Tuesday, October 26, 2010

Dirty Deems Done Dirt Cheap

This case is very strange. It is also one of those interesting cases that involves the intersection of customs and trade law. Specifically, it involves Customs and Border Protection's treatment of entries subject to an antidumping duty order. As it happens, that treatment was wrong.

By way of background, the salient facts are that Alden Leeds was the importer of chemicals that were subject to an antidumping duty investigation. At the time of entry, the importer was required to make a cash deposit of almost 25%. Because the producer requested an administrative review of the deposit rate, Commerce instructed Customs to suspend liquidation of the entries. The review subsequently found an assessment rate of about 4%. That should have made for a hefty refund to Alden. Unfortunately, it did not.

Rather than withhold liquidation, Customs affirmatively posted an official bulletin notice stating that the entries had liquidated by operation of law (i.e., they were "deemed liquidated"). This is the first odd thing about these facts. A deemed liquidation occurs when the time for liquidation expires without any action by Customs. It is a non-sequitur to publish a notice of deemed liquidation. It appears that what Customs tried to do was publish a notice of liquidation. That, of course, should have been prohibited by the suspension instructions from Commerce. It appears that someone at Customs noticed the entries, investigated, wrongly determined that they had been deemed liquidated by operation of law, and decided to publish notice just to let the world know that fact.

When Commerce published the final results, Alden Leeds sought a refund. Customs' unfortunate response was that the entries liquidated. Because the importer did not file a timely protest, Customs believed that it had no means by which to refund the money. So sorry. Alden Leeds then had no where to turn but the Court of International Trade.

It is worth pausing here to consider the next odd part of this case. It is absolutely clear that Customs made a mistake in this case by liquidating the entries. It is also clear that the United States government does not have a right to the funds. Should the apparent lack of a legal avenue by which the importer can force Customs to refund the money really dictate the policy here? Why did no one in Customs say, "file a suit and we will settle for the full amount you are owed." Is there something that prevents Customs from acting like a reasonable commercial actor in this case? That is not a rhetorical question. If you know the answer, drop a comment below.

On the law, the problem for Alden Leeds is a prior case called Juice Farms which involves a similar unfortunate set of facts. In that case, the Court of Appeals for the Federal Circuit held that the improper liquidation should have been the subject of a protest and that a protest would have provided an adequate remedy. Because a protest was possible, the Court of International Trade did not have jurisdiction under 1581(i), the residual jurisdiction provision.

The CIT, however, distinguished Juice Farms, on the grounds that it involved affirmative rather than deemed liquidations. Oddly, in this case Customs posted a bulletin notice of liquidation, which sounds a lot more like an affirmative liquidation than a deemed liquidation. Furthermore, there is nothing different about the protestability of a normal versus a deemed liquidation. But, because this case involves supposed deemed liquidations, which require no action from Customs, the Court found Juice Farms to be inapplicable.

In the end, the Court made the point that the notice of liquidation was a legal nullity.  Customs might just as easily posted a notice saying that I had won the Tour de France. Since the posting was in error and meaningless because of the official suspension of liquidation, there was no liquidation and I am not Lance Armstrong. Without a liquidation, filing a protest would be futile, making it a "manifestly inadequate" step. Thus, the Court held that no protest was required and the Court had (i) jurisdiction to decide the case.

This could easily have gone the other way on the basis of Juice Farms, and it might still. As a policy matter, one could argue that importers are supposed to monitor the status of their entries and that the protest process gives importers recourse. Extending this burden to include monitoring erroneous or illegal liquidations is not particularly far fetched. Further, there is a principle of law that estoppel does not run against the government. That means that parties cannot make a claim against the government (absent a statute permitting it) simply because the party relied on the representation of the government to its detriment. In this case, that would be relying on the statement from Commerce that Customs will not liquidate the entries.  But that strikes me as bad policy. An importer should be able to accept that the relevant agencies are going to do what they are legally required to do and that the Court will hold them to it.

Thursday, October 21, 2010

Hello Sydney

By request, I am posting this by request, something I am happy to do. If you see customs-related news items, always feel free to forward them to me at customslawblog@gmail.com.

