Wednesday, July 29, 2009

UPDATE: In My Head Today

UPDATED AGAIN, SEE BOTTOM

Chicago is an absolutely great city for bike commuting. I rode 20 miles today and do not think I changed gears once. Take that San Francisco! It was about 65 and sunny when I left my house and I had a tail wind most of the way. Locals should note, Lawrence is a mess between California and Western. I almost fell into a hole in which two guys were working on pipes.

For a while, I was behind a middle-aged guy on a beat up Trek in baggy shorts and a RAGBRAI t-shirt. The guy did not appear to be particularly fit, but he was keeping a solid 19-20 MPH pace. That is fast for me. I lost him when I got pinched between a pedestrian with a stroller on the right and a slow moving couple riding side-by-side on the left. So, for being that fast, about my age, and having done the RAGBRAI, I declare him my hero of the day. If it turns out got the shirt second hand, I will retract the accolades.

On another front, I finally caved to pressure and created a Facebook page. Here's my test for who should friend me over there:

If you can define C-TPAT or DIFMER, you belong here not there. Exceptions will be made for people who recognize that work is work and life is life. Sometimes life is messy and embarrassing.

On the other hand, you should join me on FB if:
  • You know why "Working my Wangerin off" is funny,
  • You understand why Snyder, Scott, and Westin are half of a six pack,
  • You've seem me play BB-flat contrabass clarinet,
  • You slept underground in Coober Pedy in 1980,
  • You know why Blaise Pascal is hysterically funny to eighth graders,
  • You can find Lomas Circle on a map, or
  • You could pick me out of a lineup.
Lastly, for a cool look at Chicago history, watch this 1948 film on Wayla-guy's blog.

UPDATE:

For those who asked, I can't come up with a good link to get to my Facebook page. I think the prooblems I was having relate to the vanity URL I selected. Search for me as Larry Friedman in the Chicago network. You'll see my big fat face.

Monday, July 27, 2009

NAFTA Marking Ruling

NAFTA marking issues are complicated. One problem is that people tend not to focus on the marking regulations. They seem to think that once they have determined whether the item is originating, they are done. Often, the marking is obvious, but sometimes it is not. A recent Customs and Border Protection ruling (HQ H0129256, Mar. 31, 2009) is an example of a case where the marking is not obvious. I'm discussing it here not because the analysis is new or the result is surprising. Rather, it is a good example of how this analysis works. Because NAFTA marking issues are often overlooked, it is what President Obama might call a "teaching moment."

The ruling involved the marking of remanufactured Xerox photoreceptor cartridges for laser printers. The remanufactured cartridges were produced in Canada from old cartridges and new replacement parts. Some of the parts were non-Canadian in origin. Customs had issued two previous rulings to Xerox. In this ruling, those were subject to reconsideration.

The marking analysis in NAFTA involves the regulations at 19 CFR Part 102. The application of these rules goes in a straight line from one to the next until a single country of origin is determined. In this case sec. 102.11(a)(1) and (2) do not provide the answer because the remanufactured cartridges were not wholly obtained in Canada and were not produced exclusively from Canadian materials. This raises an important point, when you get to the country of origin determination, it is no longer enough to know that goods are NAFTA originating. The issue now is, what is the country of origin of materials?

Rule 102.11(a)(3) requires that foreign (i.e., non-Canadian) material undergo a required tariff shift. This part of the analysis was complicated by changes to the 2007 Tariff Schedule. For purposes of this discussion, I'm just going to ignore that. Suffice it to say that when looking at the used cartridge and the new replacement parts, some non-Canadian components failed to make the required tariff shift.

Customs noted that under 102.17, the disassembly of the used cartridges does not constitute a qualifying tariff shift. This is in contract to the disassembly rule for purposes determining NAFTA status. That rule is at sec. 181.132 and is something for which I claim some degree of credit. It does appear that there is some inconsistency in the treatment of disassembly operations for purposes of determining origin and for determining marking. Nevertheless, Customs correctly noted the lack of a disassembly rule in the marking regulations.

Moving on to 102.11(b), the country of origin might be the country of the single material that imparts the essential character to the finished good. The often overlooked part of this rule is that sec. 102.18(b)(1) says that the material that imparts the essential character must be something from which a tariff shift is not permitted. This strikes people as counter intuitive, but it's not. The items that are not permissible tariff shifts to confer origin are those things that generally must be originating for the finished article to qualify. Thus, it makes sense that one of those must impart the essential character. Customs looked at the available parts and found that no single item imparted the essential character.

