Thursday, December 31, 2009

Here's the deal

I don't moderate comments. I don't get enough to worry about and almost all have been on point and respectful. I've noticed that I am attracting a few more spammy comments and at least on company that sells a NSFW product has posted numerous spam comments. For now, I am going to leave the situation alone. Rather than moderate comments, I'll assume everyone understands that anonymous comments don't come from me. If it does get worse, I'll move to moderating comments.

Unless anyone can tell me whether I can block comments from a specific visitor in Blogger. That would be the better solution.

Wednesday, December 30, 2009

Eye on Trade

Over at Public Citizen's Eye on Trade blog, they are complaining that CAFTA has no means by which the US can eject a country that has undertaken some anti-democratic action, failed to adopt the rule of law, or otherwise misbehaved. The blog compares that to AGOA, a program in which the President has exactly that power. Recently, Niger, Guinea, and Madagascar lost AGOA benefits following undemocratic transfers of power. Why not, Public Citizen wonders, do the same under CAFTA where Honduras has had a similar experience.

The reason is that AGOA, GSP, and other unilateral preference programs belong to the United States. The US made the rules and can kick out a country that fails to satisfy the rules. CAFTA, like NAFTA and the other bilateral or multilateral trade agreements, are different. The rules were negotiated between and among the parties. Since no one will agree to negotiate and implement a trade agreement from which they might be ejected, the agreements contain no such provisions.

Public Citizen may not like it, but the practical reality is that the trade agreements just don't work that way.

Monday, December 28, 2009

Docket Clearing

As the 2009 winds down, the Court of International Trade appears to be clearing its collective desk.

Storewall, LLC v. United States involves the classification of wall panels used as store display systems. The panels are made of plastic and affix to a wall via a plastic locator tab. The panels are grooved to accept shelves, baskets, and other display items. The importer claims that the merchandise is classifiable as furniture in Heading 9403, while Customs asserts that the correct classification is as articles of plastic in Heading 3926.

The problem for the plaintiff is that Chapter 94 Note 2 defines furniture as something designed to be placed on the floor or ground. The display systems mount on a wall. But, the note contains an exception for items designed "to be hung, to be fixed to the wall or to stand one on the other." That exception is intended to cover "cupboards, bookcases, other shelved furniture and unit furniture." The wall-mounted panels are clearly not cupboards or bookcases. Thus, the question is whether they are unit furniture, which is not defined in the HTSUS.

The Explanatory Notes provide some guidance in that they state that unit furniture is for holding various objects or articles such as books, crockery, kitchen utensils, etc. The ENs also state that 9403 does not cover coat, hat, and similar racks. Further, "unit" is defined in this context as a piece of furniture that can be fitted with other pieces to form larger systems. Think of modular bookshelves at Ikea and you'll be on the right track.

Having teed this up legally, the Court faced a factual problem. It is possible that as imported a complete store display system might qualify as unit furniture. To do that, it would have to be something other than a coat or hat rack or similar rack. If the system is ultimately used with pegs rather than shelves or baskets, therefore, it would not qualify as unit furniture. Thus, the specific configuration at the time of importation is determinative. In this case, according to the Court, at the time of importation, the goods were not unit furniture but generic articles capable of multiple configurations. Apparently, because the completed article is not necessarily unit furniture, the components could not be classified as parts thereof.

That said, the merchandise was found to be prima facie classifiable as other articles of plastics in Heading 3926.

The decision raises a question for the plaintiff. What would the Court have said had each wall panel been imported with the hardware necessary to mount shelves? It seems the conclusion might have been 9403. Given that, is it commercially feasible to configure the importations as unit furniture even if the ultimate use is as something else? That bit of tariff engineering depends on the cost of separately shipping the other components and of either returning or scrapping the shelves. But, it is something to consider.

Arko Foods Int'l v. United States is also a classification case. This one involved mellorine, which is apparently an ice cream alternative made with non-butter fats; although in this case, the ingredients in mellorine included milk powder and whey. Some varieties might also include cheese a or whole milk powder. Customs classified the mellorine in Heading 2105 as ice cream or another edible ice. Plaintiff asserts that the proper classification is as composite articles having the essential character of prepared fruit or other food preparations.

