Saturday, June 19, 2010

I Can't Contain Myself

Sometimes, I hate this job.

Pacific Northwest Equipment is a beautifully written, very logical decision of the Court of International Trade that just leaves me thinking it came to the wrong result. It's kind of like reading Hamlet except that in the end everyone lives happily ever after.

The issue is an apparently simple classification question involving intermodal shipping platforms, which the plaintiff refers to as "platform containers." I am not 100% certain, but I think we are talking about that thing in the picture. It has no sides and no top. According to NAC International Group's web site, platform containers" Platform containers are basically flat rack containers with no bulkheads or posts, just a 20' x 8' or 40' x 8' piece of steel." The second picture is from their web site, although it shows a slightly different product, which has collapsible ends.

So here is the question: Is a shipping platform a "container" for purposes of 8609? That heading covers "Containers (including containers for the transport of fluids) specially designed and equipped for carriage by one or more modes of transport."

The obvious problem here is that an open platform does not "contain" anything in the ordinary three-dimensional sense of the word. What it does, in this case, is secure things for transport.

Following a perfectly cromulent analysis, the Court turned to a dictionary definition of "container" and found that "to contain" can be defined as "hold back or hold down." The platform certainly does that. Hence, the Court agreed that it is classifiable as a container and found for the plaintiff.

The Explanatory Notes are similarly expansive. They describe containers as having "fittings (hooks, rings, castors, supports, etc.) to facilitate handling and securing on the transporting vehicle, aircraft or vessel. They are thus suitable for the 'door-to-door' transport of goods without intermediate repacking and, being of robust construction, are intended to be used repeatedly." That would seem to cover the merchandise.

But, the EN also says that 8609 containers are "packing receptacles" that usually consist of "a large box equipped with doors, or with removable sides." That does not sound like the platform containers, but they might be "unusual" containers. Finally, the EN says that containers "usually" vary in capacity from 4 to 145 cubic meters. All of that makes me think a "container" should be a defined three-dimensional space bounded on all sides and the bottom, but possibly open on the top.

Generally, I am not a big fan of the Explanatory Notes. I suspect that the people responsible for drafting the Harmonized System used them as a crutch. I image someone raising a legitimate concern about the nomenclature and other saying, "Don't worry, we will clear that up in the Explanatory Notes."

In this case, the language seems unclear to me. The Explanatory Notes talk in terms of measuring containers in cubic meters. They also compare a container to a large box with removable sides. To me, that sounds like a container that is three-dimensional and bounded. But, the dictionary definition the Court applied does not contain those factors. That makes me wonder whether other dictionaries would have been helpful. Is this a case of the commercial meaning over taking the common meaning?

Thursday, June 17, 2010

What About the Battery?


Dell Products v. United States raises the question of just how many batteries are part of a computer set? According to the U.S. Court of International Trade, the answer is one.

The facts of this case are simple enough. One notebook computer entered the United States (via an FTZ) with two batteries. The second battery was a consumer selected option. Customs classified one battery with the computer and the second battery as a battery. Importantly, the computer only has one battery compartment, so the two batteries cannot be used simultaneously.

Dell's first argument was that the second battery combined with the computer and presumably the first battery constitute a functional unit and should be classified as a whole. HTSUS Section XVI, Note 4 states that a machine comprised of a number of individual components intended to contribute to a clearly defined function, may be classified in the heading appropriate to that function. This makes some sense as everything in the box, including the second battery, contributes to the operation of the computer. The problem is that the functional unit rule is limited, at least according to the Explanatory Notes, to components that are essential to the performance of that defined function.

In this case, the computer could operate just fine on one battery or on the power adapter. As a result, the Court did NOT find the second battery to be part of the functional unit that is the computer.

The much more interesting point has to do with whether this group of components is a retail set for purposes of GRI 3(b). Remember that GRI 3(b) says that goods put up in sets for retail sale may be classified as the article in the set that provides the essential character to the set. Determining whether a group of items is a set can be tricky. The rule is that you need to have two or more articles classifiable in different headings [note: odd exceptions exist] imported together for a particular purpose without repackaging.

In this case, the Court saw no problem in principal with the extra battery being part of a set. Thus, the fact that the second battery might be redundant did not destroy the set for classification purposes.

What did destroy the set is that it was customized by the consumer. According to the Court of International Trade, that simple fact means that the merchandise was not "put up" in a set "for retail sale." Why? Because the retailer--Dell--did not select the articles in the set and offer them for sale as a collection. Consequently, the collection was not put up for sale. Rather, much like a shopper dropping groceries into a cart, the collection was amassed for purchase by a consumer.

Here is an excerpt:
Dell’s position would permit goods packaged together to be classified a “set” for tariff purposes even if the grouping of goods was not fixed when offered for sale. This result would nullify the language of GRI 3(b) which anticipates a set as a defined unit that is offered for sale to retail consumers. Here, the contents of a customized order are determined by an individual customer; Dell did not designate which merchandise constituted a set for retail sale.

