19 U.S.C. § 1641(d)(2)(A) should be read to limit the liability for all violations prior to the notice of penalty to $30,000. Unfortunately, that issue is not decided in this decision.

Rather, the Court of Appeals first held that UPS had been using the wrong tariff classification. This is despite a fancy legal argument based on the last antecedent rule. That's one of my customs lawyer favorites. It posits that an adjectival phrase modifies the previous noun most close to it. So, according to UPS, when the HTSUS says "parts and accessories of machines of heading 8471: Not incorporating a cathode ray tube," it covers parts and accessories of machines that do not incorporate cathode ray tubes. The parts themselves might be chock full of CRTs. The Court rejected this and held that the modifier operates on "parts and accessories," not on "machines." This is easier to see if you have the tariff in front of you and can see the indents.

The next question had to do with how Customs and Border Protection determines whether a broker has exercised responsible supervision and control. The relevant regulation is 19 CFR § 111.1, which lists factors Customs "will consider." Apparently, Customs did not consider all of the factors listed. UPS argued, therefore, that CBP's determination is invalid. Customs, on the other hand, seemed to admit that it did not consider all of the factors, but argued that it had discretion to consider only those it viewed as relevant. Further, CBP argued that the Court of International Trade had to defer to that decision.

The Federal Circuit disagreed. It held that the regulation provides a clear mandate to consider all the factors. Customs has discretion in how it weighs each factor but, according to the Court, it has to consider all of them. Agencies must follow their own regulations and Customs failed to do so.

Unfortunately for UPS, the Court did not invalidate the penalty case entirely. Instead, it remanded the case for further proceedings. That means we can expect the CIT to remand the case to Customs to consider all the factors and report back with a new determination, which is likely to be the exact same decision.

Given this conclusion, the Federal Circuit found it to be premature to decide the interesting question. That means this issue is going to have to come back up the Court of Appeals and that might take a while.

Tuesday, August 11, 2009

A Lesson on AGOA

Getting Customs and Border Protection to accept a claim for duty-free entry under the African Growth and Opportunity Act is becoming a tough task for your local customs lawyer. That is easily seen in Polly U.S.A. v. United States, a recent decision of the Court of International Trade.

The background story is pretty common. The importer claimed an AGOA preference on merchandise it imported from Swaziland, which is a designated Sub-Saharan beneficiary country. Customs and Border Protection requested documents that verify the origin. Polly produced some documents, but CBP rejected claim. This left Polly no choice but to protest and, when the protest was denied, to file a case at the Court of International Trade.

In the CIT, things did not go well for Polly, which raised two arguments. First, Polly claimed that Customs had authority to seek additional backup documents only when the country of origin was not plain from the entry documents. This is not correct. The AGOA regulations allow the Port Director to engage in whatever verification he or she deems necessary. That includes seeking production documents.

Polly's second argument was simply that the documents it submitted were good enough to reasonably establish Swaziland as the country of origin. Polly sought to bolster the argument by pointing out that the economic conditions in Swaziland are poor and that AGOA is intended to ameliorate that situation. Consequently, Customs should have found what appear to have been spotty records sufficient to establish AGAO qualification. The Court was sympathetic but ultimately disagreed.

What can future importers learn from this? First, an AGOA claim is going to be subject to lots of scrutiny. Have your ducks in a row before seeking duty-free entry. The importer is going to need to be able to show that at the time of entry it had reviewed records sufficient to give it reasonable assurances as to the origin of the merchandise.

The importer is also going to need records of the manufacturing or processing operations confirming the claimed origin. Customs is going to review these records carefully. Polly ran into problems because the records showed manufacturing operations had been done by people who had not clocked in to work on the relevant days. Other records showed that sewing had occurred prior to cutting, which is virtually impossible. So, it seems Customs position is that importers and their customs lawyers, need to review the documents carefully and be prepared to show a clear and consistent timeline of production steps undertaken by identifiable workers.

Lastly, the importer needs to implement internal protocols to periodically review the accuracy of the documents on which it is relying. Some companies include on-site reviews by company employees or third-party agents in this process.