Section 102.11(c) is inapplicable because the cartridges are not sets or composite goods.

The next place to go is sec. 102.11(d), under which there are three tests. In this case, the remanufacturing process was not "minor processing," so that did not apply. Next, the operations involved were more than "simple assembly," meaning that rule did not apply. Consequently, by process of elimination, the country of origin for the remanufactured cartridges was the country in which they last underwent production. That was Canada.

End of story.


Friday, July 24, 2009

What's an iPod?

With all due respect to Apple, I'm a Zune guy. I am perfectly happy with the hardware and have to say that I find the software far more friendly than iTunes, particularly when it comes to managing my long list of podcasts. It seems cnet agrees.

But, I digress.

Customs and Border Protection recently had to wrestle with the classification of an iPod. It summarized the issue as being "What is the principal function of the iPod media player under the HTSUS."

This was the question because the competing classifications all describe different aspects of the device. Is it a sound recording or reproducing apparatus of 8519? Or, is it a video recording or reproducing apparatus of 8521? The darkhorse candidate is classification as a monitor in 8528.

The important legal consideration here is Note 3 to Section XVI, which says that composite machines are to be classified as if they consist solely of the component that performs the principal function.

Apple believed the principal function to be sound reproduction. The Port believed it was principally for video reproduction. It seems no one seriously believed that an iPod is a monitor, and that went by the wayside early.

Apple made several arguments about the principal function of the iPod based on the so-called Carborundum factors: physical characteristics, expectations of the purchaser, channels of trade, unse in a manner consistent with the class or merchandise, economical practicality of using it in that manner, and recognition in the trade. Apple described the physical aspects of the iPod the relate to recording and playing music including the click wheel and headphone jack. Nevertheless, CBP found that none of these were dispositive against classification as a video player.

Apple also noted that the iTunes store is 5000 to 1 music vs. video. That means that the purchaser expects to use it more for music than video. CBP, however, seems to have been taken by the fact that there are iPods (e.g., the Shuffle) with no video capability. Consequently, consumers of video-enabled iPods must want that feature.

Regarding channels of trade, Apple argued that the vast majority of iPod accessories relate to audio rather than video features. Customs rejected this argument noting, in part, that the accessories are by their nature subsidiary to the iPod itself and, therefore, not determinative as to the classification. Customs also pointed out that the price difference between a Shuffle and a model with video capabilities was almost $200. Consumers, therefore, must purchase the more expensive units with the expectation that they will be watching video.

Thus, Customs held that the principal function of the iPod it issue was to play video. Consequently, it was classified in 8521.

Now, I was not involved in this case and there was clearly a lot of back and forth between Apple and Customs. But, I do have a question based upon my own use of an MP3 player. Does Apple have any reliable data on the amount of time a unit is used to display video (exclusive of album art) versus music or an audio podcast? It seems to me that is a relevant inquiry. I bought my big Zune to listen to audio when I am walking across the Loop or in the car. Most of the time, that is how it is used. When I am sitting on the train or a plane, I may watch an episode of BSG or Geek Brief, but that is a bonus feature. It is not the primary application. If I primarily want to watch video, I go to my TV or computer. Even a big iPod screen does not compare and who wants to watch a movie wearing headphones unless the situation demands it?

I think these principal function, principal use questions are interesting because they turn on what data can be presented and what data CBP or the Court find interesting. If the data showed that 90% of iPod time is spent in audio mode, would that change the outcome?

There may be only one way to tell: ask a judge of the Court of International Trade. Apple, if you call, I am willing to hide my Zune.


Quoted on Windy Pundit

Mark Draugh of local blog Windy Pundit did a nice rant about Customs and Border Protection's authority to seize a laptop at the border and mused about what happens if the hard drive is encrypted.

In response, I sent an e-mail explaining how that could break bad for the owner of the laptop. A friendly e-mail exchange followed. Mark has now compiled that in a new post, which you may find worth reading. Plus, if you are looking for a Chicagocentric, libertarian leaning take on politics and culture, check out his site.

Friday, July 17, 2009

ISF Penalty Mitigation Guildlines

I have been working on a fascinating off-topic post involving popular music, technology, and quantum physics. Instead of that, you get Guidelines for the Assessment and Cancellation of Claims for Liquidated Damages for Failure to Comply with the Vessel Stow Plan, Container Status Message, and Importer Security Filing Requirements. It is in the Customs Bulletin, see page 29.