The Court's analysis begins with a conclusion: mellorine is classifiable in 2105 as an "other edible ice." It just is. This is one of those things that is not really worth arguing about. It is a frozen dessert similar to sherbet. Since the application of GRI 1 leads to that conclusion, the argument concerning GRI 3(b) and composite goods must fail. Classification stops when a GRI produces an answer; it is inappropriate to move on to later GRIs.

The hard part is the proper tariff item with Heading 2105. That question turns on whether the mellorine is an article of milk or cream for purposes of Additional U.S. Note 1 to Chapter 4. The reason this is interesting is that there are several Customs rulings on what constitutes a beverage having an appreciable amount of milk. In those rulings, Customs drew the line at 5%. Customs argued that those rulings are entitled to deference by the Court in deciding whether the mellorine is an article of milk or cream. The Court, however, rejected that argument on the basis that the present question does not involve a beverage and the relevant note asks whether mellorine is an article of milk or cream not whether it contains an appreciable amount of milk. That strikes me as entirely correct and the right thing to do. It is always easier to side with the government and say that deference made you do it. Pointing out that a ruling lacks a reasoned analysis and addresses a somewhat different question is tougher because you know it creates an opportunity for appeal.

Rather than apply the 5% rule, the Court looked to an earlier Court of International Decision for a test. Under Wilsey Foods, the Court looks to whether milk or cream is the essential ingredient, the ingredient of chief value, and the preponderant ingredient. In addition, the Court looks to whether the product is considered a dairy product in the relevant industry. In this case, the Court found that milk or cream were neither essential nor predominant ingredients. Also, neither constituted the chief value of the mellorine. But, there was testimony that mellorine is considered a dairy product in the industry. This testimony, however, was held to be of limited value on the specific question. Consequently, the Court found the mellorine to be something other than an article of milk or cream and, therefore, classifiable in 2105.00.50.

That leaves only one important question: Where exactly can I get my hands on some of this stuff? It comes in exciting flavors including purple yam, Quezo Real (with cheese!), and durian. Seriously, these sound like food products I want to try.

Monday, December 21, 2009

The Oracle Says: Confirm it in Writing

This case follows in the footsteps of the decision in Aectra Refining and involves the question of what is necessary to perfect a claim for drawback. In this case, the claim was for the drawback of the Harbor Maintenance Tax and the Merchandise Processing Fee. It is also a good life lesson about the importance of the confirming memos we lawyers use to get things on paper (real or virtual) when others are content to leave them un-memorialized.

As background, you need to understand that in Aectra, the plaintiff did not claim drawback on MPF and HMT because, at the time of the initial claim, the law did not support the drawback-ability of those fees. Following a Federal Circuit decision in Texport Oil Co., the law provided for drawback of MPF but not HMT. Congress made HMT eligible for drawback in 2004 and retroactively applicable to pending claims. The specific issue in Aectra was whether Aectra’s protest was enough to establish a claim for drawback of HMT and MPF that was not asserted in the original claim. In Aectra, the Federal Circuit held that the protest could only challenge Customs and Border Protection’s decision on what was in the claim. Since the drawback on HMT and MPF was not asserted, Customs did not actually deny it, and the protest was not a basis for challenging the lack of drawback.

Delphi’s facts are a little different in an important way: in transmitting the claims to Customs, Delphi included a letter specifically stating that it was not waiving its claims to HMT and MPF drawback. Further, the letter confirmed Delphi’s understanding that Customs would permit it to file a protest if, after Texport, MPF and HMT drawback became permissible. Delphi claims that this correspondence was enough to protect its right to protest the denial of the HMT and MPF drawback. Not surprisingly, the government disagreed.

The Court rejected Delphi’s principal argument on the grounds that the notice letter did not constitute a complete and timely claim for drawback. The letter did not include a calculation of the drawback amount claimed for the MPF or HMT. Consequently, Customs did not have adequate notice of the claim. In addition, the subsequent protest, which occurred outside the three-year period in which a drawback claim can be amended, was neither sufficient nor timely to add HMT and MPF to the claim.