Just under the surface of Polly is a potentially more interesting issue. Polly apparently made a due process claim, which the court rejected in a footnote. I have no idea what the specific claim involved. However, another case has been brought raising what appear to be similar issues. At base, the issue is what happens when CBP denies admissibility or a duty preference on the vaguest of rationales? Does it prevent the importer from making reasonable efforts to cure the defect? Assume the importer presented a 12-inch stack of records to support a claim, which Customs denied saying only that the records are insufficient or fraudulent. What is the importer supposed to do? Should it go through every document to prove its validity and sufficiency? That hardly seems like a reasonable approach. It's kind of like getting a traffic ticket and having the officer say, "Sir, I am citing you for having done something wrong back there." How would the driver defend himself or herself? In Western Power Sports, the Court approved Customs handling of the protest denial, but it seems like this issue is not going away.

Thursday, August 06, 2009

Warning: This Blog Looks Spammy

I received a notice from Blogger today that this blog has been flagged as spam. According to Blogger, spam blogs have certain similar characteristics including: "irrelevant, repetitive, or nonsensical text, along with a large number of links, usually all pointing to a single site."

I guess to Blogger's computers things like CBP, C-TPAT, ISA, ISF, ADD, CIT, ITC, and ITA look like nonsensical text. Come to think of it, sometimes they look that way to me as well.

I have appliled for a review and expect no problems.

Wednesday, August 05, 2009

A Cry for Help (Amended)

Note: I cleaned this up a bit for clarity and to eliminate evidence of my poor typing skills.

An anonymous commenter asked for an explanation of the difference between NAFTA marking, NAFTA originating, and origination for purposes of government procurement. That's a tall order, but here is a start.

As I said here, determining whether some good is NAFTA originating does not tell you its country of origin. The NAFTA rules of origin embodied in HTSUS General Note 12 only tell you whether the article can be considered to have North American origin and, therefore, can be granted NAFTA duty benefits on entry. But, if the thing contains materials or labor from more than one NAFTA country, the Note 12 rules do you no good in figuring out what country to declare as the origin and how to mark the product itself.

For that, you have to turn to the so-called NAFTA marking rules. Those are not in HTSUS 12(t). [Repeat that to yourself if you must.] Rather, they are in the Customs Regulations at 19 CFR Part 102. For my Canadian friends, look to D-Memo 11-3-3. I think I pretty well explained the NAFTA marking rules in the earlier post. But, I left off one detail.

A problem sometimes arises in the NAFTA context. It is possible to have a NAFTA originating good under HTSUS Note 12 that was processed in Canada or Mexico but ends up having the U.S. as the country of origin. That's what happened to HQ H046759 (Jun. 29, 2009). You can tell this is complicated because the sole purpose of this ruling is to modify a previous ruling in which Customs and Border Protection messed up the analysis. Stuff happens.

The merchandise at issue in the ruling was polyurethane foam product. The merchandise consisted of a liquid manufactured in the U.S., which was subsequently processed in Mexico by the addition of a "blowing agent" to produce the foam, which was then exported back to the U.S. In the original ruling, CBP determined that the merchandise is originating and then opined that it should be marked "Made in Mexico."

In the new ruling, CBP did a better analysis of the NAFTA marking rules and determined that the country of origin for the foam was the United States. This was a result of the fact that the foreign material (i.e., the non-Mexican materials) failed to undergo a section 102.20-specified tariff shift (i.e., a shift specified in the marking rules). In that case, the country of origin is based on the material that imparts the essential character to the whole (excluding materials that are permitted to shift). That single material was the U.S.-origin liquid.

But, if the country of origin is U.S., how does one make a NAFTA claim? You will recall that there are only two permitted NAFTA claims: MX and CA. An importer of a U.S.-origin, NAFTA-originating product cannot just declare MX or CA to be country of origin to facilitate the NAFTA claim. Rather, the NAFTA Preference Override comes into play. Under the NPO, 19 CFR 102.19(b), when the good is both originating and the country of origin is determined to be the U.S., then for duty purposes the country of origin is the country of last production. In this case, that permits a NAFTA claim with MX as the special program indicator.

The NPO, however, says nothing about all other purposes. This is the part CBP is correcting. For marking and all other purposes other than determining the rate of duty, U.S. is still the right choice. That means that the goods need not be marked at all because, although they were finished in Mexico, they are not "foreign products."

