Tuesday, May 26, 2009

House Action to Modern Export Controls

On May 20, the House Foreign Affairs Committee passed legislation that, in part, would modernize U.S. export control policy.  The bill seeks to both improve national security and also permit more defense-related foreign sales.  The bill also seeks to eliminate the backlog of pending State Department license applications.

Under the bill:
  • DDTC (the Directorate of Defense Trade Controls) would be required to have 1 licensing officer for every 1,250 applications by fiscal 2011;
  • DDTC would be required to have three people to review commodity jurisdiction requests;
  • Commodity jurisdiction decisions would need to be published on the internet;
  • A performance goal of 60 days to process license applications, and 30 days to process applications for close allies would be established.
These, and the other changes included in the bill, are valuable efforts at facilitating export trade in defense articles.  In particular, the publication of commodity jurisdiction determinations will give exporters a far better basis on which to engage in rational internal decision making on whether a license is necessary.  That will ultimately result in cost savings and fewer delays in corporate sales activity.  Of course, the associated risk is that exporters making independent jurisdiction decisions might get it wrong even when relying on similar DDTC decisions.

Thursday, May 21, 2009

Lawyer Down, Call 911

I road my bike to work today.  It was a nice ride in, even though I am still not going from garage to garage.  Here's what today's route looks like according to the cool tools at Bicycling.com.  The numbers are mile markers.





Everything went smoothly until I got to the actual bike room in my building.  As I walked past other bikes to find a spot to lock up, I scraped my shin on an apparently razor sharp pedal on another bike.  I now have a 3-inch gash in my leg, which bled enough to create a sock that looks like it was taken from a crime scene.  It's certainly not an epic disaster but it is further proof that accidents are most likely to happen at the beginning or end of your trip.  At least that is what I have heard.

Tuesday, May 19, 2009

No Going Back for HMT, MPF Drawback

This is sort of a follow up to the American Petroleum Institute meeting at which I covered case law developments of note to the industry.  At the meeting Bobby (and you all know Bobby who) talked about the then-pending in the Federal Circuit case Aectra Refining & Marketing v. U.S.  For those of you who might be wondering, the news is unfortunately not good.

The issue involved a somewhat unique set of facts.  The plaintiff had made drawback claims at the time when most people thought that Merchandise Processing Fee and Harbor Maintenance Tax were not subject to drawback.  So Aectra did not seek a refund of it.  But, unfortunately for Aecrta, some companies were pursuing court cases that eventually led to a court decision confirming that MPF was subject to drawback but HMT was not.  That decision, resulted in congressional action making HMT recoverable under drawback.

Great, thought Aectra, we'll go back and get MPF and HMT on our old claims.  The problem for the plaintiff was that it was past the time to make a claim.  To get past that issue, Aectra made a few arguments.

First, Aectra argued that the amendment was retroactive and permitted it assert the otherwise time-barred claim.  Construing the language, the Federal Circuit held that the amendment only applied to claims made within the normal three-year period.  The effect of this is to limit the amendment's retroactive application to non-finalized claims made before or after the effective date of the amendment and on which a claim for HMT had been included.  

The second issue was whether Aectra had asserted a complete claim as required by the regulations (§ 191.51).  According to Customs and Border Protection, and ultimately the Federal Circuit, a complete claim requires a calculation of the full amount requested.  Because Aectra had not included MPF and HMT were not subject to drawback at the time of the original claim, Aectra argued that omitting them did not render the claim incomplete.  According to the Court, the inavailability of drawback on MPF and HMT does not mean that a claimant hoping to recover those amounts should not have included them in the claim.

That decision flows into the next argument, which is that to have made the claims would have been futile.  Often, futility is a perfectly legal excuse for not taking some otherwise required action.  Why bother going to the trouble of making a claim that will surely be denied?  In this case, however, the Court held that a complete claim must be filed to allow Customs to see and evaluate what the claimant is seeking without a searching and independent analysis of the amount to which the claimant might be entitled.

Thus, Aectra had not made a timely claim for the recovery of HMT and MPF and the timely claim it had made did not include those amounts.  Which, given the factual context of claims having been made when HMT and MPF were generally not believed to be subject to drawback, is a tough result to swallow.