It seems that the Australian government is hoping that travelers entering the country know pornography when they see it and report it when they are carrying it. This has caused a bit of a dust up down under because not all pornography is illegal to possess in Australia and not all is banned from importation. However, the two sets apparently do not coincide exactly. According to Australian Customs and Border Protection, travelers should just disclose what they have and let Customs sort it out. I am not sure on the law in Australia concerning border searches or self incrimination (feel free to comment if you are). Either way, it certainly seems like a bit of a stretch to assume that a traveler will arrive at the Customs desk Kingsford-Smith and open his or her bag of porn for the inspector to review. Maybe Australians are genetically immune to embarrassment.

More on the story is here. In case you are arriving right now and want to know what to leave on the plane, according to the news story "banned material includes child pornography, bestiality, explicit sexual violence, degradation, cruelty and non-consensual sex."

Are Excises Taxes Protestable?

When Customs collects a tax for another agency, is it making a protestable decision? That is an important question. If the answer is yes, then the U.S. Court of International Trade has subject matter jurisdiction over the denied protest. If the answer is no, the importer has to look elsewhere for relief.

That is also the question presented in Shah Brothers, Inc. v. United States, which involves entries of "gutkha." Gutkha is a tobacco preparation containing betel nuts and various aromatic agents.Apparently, gutkha is a smokeless tobacco product and is, therefore, subject to excise tax as well as import duties. Smokeless tobacco comes in two varieties: chewing tobacco and snuff. The problem for the plaintiff is that the excise tax on snuff is higher than the excise tax on chaw and the Alcohol and Tobacco Tax and Trade Bureau (the "TTB") concluded that this product is snuff. Customs, on the other hand, eventually agreed with the importer on the classification of the merchandise. That means that the only issue left for the Court of International Trade is the TTB treatment of the product and the tax as collected by Customs and Border Protection.

The Court initially looked at its jurisdictional statute, 28 USC 1581 and found that since this the TTB determination did not involve a decision of Customs and Border protection, it was not direcltly reviewable on the basis of a denied protest. The Catch-22 is that the decision is also not subject to review under the Court's residual jurisdiction because any review of the TTB's decision would necessary require a review of how Customs implemented that decision (since the TTB does not collect taxes at the border, that is Customs' job). In fact, in the process of creating the Department of Homeland Security and moving Customs from Treasury to DHS, Treasury specifically delegated to Customs the function of collecting revenue at the border. Since the real issue is not what TTB asked of Customs, but what Customs did to the imports, the Court finds that the importer had an adequate remedy under the protest review process of 28 USC 1581(a).

Whenever 1581(a) is available as a means of getting into Court, the usual result is that no other means of establishing jurisdiction will work unless the protest process is "manifestly inadequate." The Court did not see any such inadequacy in this case. Finally, the plaintiff's valiant effort at latching on to the Administrative Procedure Act to establish jurisdiction to review a "final agency action," was also unavailing. The APA does not provide aggrieved parties a means of circumventing the established path to judicial review. In light of the non-futile availability of the administrative protest, the APA was no help to the plaintiff. The CIT dismissed for lack of jurisdiction.

Thursday, October 14, 2010

Filer Code Safe for Now

Customs and Border Protection assigns licensed customhouse brokers unique filer codes. These codes allow the broker to have electronic access to Customs.  The filer code, therefore, effectively permits the broker do business in a modern commercial environment. Absent an active filer code, the broker may as well have to operate using carrier pigeons and smoke signals. Consequently, when CBP threatened to deactivate its filer code, Lizarraga Customs Broker went on the offensive.

The issue reached the Court of International Trade. The procedural status of the case is a little tangled. It appears that plaintiff wanted an injunction to prevent CBP from deactivating its filer code. While that request was pending, the parties submitted their complaint and answer. Eventually, the United States government filed a so-called "Confession of Judgment" in favor of Lizarraga. According to the government, this should have resolved the case because the US has agreed not to suspend the filer code and the plaintiff, therefore, has the relief it was seeking in Court. In other words, the case was mooted. Absent a controversy for which the Court can grant relief, the government argued, the CIT no longer had jurisdiction over the case.

"Not so fast," was Lizarraga's response. While, the immediate threat may have been resolved, the plaintiff maintained that the Court continued to have jurisdiction because it was likely that CBP would start the process over. If there is a likelihood that the allegedly wrongful behavior will be repeated, the mootness doctrine does not apply. Despite that clever argument, the Court dismissed the case.