Isn't it great how these guys thought of everything?

Now, just to be complete, what else does the NAFTA origin NOT do for us?

First of all, just because a product is of U.S. origin for purposes of the marking regulations, that does not mean it is "Made in USA" for purposes of advertising and labeling. Advertising the U.S. origin of a product falls under the jurisdiction of the Federal Trade Commission, which has its own test for what is American. According to the FTC, a product is "Made in U.S.A." only if all or substantially all of the labor and materials are American. There is no strict percentage of content test but whatever the magic number, it is way more than the 50% level found in NAFTA rules (plus, those rules count U.S., Canadian, and Mexican content as all originating). If a product fails the FTC test but the manufacturer wants to advertise some aspect of American involvement, it is possible to make a qualified claim such as "Assembled in the U.S. of foreign and domestic components." Marketing people never seem to be happy with that. Here is the FTC policy statement on Made in USA claims.

I am often asked how NAFTA origin relates to other trade agreements. The short answer is that is doesn't. Each agreement has its own set of rules based on the trade conditions between the parties. Mexico and the U.S., for example, have very different concerns than do the U.S. and Australia. That's because of economic factors (e.g., employment levels, labor rates, etc.) and geographic factors (i.e., few poor Australians are likely to try and sneak into the U.S. and few U.S. companies are likely to shift production to Australia). The rules of origin of the various free trade agreements reflect those different concerns. For example, a product might need a certain regional value content to qualify under NAFTA but require only a tariff shift for the Australia agreement. Other agreements, like the one with Israel, have no tariff shift requirements at all. So, you cannot assume that your NAFTA-qualifying product necessarily qualifies under another agreement. Plus, don't forget that Mexican and Canadian content count in your favor under NAFTA but against you in all other agreements.

OK, I've stalled all I can. Now, about government procurement. This is a bit of mess. A safe place to start is with the statement that the NAFTA rules of origin are not applicable in the procurement context.

First, some background, under U.S. Federal Law, government procurement rules give a preference to U.S. goods and services. The Buy American Act of 1933 ( 41 USC 10a, et. seq.) requires federal agencies to purchase American materials for use in the U.S. unless an exceptions applies. Exceptions include that the material is not available in the U.S., the foreign product is substantially less expensive, or national security favors buying the more expensive U.S. product). Obviously, these rules skew the market away from the most efficient producer.

In 1979, the GATT Agreement on Government Procurement was adopted. Not all WTO members have adopted it, making it "plurilateral." Under this agreement (updated in 1994), contracting members give each other national treatment for purposes of government procurement for covered purchases. That means that a U.S. bidder is given the same status as, say, a bidder from Iceland (which is a member to the agreement). In that case, the Buy American Act does not apply and the question is whether the goods involved originate in Iceland. The test to be applied is the same test the U.S. uses to determine if something originates in the U.S.: substantial transformation. Same goes for NAFTA countries, which pursuant to NAFTA Article 1003, have agreed to grant national treatment to one another in procurement at the federal level.

If, on the other hand, the country is not a party to the WTO procurement agreement or an equivalent undertaking in another agreement, all bets are off and the Buy American Act applies. That means the product will have to have 50% American component value to qualify for the preference granted under the Act. And, to confuse things further, some agencies (notably the Department of Defense) have different rules.

So, in rough summary, the NAFTA origin status of your goods has almost nothing to do with government procurement. Chapter 10 of the NAFTA does provide lots of procedural rules for procurement and dispute resolution, but those don't relate to the origin of the merchandise at issue. Chapter 1004 permits the future application of the NAFTA marking rules as a basis for procurement determinations, but only if the marking rules become the generally applicable rules of origin (which CBP would like to do).

By the way, NAFTA looks as if it makes the procurement rules applicable to state and provincial governments. Article 1001(1)(a) expressly includes "state or provincial government entit[ies] set out in Annex 1001.1a-3." Funny thing--that annex is blank except for a promise to revisit the issue in 1998.

Which leads to the last point: state, provincial, and municipal governments have their own local purchase programs. Many are confusingly called "Buy America" rules. The origin rules for these programs vary, and for that . . . well . . . you are on your own (or you could actually hire me).