Friday, May 15, 2009

Salmon Case Continues Upstream Battle

The effort to force Customs and Border Protection to enforce the requirements of the Endangered Species Act with respect to certain salmon imported from Canada has been a tough swim upstream against a swift procedural current.  [Note to self: no more extended metaphors.] Here, I reported on the Federal Circuit decision requiring the Court of International Trade to determine whether it had subject-matter jurisdiction over the issue.

The CIT has now done that.  The question presented is whether the Endangered Species Act prohibition on the importation of these fish constitutes an embargo for purposes of engaging the Court's jurisdiction.  An embargo is a government-imposed cap of zero on the importation of some merchandise.  But, an embargo is not based on a private party's right to prohibit importation (e.g., where Customs seizes counterfeit trademarks to enforce a private right). Section 7(a)(2) of the Endangered Species Act does not create an embargo.  Rather, it creates an obligation for federal agencies to consult regarding enforcement of the Act.  The ESA consultation requirement is also unlike embargoes that are put in place to promote government policy considerations (think Cuba), morality (think lottery tickets), or safety (pick any dangerous thing you can't import).  No embargo, no jurisdiction in the CIT.

Next, there was a question as to whether the ESA section 11 conflicts with the CIT's exclusive jurisdiction over actions brought against the U.S. involving import transactions.  Section 11 permits individuals to bring suits in the district courts under the ESA.  On this point, the Court quickly found there to be no conflict because the CIT falls within the meaning of district court for purposes of the ESA.  Style points go to Judge Barzilay for using the "concinnity" to reach that conclusion.

In the end, the case was dismissed from the CIT and transferred back to Washington, where it had originally spawned.  [Metaphor -- D'Oh!]

Ship Repairs Are Merchandise

This for for all you carriers, ship owners, and yachters out there.

General practice and business lawyers often overlook customs and trade law as a practice area. Even those in the practice think of it as a narrow field.  But, an odd thing about customs and trade law is that even within the narrow confines of the practice, there are sub-specialties.  Some folks do more import than export, some people spend a lot of time on free trade agreements, others are computed value mavens.  Of course, we all do all those things, but it is fair to say that becoming a real expert in one or two things takes a certain amount of focus.  

One of the more obscure issues in customs law is the dutiability of the value of repairs done on vessels.  A similarly obscure issue is whether certain voyages do or do not violate the coastwise shipping laws.  These issues generate a lot of Customs and Border Protection rulings, but not many court cases.

Which is all by way of introduction to Cormorant Shipholding Corp. v. United States, a recent decision of the U.S. Court of International Trade on the dutiability of ship repairs.  The M/V American Cormorant is an American-flagged vessel.  [Check out this exceedingly cool picture of the ship transporting at least five amphibious landing vehicles.]  The law provides for a 50% tariff on the value of vessel repairs performed abroad on an American-documented ship. Customs assessed more than $5 million in duties on repairs to this ship, which the owner protested for various reasons.  The protest was denied and the owner filed a suit, which prompted two counterclaims from the government seeking additional duties.

The substantive issue involves an exception to the general rule of dutiablity.  The exception is that repairs undertaken more than six months after the departure of the ship from the U.S. are exempt.  So, the question revolves around whether the owner can prove the departure date and the date of the repairs.  Unfortunately, this opinion does not go to the merits but to the owner's motion to dismiss the counterclaims.

Section 1583 of Title 28 of the US Code give the Court of International Trade jurisdiction over counterclaims asserted by the government that involve the "imported merchandise that is the subject" of the main case.  CSC, the vessel owner, moved to dismiss the counterclaim arguing that vessel repairs are not imported "merchandise."  This seems to be a rational argument based on a normal English understanding of the word merchandise.  Unfortunately, the law often does not comport with the language.  Looking to several dictionaries, the Court found that merchandise is something sold in commerce.  At least one definition specifically included services.  In addition, there are several places throughout the law and regulations that seem to include vessel repairs in the broader category of merchandise.  There are also counter examples, including the Tariff Schedule, which uses the construction "Tariff Treatment of Imported Goods and of Vessel Equipments, Parts and Repairs."  While this clearly distinguishes repairs from goods, it does not necessarily follow that both repairs and goods are not "merchandise" for tariff purposes.  [That's my analysis, not the Court's.]