This is not to suggest that simply marketing or offering items together inherently creates a “retail set” for tariff purposes. Rather, this court is stating that a consumer’s customized order of individual, complementary items, (i.e. items that were never put up together as a pre-determined combination), is not transformed into a GRI 3(b) “retail set” upon entry merely by virtue of being ordered at the same time and subsequently packaged together in an FTZ.
I'm not sure what to say about that. It strikes me as contrary to the proposition that goods are classified in the condition in which they are imported, generally without reference to how they got that way. This rule prevents much of modern e-commerce from benefiting from GRI3(b) because any level of customization as to the contents of the set would destroy the set.

It is important to note that this case only explicitly held that the second battery was classified as a battery, not as part of the computer set. Nevertheless, it seems to follow that any customer-selected accessories in the box would fail the set rule as described here. I wonder whether that is really even what Customs wanted as an outcome.

One more point: the Court gives a thorough description of the law of deference and the application of Skidmore v. Swift in classification cases. Then, in footnote 13, the Court deals with a ruling that involves a notebook computer imported with two batteries. Customs classified this collection together as a computer in 8471. Although the Court distinguishes the ruling because it was unclear whether the computer in question could simultaneously use both batteries, the Court said nothing more about deference. It's interesting that the ruling was distinguished rather than held to be unpersuasive under Skidmore. As long as Skidmore is out there, it seems like it could use a workout every now and then.

New Template

Everything else is the same. Go about your business.

Wednesday, June 09, 2010

Trilobites Headed Home

This is an interesting article about fossils from China being intercepted in Chicago and returned to China. Good catch by the Customs and Border Protection officer. Good PR for my local Field Museum of Natural History too. The article says the fossils are 525 million year old paleovertebrates. They look like trilobites to me. Props to allegedly 6 year old Brian Lean for the photo and info on trilobites.

Tuesday, June 08, 2010

No Tweets Blago


It seems very strange to me that a judge would ever have to caution the defendant in a high-stakes criminal trial against tweeting from the courtroom. In my limited experience in criminal trials (as a clerk to a federal judge), they are pretty somber affairs. I can't remember a situation in which it would have been appropriate for the defendant to fire off: "Liar! I never sold her more than 10g of cocaine. What a biyotch."

But, time have changed. Now that my former governor is on trial for political corruption, the admonition might be well calculated. The former first couple of Illinois have been reality TV "stars" (not sure that is the right word). He as an Apprentice to Donald Trump and she as a jungle dwelling counterpoint to Heidi Montag. Plus, he has a radio show and both have Twitter accounts.

That seems like the kind of defendant who might need a reminder to shut up.

Update: For a more serious take on this trial, see the commentary by my friend Peter Baugher in the Huffington Post.

Best Wishes

It seems that Customs and Border Protection Commissioner Bersin is coming into office with a reasonable level of agency humility. According to press reports of his first policy speech, Bersin has pledged to repair the relationship between the agency and the trade. Among other things, Bersin promises to:
  • Talk to the trade before taking action in contrast to what was done with respect to first sale valuation.
  • Broadening trade outreach beyond COAC
  • Segment trade customers and focus resources on the 10% of the trade that causes 90% of the non-compliance
I characterize this as a sign of humility because it seems like an acknowledgement that the trade feels it has not been well-treated and that it might be at least partially justified. On the other hand, an inside-the-beltway type might see this as pandering to Congress, which has recently been moving toward mandated trade facilitation. Personally, given the current environment, I see it as a genuine effort at fence mending. Let's hope I am right about that.

Speaking of the Commissioner, I add a mazel tov to this happy bride and groom. Note the jobs listed for the father of the bride and the father of the groom. Sounds like a situation comedy customs audit about the happen.

Friday, June 04, 2010

More from the Courts

Honda of America Mfg., Inc. v. United States

We talked about this case when it was before the Court of International Trade and now the Court of Appeals for the Federal Circuit has spoken. The case involves the classification of oil bolts used in cars and motorcycles. Oil bolts are specialized fasteners that include a channel to permit the flow of oil while at the same time holding things in place. Customs classified the oil bolts as screws of 7318.15.80. Honda argued that the proper classification was as vehicle parts in Chapter 87.

The first problem for Honda is that Section XVII, Note 2(b) says that "parts" for purposes of Chapter 87 does not include "parts of general use." The second problem is that parts of general use is defined to include fasteners of 7318. Thus, Honda can only win if the fastener is not also described in 7318. Unfortunately, the oil bolts, despite their name, satisfy the legal definition of screws of 7318.15.80 and nothing in the tariff language or Explanatory Notes excludes specialized or multifunction screws from classification in Heading 7318.

One interesting aspect of the decision is the Court's discussion of deference to Customs. Honda argued that Customs' decision was inconsistent with earlier rulings and, therefore, not entitled to deference. The Court looked at several prior rulings and distinguished them, effectively avoiding the deference question.

It strikes me that the distinctions are not very solid. For example, the Court says that in F88921, Customs said that the the washer in question did not appear to have the characteristics of parts of general use. Customs was probably wrong there. The issue of whether something is a part of general use has only to do with its tariff classification, not with whether it is generic versus dedicated to a specific use. I think the Federal Circuit might have done us a favor by looking at those ruling and saying they appear to be incorrect. The result would be that Customs' current inconsistent position would not be entitled to deference. But, that lack of deference would not have changed the result because the Court would have gotten there even without deferring to the agency decision. In other words, a lack of Skidmore deference does not necessarily produce a win for the plaintiff. It just makes the burden a little lower.