Two facts supported the Court finding mootness. First, the Court found that it could not decide the issue without a fully developed factual record. Developing that record would require that the case continue. However, because there is no additional relief to be granted, continuing the case would produce nothing but a theoretical answer to a purely legal question. At least I think that is the reasoning. The second point is that counsel for the United States said in Court that brokers are entitled to some procedural protections when their filer code is threatened. Consequently, the Court accepted that as a statement that the US would not repeat its effort to summarily deactivate the filer code. Thus, the requested injunction was moot and the motion denied.

This case may seem technical and legal. The importance of it for brokers, though, is that it represents an on-the-record acknowledgement by Customs that it cannot simply yank a filer code. Rather, the broker is entitled to notice and an opportunity to be heard. Further, the Court was clear that it was not stating that the procedural protections afforded under the Administrative Procedure Act were necessarily sufficient in all cases. Thus, the decision appears to put everyone on notice that the threat of deactivating a filer code is important, subject to the APA, and will be given careful scrutiny by the Court. Brokers should take some solace in that conclusion.

Wednesday, October 13, 2010

Gilda Wins

We have been following along with Gilda Industries, Inc. v. United States since the early days of this blog (here and here). Remember back when I would also blog about spiders in my basement and and Spore creatures? I kind of miss those days. I know my extended family does too.

Gilda involves 100% retaliatory duties assessed on Gilda's imported toasted bread products. The duties were in response to a European policy to block imports of U.S. beef after the WTO found that the ban was not supported by scientific evidence. The procedure for continuing the retaliation required that a representative of the  benefiting U.S. industry request the continuation of the retaliation. In 2007, no one from the beef industry made such a request. As a result, Gilda argues that the retaliatory duties expired. The Court of International Trade agreed and ordered that the duties collected after the 2007 expiration be refunded with interest. This is the decision on appeal to the Court of Appeals for the Federal Circuit.

The law involved here is 19 USC 2417(c), which arguably automatically terminates retaliation on the four-year anniversary of the action unless the beneficiary domestic industry requests that it continue. The relevant language is that absent a request, "such action shall terminate at the close of such 4-year period." Further, the statute requires that the USTR provide the industry with notice at least 60 days prior to the action terminating. In the case, the USTR failed to do that.

According to the Federal Circuit, the "shall terminate" language quoted above is mandatory in nature because it includes consequences for failing to act, i.e., the termination of the action. This is in contrast to the requirement that the Trade Representative "shall notify" the industry. That part of the statute does not contain a consequence for failing to notify the industry. As a result, the CAFC found it to be directory in nature. According to the Court, the lack of timely notice, therefore, did not toll the automatic termination.

In a valiant effort to set things right, the USTR also argued that its failure to provide notice to the industry should not result in the loss of protection to the industry. After all, the statute was passed to protect the domestic producers. On this front, the CAFC took a hard stance and held that even absent notice from the USTR, the beef industry was obligated to make a timely request for continued retaliation.

So, it would appear that some folks are going to be entitled to pretty substantial duty refunds. This controversy has been the source of a lot of suspended cases at the Court of International Trade. I suspect, there are more than a few customs lawyers out enjoying some wine and cheese in celebration.

Well, Jane, it goes to show you, it's always something.

Tuesday, October 12, 2010

Cert. Denied in Totes - Judicial Conference

I have been remiss again, but not for wont of effort. I have just been on the road while also sick. That is a bad combination.

In terms of follow-up information, you should know that on October 4, the Supreme Court denied certiorari in Totes-Isotoner. That is the case challenging the constitutionality of gender- and age-specific tariff rates. It remains to be seen whether that is the end of the issue. The critical legal determination to date has been that the distinctions drawn in the tariff schedule are not facially discriminatory. As a result, a plaintiff needs to prove not just the an improper distinction is drawn but also that it was done for an inappropriate purpose. That makes the case much more difficult to prove. I suspect there were sighs of relief throughout Customs and Border Protection.

The Court of International Trade has issued three customs-related decisions that I will summarize as soon as possible.

For those of you who might not be members of the Customs and International Trade Bar Association or admitted to practice at the Court of International Trade, the Court's Judicial Conference is November 18 in New York. Here is information on the event. And, if you are not a CITBA member, you should be.