This is the much anticipated notice in which Customs and Border Protection explains how it will calculate penalty amounts relating to the ISF (formerly known as 10 + 2).

Customs initially notes that the penalties related to ISF include:
  • Liquidated damages
  • Do not load orders
  • Denial of carrier preliminary entry permits/special licenses to unlade
  • Any other applicable statutory penalty (meaning 19 USC 1595a penalties)
  • Denial of release

It does not make a lot of sense for me to try and summarize the penalties here. Frankly, the Bulletin Notice does a fine job of that.

For the importer part of this, a late filing can result in a $5,000 claim for liquidated damages per inaccurate ISF. Inaccurate filings, inaccurate updates, and the failure to withdraw an ISF can also result in $5,000 claim for liquidated damages.

Customs recognizes that filers may be dependent on information provided by third parties. Where that is the case, Customs will consider whether and to what extent the filer is able to verify the information. Where the filer is not reasonably able to verify the information, CBP will permit the filer to present information on the basis of what it reasonably believes to be true. That means that for third party information, the filer will not be held strictly liable for the accuracy of that information. That's good.

On the flip side, in its discussion of mitigation, Customs makes clear that mitigation will not be available if the violation compromised law enforcement goals. It would be nice if CBP would define those goals. Otherwise, it presents a potentially large whole in the mitigation scheme.

Before mitigation is even addressed, Customs states that first violations relating to ISF can be cancelled upon payment of an amount between $1,000 and $2,000 dollars. The actual amount will depend on the presence of mitigating or aggravating factors. Subsequent violations may be cancelled on the payment of not less than $2,500 provided law enforcement goals were not compromised. In the event that law enforcement goals were compromised, no relief is available.

In terms of mitigating factors, CBP has identified the following:

  • Progress in implementing ISF filing procedures prior to January 26, 2010
  • Few violations compared to total ISF shipments
  • Tier-2 or Tier-3 C-TPAT members may receive up to 50% additional mitigation
  • Remedial action
  • Factors outside the filer's control (e.g., weather) caused the late filing
  • Filer received the incorrect information from a third party and was not reasonably able to verify it

Aggravating factors include:

  • Lack of cooperation
  • Evidence of smuggling or attempted illegal imports
  • Multiple ISF errors
  • A rising error rate indicative of deteriorating systems

A complete failure to file will result in Customs withholding release or prohibiting unlading of the cargo. If the cargo is unlade without a permit, it becomes subject to seizure.

Wednesday, July 15, 2009

New FAQ on Wood Packing Material

This is one of those things that only customs geeks, logistics jocks, and entomologists would ever think about: pests in wood packing materials. In any warehouse, you are likely to find wooden pallets and crates. The buyer of whatever came on or in that material rarely cares one whit about the packing material. Unfortunately, the buyer need to worry, especially if they are an importer.

Under U.S. law (implementing an international agreement), imported wood packing material must be certified as either heat treated or properly fumigated to kill wood-borne pests. Importing wood packing material that is not properly treated is an importation contrary to law and exposes the importer to liquidated damages.

Customs has issued a FAQ on wood packing material enforcement. It is here for your enjoyment.

China Tires Remedy

The International Trade Commission has proposed a remedy in the safeguard case involving tires from China. This case arises under the safeguards provisions of China's WTO accession agreement. The ITC is proposing that the U.S. impose 55% duties in the first year of the remedy, 45% in the second year, and 35% in the third. The Office of the United States Trade Representative has issued a public request for comments on this proposed remedy. Comments are due July 27.

The next step (after comments and a public hearing) is for the President to decide on the appropriate remedy. Technically, the President is required to implement a remedy, although it need not be the one recommended by the ITC. There is a loophole. The President can determine that it is not in the public interest to impose a remedy. Under the Bush administration, no safeguard remedies were imposed regarding Chinese imports.

Tuesday, July 14, 2009

Knife Fight Part II: The Senate Cuts In

Boy, Customs can't seem to catch a break. This issue about the treatment of assisted opening knives probably struck Customs and Border Protection as another simple ruling revocation of which no one would take note. Turns out, that is not the case.