This is the kind of case we all hate to see. The underlying merits have to do with the tariff classification of conveyor belts. The question for our purposes is when may the Court grant summary judgment.

A bit of background may be in order. When a case is before a court, there are two types of questions: law and fact. The "evidence" provides answers to the factual questions. Evidence might consist of business records, testimony, product samples, or other information. Questions of law have to do with the proper interpretation of statutes (including the tariff schedule) and regulations. In the Court of International Trade, where jury trials are almost unheard of, the judge decides both questions of fact and law.

In the typical classification case, there is usually no dispute as to the nature of the merchandise. That means there are often no material question of fact; only questions of law to be sorted out. If the only thing in question is the meaning of the law, either side can ask the court to issue a decision on summary judgment and, thereby, avoid the time and expense of a trial. As a guess, I would say that 95% of classification cases get resolved on summary judgment.

In this case, the plaintiff gave the government samples of some, but not all, of the merchandise at issue. Partially as a result of that decision, in its motion for summary judgment, the government argued that Sparks had failed to establish all the elements of its case. According to the government, that is grounds for summary judgment. Take note of that. The government's position is that if you seek summary judgment and fail to prove your own case, not only is your motion denied, but you lose the whole case.

That is contrary to what a lot of people might think. A simpler view would be that if you fail to prove your own case, then some question of fact remains for a trial. The proper result in that event would be for the judge to set the case down for trial. In other words, some people might think that a trial is the safety net under a weak motion for summary judgment.

Unfortunately, that is not the law. Remember, there are still no questions of fact. When a lawyer files a motion for summary judgment he or she is saying "Here are all the facts that matter, let's resolve this now." The risk is that the moving party has the burden of proof and failing to establish an essential element of the case on summary judgment is the same as saying it could not be proved at trial.. Thus, according to the Court of International Trade (relying on a Supreme Court decision called Celotex), "Summary judgment must be entered against a party who fails to make a showing sufficient to establish the existence of an essential element to its case."

Which brings us back to the samples. Spark did not put some samples into evidence. Samples are not required. But, in the absence of samples, the plaintiff will need testimony, business records, or other evidence to establish exactly what the merchandise is. Apparently, for some of the belting, Spark did not do that. As a result, the government simply sat back and said that Spark had failed to meet its burden of proof and, therefore, the government was entitled to summary judgment. The Court agreed.

On the classification of those products for which all the relevant facts were before the Court, one issue involved the proper application of legal Note 9 to Section XI, which is referenced in 5903.10.15. Another issue was whether there was sufficient evidence of the ability of the materials to bend around a 7 mm cylinder at the proper temperature. On these points, the government granted summary judgment to the government.

Wednesday, June 02, 2010

CIT Dumps on Wikipedia

A funny thing happened on the way to deciding BP Products America, Inc. v. United States, the Court of International Trade had to deal with the question of what to do when the parties ask the Court to take into consideration information from Wikipedia.

For anyone who has been living without electricity or access to print media for the last five years, Wikipedia is a communally edited encyclopedia of just about everything from the profound to the ridiculously mundane. Wikipedia is not Britannica in that it's content is subject to change by just about anyone. The theory is based on the concept of the wisdom of the herd. By letting everyone comment, the good information will push out the bad (a least over time). The question is whether Wikipedia is authoritative enough to constitute formal evidence in a court proceeding or for purposes of judicial notice.

Much has been written on this question in legal circles. See, e.g., this article. In the context of this case, the Court was apparently asked to refer to Wikipedia for information concerning the process of refining gasoline. In other words, BP pointed to Wikipedia to support its assertion of pure facts. In footnote 10, the Court took issue with this. Although it acknowledged controversy over the veracity of Wikipedia, the Court concluded that "Based on the ability of any user to alter Wikipedia, the court is skeptical of it as a consistently reliable source for information. At this time, therefore, the court does not accept Wikipedia for purposes of judicial notice."

Fair enough.

Placing my Adjunct Professor hat on my head, I want to change the facts a bit. My reason for this is that I think Wikipedia may have a valuable and specific role to play in classification cases. In these cases, a question to be decided is the common and commercial meaning of tariff terms. Note that the common and commercial meanings are presumptively (but rebuttably) the same. So if Wikipedia defines some term, and that definition has presumably been vetted by the Wikipedia masses, does that constitute evidence of common meaning? It strikes me that it might.

Harking back to an earlier case of mine, is the fact that Wikipedia says that pitch "can be made from petroleum products or plants." Something I should have cited in my briefs on the issue? Does your answer change if you know that I might have been the person that inserted that sentence into the definition (which I was not)? It's a tougher question than the one the Court faced in BP, and one that I think remains to be resolved.

By the way, BP lost. The gasoline is a preparation consisting of oil and other materials making it fit within Heading 2710. The gasoline was excluded from 2707 because it is not similar to oils and other products of the distillation of high temperature coal tar.