Delphi, however, had an additional argument that the three-year period to amend the claims was extended far enough to make the protest an adequate means of perfection. The question is what caused the extension. First, the Court held that it was not the mere futility of seeking drawback when the law did not permit it. Nor was it Customs’ delay in liquidating the claims (which happened beyond the three-year period). Rather, it was the fact that Delphi seems to have received advice from a drawback supervisor, who suggested that Delphi wait and perfect its claim via the protest process.

A couple important points about this: First, the Court is very clear that it might not have reached this conclusion had Delphi relied upon advice from “a low-level employee in some far-flung outpost . . . .” Instead, Delphi sought advice from the very official responsible for making the decision on the application of drawback to MPF and HMT. Second, this has to be distinguished from estoppel and equitable tolling. Those principles allow private parties to change the nature of their relationship by relying upon clear statements. If, for example, the landlord says that you can stay another month for free and, in reliance on that statement, you forgo looking for a new apartment, then you have every right to stay and might have a right to damages if he kicks you out during that extra month. [By the way, that’s not legal advice for squatters, your lease might vary. I never took that class.] The important point is that these principles don’t apply to the United States government. If an import specialist tells you that Thursdays are Duty-Free Day at Port Huron, you don’t get to skip paying duties.

This, however, is not an estoppel case. Rather, it is based on the drawback statute, which specifically provides for an extension of time to complete the claim when Customs is responsible for the late filing. 19 USC 1313(r)(1). The advice from Customs caused Delphi not to file a claim for HMT and MPF drawback until the protest after the liquidation of the claim. Because Customs caused the delay, 1313(r)(1) applies.

And how do we know Delphi received that advice? Because of the confirming letter it wrote to the very person who provided that advice. The letter asked the drawback supervisor to respond if he disagreed. He did not respond. In the Court of International Trade, that is as good as an agreement. Plus, his affidavit seems to have helped.

What do we learn from this? Maybe very little, because the circumstances are unusual. There are not many places where Customs’ delay results in an extension to file. But, it does show the value of documenting communications with decision makers. For Customs, it shows the perils of letting some communication from an importer or claimant sit on your desk unanswered.

Wednesday, December 16, 2009

The Graceful Injunction

Agro Dutch Industries is technically a dumping case, but it deals with the issue of the impact of liquidation by Customs and Border Protection, so I will deal with it here.

This case involves the review of the dumping order covering preserved mushrooms from India. Commerce issued its determination and Agro sought to challenge it. To preserve its rights, Agro moved for an injunction with the consent of the United States. The injunction was necessary to prevent Customs from liquidating the entries. The general rule is that once liquidation happens, there is no relief available and the case is moot. So, the injunction was important and both sides knew it. In the background is the fact that Agro waited beyond the allowed 30 days to seek the injunction, but that provides context more than anything else.

At the request of the government, the injunction included a five day grace period before it became effective. The grace period was intended to prevent Customs people from accidentally violating the order and ending up in contempt of court.

Guess what happened: Customs liquidated most of the entries during the five day period.

Agro went back into Court asking that the injunction be retroactively amended to cover the entries of for some other relief to fix the situation. The Court of International Trade granted the relief and ordered that the entries be treated as unliquidated. The government appealed.

This is one of those interesting cases where the law, at least in general terms, seems to produce a bad result. Following a number of Federal Circuit decisions, it would seem clear that the liquidations mooted out the case. But, the facts matter and often the decision lies in the details.

In this case, the fact that the United States agreed to the injunction and requested the five day gap only to protect Customs from possibly erroneously violating an injunction indicated that both sides understood that there should be no intentional liquidations during that period. Consequently, the intent of both parties and the Court of International Trade was that the entries would remain unliquidated and available for judicial relief. Given those unique facts, the Court invoked its powers in equity to affirm the Court of International Trade's order modifying the injunction and preserving the entries for review and relief.

It's a surprising result, which only makes sense when you look at the details. The lawyers who worked on it for Agro must have done a good job. Unfortunately, Agro appears to have been represented by the Unknown Lawyer of Anonymous, Secret & Nameless. Otherwise, the CAFC would have named them.