Now, the Senate has stepped in with an amendment to some a Homeland Security appropriations bill. The amendment proposes to modify the Switchblade Knife Act to exempt from it:
a knife that contains a spring, detent, or other mechanism designed to create a bias toward closure of the blade and that requires exertion applied to the blade by hand, wrist, or arm to overcome the bias toward closure to assist in opening the knife.
You can see the text of the amendment in the Congressional Record here. The amendment was introduced by Senator Hatch along with Senators Coryn and Pryor. Sen. Hatch's comments begin on page S7304 which may or may not be here. Senator Hatch's press release, though, is here. The House needs to deal with this issue before the amendment becomes law, assuming the President signs it. I learned that from School House Rock.

This makes me wonder how folks are feeling at CBP. Several big policy initiatives have been stymied by public response and congressional action. Most noteable was the effort to do away with first sale valuation. The proposal for uniform rules of origin seems to have withered as well. Grumbling also continues with respect to Importer Security Filings and the Lacey Act (the latter having been foisted on CBP by Congress). Now Congress steps in to protect the right to import (note that this only relates to imports) knives with an assisted opening mechanism (albeit with a bias toward staying closed). Plus the agency continues to be without an Obama-appointed Commissioner.

I've been accused of being anti-agency, and I am not. I'm not making any judgment about these things. I'm just pointing out that it seems that the places where Customs seems to have invested some policy effort have generated more push-back than the agency may have expected. This knife business certainly surprised me.

I know people inside the agency visit this blog. Anyone want to drop an anonymous comment and let me know if I am wrong?

Wednesday, July 08, 2009

Where is My Honey From?

Sorry to the grammar geeks for ending the title with a preposition. "From where is my honey," did not seem to work.

The US Department of Agriculture is announcing a new rule requiring that honey bearing a USDA grade label or other USDA certification mark also be marked with its country of origin. Failure to properly mark the honey can result in debarment from USDA services relating to inspection and certification.

Apparently, the USDA believes most honey is already properly marked. However, the regulatory change was mandated by Congress.

What's Happening Here?

Last I heard, U.S. Customs and Border Protection was trying to impose penalties against Union Pacific for what Customs considered to be lax security relating to trains entering from Mexico. In July, 2008, UP filed a suit trying to avoid the penalty by pointing out that the trains were under CBP control, not UP's. As late as March, 2009, this suit was still working its way through the courts. Here is a press release update from UP.

Today, the AP is reporting that Union Pacific is donating an $800,000 rail inspection facility to CBP.

Is this related? Is it part of a settlement? It strikes me an an unusual move under the circumstances.

Tuesday, July 07, 2009

Pannier Update

By far, the most widely read and commented upon post in the history of this blog is one in which I fretted about the choice between pannier bags and a messenger bag to tote things to work when I ride my bike. I have often been asked what I decided to do.

The answer is that I did nothing for a long time. I continued to depend on my small but very efficient Topeak RX trunk bag and quick release seat post rack. I was certain I did not want to carry anything on my back. I also resisted putting a more permanent rack on my otherwise zen like flat-bar road bike. That left me in a bind and often created circumstances where I could not ride to work because I had too much to carry.

I finally caved in and put a rack on my bike. It is, after all, now used mostly for commuting and local errands. With a rack, I was able to move up to a Topeak MTX Trunkbag EXP. So far, it has worked out great. I now have enough room to avoid having to stockpile clothes in the office, I can pack a lunch, and still fit a work file and necessary bike tools and suppliers in the bag. So, I am happy. For the future, there is a laptop bag that fits the rack, although not while the trunk bag is in place. I do think I need to get the rain cover, though.

One problem has occurred. Now that I do not leave clothes in the office, packing is much more important. Recently, I arrived at the office and discovered that I had no work shirt. After a bit of debating whether to run to some store and buy a shirt, I spent the whole day in my office in a red cycling shirt and khaki pants. I looked like I worked in the bike department at a Target store.

Knife Fight

UPDATED AT BOTTOM

I have been avoiding this issue because I did not think many people would actually care. But, in terms of the popular press (AKA the MSM), it seems to be the customs-related story of the moment.

Knife lovers beware, Customs and Border Protection wants to treat certain pocket knives that open via a spring or other assisted release mechanism as switchblades. That change would effectively ban their importation, although owning or selling them in the U.S. would continue to be legal.

These knives differ from actual switchblades. In a switchblade, there is an external button or slide that releases the blade. Release-assisted knives require the user to press on the blade itself, which is then released.