The Court was also unmoved by CSC's argument that the counterclaims involved different merchandise than what was covered by the protests.

Thus, the motion to dismiss was denied, which sets up what might be an interesting future decision on the merits.

Thursday, May 14, 2009

Yacht Needs a New Decorator

I realize that I have been light on substance of late.  I blame a lack of particularly interesting news. I do have a court case or two to blog.  Plus, I am mulling over whether I think it is a good idea to set up a prior disclosure process for importers of goods violating U.S. trademark and copyright laws.

While those things percolate in my under-caffeinated brain, I am fascinated by this Miami Herald story.  First, it is in keeping with my ongoing interest in animal smuggling.  Second, there is a certain level of James Bond-style intrigue involved.  The offending (and offensive) vessel is registered to a corporation in the Cayman Islands.  The sole function of the corporation is to own the yacht as an asset and the sole director named in the article is a Russian billionaire.  The captain, when questioned by authorities, did not know the name of the owner.  Also odd is that the yacht seems to have traveled fairly freely in Europe without anyone noticing the elephant hide humidor, stuffed lion, or zebra pelt comforter.  

Here is a photograph of the 150', $26 million yacht.

The second interesting thing is that this seems to prove the proposition that lots of money does not buy impeccable taste.  

Wednesday, May 13, 2009

That's Not Good for the Resume

Times are tough.  If you are lucky enough to be starting a new job, a really bad way to make a first impression is to get arrested on the way to work.  It's worse if you are arrested allegedly trying to smuggle business-related material into the United States.  It's even worse if the material consists of "vectors of human disease."  That's what happened to this guy.

Just another day at the office for the CBP folks in Pembina.

And in more smuggling news, cocaine queso has been found at Dulles.

Thursday, May 07, 2009

Trade-Related Indictments

Here is every honest importer's nightmare: indictments for trade related activities. While we owe these soon-to-be defendants the presumption of innocence, let's be clear about the fact that these were not your work-a-day importers.

Qi Gui Nie of Charlotte, North Carolina is the winner of the most recent indictment under the Lacey Act. He is charged with importing endangered Asian Boneytongue fish (or Asian Arowana) allegedly valued at $25,000 by means of a container stocked with legally imported fish and a false bottom compartment containing the illegal fish. If convicted, Nie faces up to 30 years in prison and $25,000 in fines for each count in the indictment.

The press release includes a quote from James Gale of U.S. Fish & Wildlife. I may be imagining it, but the name sounds familiar. I think he was mentioned in the book The Lizard King, which is about reptile smuggling and worth a read.

Indictment number two is really a series of indictments. The cases relate to what has become known as "honey laundering." The practice involves transhipping honey from China through other countries and failing to disclose its actual origin. Why would someone do that? Because there are antidumping duties applicable to honey from China. At least at one point, the deposit rate was as high as 183%. That kind of added cost will certainly cut right through your profit margin.

This story has some local color for those of us in Chicago. Here is the Tribune's article.

If you are looking for more exotic honey, try some of Pitcairn Island's finest. Brought to you by disease-free bees and the 50 descendants of Fletcher Christian, the other mutineers from the H.M.S. Bounty, and their Tahitian friends. Read about that here.

Monday, May 04, 2009

UPDATE: Supreme Court Acts on FCC Fines

This really does not belong on this blog.  However, I previously blogged about the core administrative analysis in the Third Circuit's decision tossing out the FCC penalty against CBS for the famous wardrobe malfunction.  Well, by way of update, the Supreme Court has ruled that the Third Circuit is wrong and that the FCC acted within its power when it changed its enforcement policy.  Here is an article from Variety.  The decision is narrow in that it is based on the procedural and administrative aspects.  It does not address Bono's first amendment right to drop the f-bomb on network TV.

According to Reuters, this means that the lower court is going to have to take a second look at Janet Jackson's breast.  Well, so to speak.

Here is the opinion by Justice Scalia.  There are six separate opinions.  I might read it if I have time.  Right now, I do not.  I am not making any promise to report back.

Sunday, May 03, 2009

Is the Court of International Trade in a Bind(er)?