Tuesday, December 15, 2009

Seeing Hypocrisy

Often, I disagree with a position adopted by U.S. Customs and Border Protection. That is the nature of my job. Sometimes I am right, sometimes, I am wrong, and often reasonable minds may differ. What I don't do is see everything that CBP does through the lens of Washington policy makers. That is primarily a result of years of experience dealing with the agency and also my Midwestern practicality. Rarely do I see any coordinated conspiracies.

For example, there was a lot of hubbub a while back about a CBP proposal that would have effectively banned the importation of a category of pocket knives that have spring assisted opening mechanisms but have not heretofore been classified as illegal switchblades. Some people believed this to be a stealth effort by the Obama administration to slowly limit personal rights which would ultimately result in the repeal of the Second Amendment and the loss of gun rights for all Americans.

I seriously doubt that. In fact, I am willing to bet that no one outside of Customs or possible the Department of Homeland Security knew anything about that proposal before it showed up in the Federal Register. I just don't believe that anyone in the White House is paying close attention to the details CBP admissibility decisions. There is a war going on, health care to sort out, and an economy in shambles. Pocket knives seems pretty far down the Oval Office agenda.

The same goes for the current controversy over the tariff classification of solar panels equipped with electrical diodes are classifiable as generators. Apparently, similar panels have long been classified as photovoltaic cells, which are duty-free. However, earlier this year, Customs noted that solar panels with diodes are excluded from that classification when they incorporate elements to control the flow of electricity. Consequently, it ruled that such solar panels are properly classified as electrical generators and subject to a 2.5% rate of duty.

This caused the people who have been exporting solar panels to the United States and those who purchase them to cry foul. Yesterday, Scott Lincicome, a trade lawyer in Washington wrote on his blog that the classification decision is inconsistent with the Administration's efforts to support green business and encourage trade in environmentally friendly products. In a post accusing the White House of hypocrisy, he asks "Is the Obama Administration publicly pushing for free trade in "environmental goods," while quietly raising tariffs on a key "green" product to protect domestic businesses from losing market share?" He answers the question by saying that it looks that way.

I have no beef with this thesis if the "Obama Administration" is taken in its literal sense of everyone who works for the executive branch. On the other hand, I think it is extremely unlikely that anyone from "the Administration" applied any political pressure that made its way to the National Import Specialists in New York who issue routine classification decisions. If a policy decision were made to protect or encourage the U.S. production of solar panels, wouldn't the easier process be to pass a tax incentive or some other more direct incentive? More likely, this is a case of one hand not watching the other hand and probably purposefully so.

Maybe I am wrong. I just don't buy that there is actual affirmative hypocrisy at work. Rather, I think the folks at CBP are trying to do their jobs properly applying the tariff schedule without regard to larger policy questions. If that bumps up against some larger economic or environmental policy, Congress or the "Administration" will have to fix it. And that is exactly what happened with the knife issue. Congress amended to law to prevent CBP from making the change. End of controversy. If anyone feels this is a big enough issue to push, it should try and get duty suspension or some other legislative relief. Otherwise, CBP is going to move ahead, doing its job.

Tuesday, December 08, 2009

2009 Counterfeit Goods Statistics

Customs and Border Protection has posted its annual report on the seizure of counterfeit merchandise. Here are some highlights:
  • Almost 15,000 seizures of counterfeit merchandise
  • The seizures amounted to $260 million in domestic value
  • There was a small decline in seizures, which was far smaller than the decline in overall imports
  • China was the leading source for counterfeits
  • Footwear was the leading commodity seized
Here is a link to the full report.

Friday, December 04, 2009

It Must Be The Holiday Season

Customs has seized a $1.6 million in counterfeit toys. The merchandise included "knockoff" Barbie dolls and riding toys with unauthorized Jeep labels. Here is the news story.

IN a separate event, Customs and Border Protection seized $1.7 million in merchandise bearing counterfeit sports team logos. Wayla-guy would be offended to know that Cubs logos were included among the counterfeits. Here is that news story.

Normally, I would not post simple news reports on seizures. But, I just taught on this topic last night. So, this is to let my student know that these things really happen in the real world. My student, I hope, also now understand how very difficult it can be for a good faith buyer to differentiate between a counterfeit and legitimately imported gray-market goods. For all you budding retail entrepreneurs, note that this is a risky business.