Customs first proposed the change in the May 22, Bulletin (see page 5). All of this is based on the Switchblade Knife Act, 15 U.S.C. §§ 1241-45. For you customs geeks out there, the implementing regs are at 19 C.F.R. § 12.95-12.103.

The amount of interest in this has surprised me. That is especially true given that owning or selling the knives in the U.S. will not be affected. But, there seems to be great interest. Here is an editorial from the paper in Anchorage. This article by Bob Barr paints CBP's proposal as an Obama Administration step taken in lieu of its "stymied" gun control agenda. I seriously doubt that this issue reached the Oval Office, but then I don't believe in the NAFTA Superhighway and the North American Union either.

The comment period has already run, so now interested parties are waiting for a response.

UPDATE: You can tell Customs has struck a nerve. Visit here to buy your customs "Knife Rights" products complete with the message "STOP U.S. Customs' Pocket Knife Grab!" Obviously, the knife lobby has not read Customs style guidance against the possessive apostrophe. I so want the travel mug.

Morning News

The Office of the USTR has ask for WTO consultations on Chinese policies limiting the export of various forms of bauxite, coke fluorspar, and other minerals. Bauxite is an important industrial material in that it is the basic form of aluminum ore. Coke is a coal-derived fuel that is useful, among other things, in the smelting of iron. Fluorspar (or fluorite) is used as flux to lower the melting point of materials used in the production of iron. Do you see the pattern? It seems evident that if a major source of these important industrial materials limits their export, there will be trade distorting effects. Higher demand, higher price. Plus to the extent these are strategic materials needed for infrastructure and defense, it seems other countries might have an interest in a ready supply.

Given those factors, it's easy enough to understand the request for consultation. What remains to be seen is whether the measures China has put in place do, in fact, violate its obligations to the WTO. According to the USTR, the limitations violate a number of provision of China's WTO accession agreement. The request can be found here.

Monday, July 06, 2009

Twitter is Killing Me

OK, I have bad news for the Twitter side: I like my blog and my blog readers like me. I'm having a hard time balancing both. In the morning, I scour my usual sources to look for items to tweet. In the past, those would have been blog fodder. Well, they need to be again. So, here is a catch up post. After this, I'll do my best to get back to more substantive posts here. Whether that means fewer tweets, we'll have to see.

First thing, according to testimony at a House Committee on Small Business, fraud and lax enforcement of laws relating to textile imports and preference programs is harming U.S. producers. I have no serious reason to doubt this, but I do wonder about what level of diligence can reasonably be expected of importers. I think importers need to spend some time thinking about their purchase order terms and conditions. I'd be looking for enforceable indemnity clauses for civil penalties and associated costs. I'd also try and negotiate a contract that does not require payment until the conditional release period is up. Is that commercially feasible? If you are an 800 pound gorilla in your industry, maybe. Otherwise, maybe not, but it is a place to start.

Second thing, the U.S. and Japan have agreed to provide mutual recognition to their respective cargo security programs. It's not clear exactly when and how this will be implemented.

Wednesday, July 01, 2009

CPSC Activity and Big Bugs

Here are some things I need to get off my desk before they are too old to be of use to you.

On June 29, the CPSC published a Federal Register Notice proposing a rule to implement the requirements for consumer registration of durable infant or toddler products. Typically, I do not think of CPSC issues as "customs law," but Customs and Border Protection will be involved in enforcement relating to imports, so we all need to have our eyes open for these issues.

Some of the requirements include:

  • Postage paid consumer registration cards in each product and internet registration option
  • Manufacturer database of registered consumers and their products
  • Manufacturer name and contact info permanently on the product in English, legibly, and conspicuous (sound familiar?)
  • Tracking labels to show manufacturer or private labeler, location and date of production, manufacturing lot
Comments are due September 14, 2009

Also on the CPSC front, the Commission voted for a two-year stay of enforcement of the lead content standards for bicycles and bike parts. I've been following this closely because I have an interest in the industry. From what I can tell, the problem is that there is lead in bikes. The highest concentration appears to be in valve stems. I'm pretty dubious that normal use, even by kids, will result in lead contamination. I have never seen a kid lick the handlebars or try and inflate the tires by mouth. I guess it could happen. The problem for the CPSC is that the statute mandates that the requirement apply. It will be interesting to see whether the industry adopts manufacturing changes or gets Congress to change the law. I'm sure they are talking to the all-terrain vehicle people.

Also, Customs seized gigantic beetles. You know I can't resist a Customs and Border Protection animal story.