Sorry, I feel like I am on a stupid-title roll.

Here is another classification decision form the CIT.  It's one of those cases where there is a lot of history that makes the decision more complicated than it really should have been.  The case is Global Sourcing Group v. United States and it involves the classification of ring binders.  These were somewhat unusual binders in that they had six or seven rings, pen loops, slots for business card, and pockets.  They are composed of stiff paperboard covered with either plastic or textile. Customs classified the binders based on their outer material as either articles of plastic or of textile. Showing a complete lack of creativity, the importer argued that the binder should be classified in heading 4820 as "binders."

The plaintiff had an initial problem with the jurisdiction of the Court to decide the issue on certain entries.  The bottom line is that importers wishing to take a classification up to the Court of International Trade have to protest the classification decision and the denied protest must be included on the summons either by entry number or by protest number (but both is better). Someday, I am going to write a law review article about the concept of notice pleading in federal courts and how it applies to cases brought to challenge a denied protest.  For now, I'll just say that is the state of the law and the plaintiff here lost the opportunity to recover on a few protests.

On the classification issue, the Cour concluded that a "binder" is, among other things, "a notebook cover with rings or clamps for holding paper."  That describes the merchandise here.   Customs, on the other hand, properly noted that Heading 4820 is limited to articles of paper or paperboard.  Based on that, Customs has long considered binders to composite goods and looked to the outer material as the material imparting the essential character. Unfortunately, the Federal Circuit previously looked at similar binders, which also had paperboard stiffeners and concluded that 4820 was the applicable heading.  So, the Court of International Trade followed suit and found for the importer.

This case is interesting on a number of levels.  First, it is a good example of how the General Rules of Interpretation work in numerical order.  If GRI 1 resolves the issue, as the Court of International Trade decided it did here, there is no reason to get to GRI 3 and due and essential character analysis as the Justice Department wanted.

Second, the Court seems to have basically decided the issue and then turned to the Explanatory Notes for confirmation.  I understand that approach and see the analytical value.  But, it does raise the prospect of cases where the issue is decided on the face of the HTS and the ENs prove to be contradictory.  We know from Airflow and Archer Daniels Midland that the EN gets no weight in those cases.  But, I wonder whether the better approach is, when the statute is clear, to keep the Explanatory Notes on the shelf. I don't see any harm from that.


Has the Court of International Trade Gone Nuts?

No.  I just say that to amuse the 12-year old boy inside me.  

In reality, the Court did issue an opinion on the classification of Mrs. May's All Natural Almond Crunch, which is made in China from California almonds.  The almonds are sent to China for various processes including sorting, roasting, and combining with other ingredients for make the crunch.  

Whenever anyone sends U.S. products abroad for processing and return, it is worth considering whether a Chapter 98 provision provides a partial duty exemption for the value of the U.S. origin components.  Unfortunately, there are strings attached to those provisions.

The tariff item at issue in this case was 9802.00.50, which provides for "Articles returned to the United States after having been exported to be advanced in value or improved in condition by any process of manufacture or other means . . . Articles exported for repairs or alterations: . . .
9802.00.50 Other . . . ."  The tricky part is that for this to work, you need to export X and import repaired or altered X, not Y.  So, the Court held that almonds were exported and almond crunch was imported.  This not a mere alteration (clearly the almonds were not "repaired").  Since it was not an alteration, the decision went to the government.

The other commonly used tariff item for U.S. goods returning is 9802.00.80.  The trick with that one is that the exported articles need to be ready for use in assembly without further manufacturing and not subjected to processes abroad other than assembly and operations incidental to assembly such as cleaning, painting, and lubricating.

If you are in the trenches and using 9802.00.80, be advised that your operations should be limited to assembly (i.e., the physical joining of two or more parts), cleaning, lubricating, painting, and things reasonably like those three exemplars.  Customs has some regs with examples of what they consider to be incidental to assembly.

Back to the case at hand.  Does 9802.00.80 possibly apply to to the almond crunch?  

No.  It's not assembly to coat the almonds in sugar and other materials.  Assembly is accomplished with screws, nails, glue, welding guns, and the like.  When I find almond crunch that is welded together, I'll reconsider my analysis.