Thursday, January 27, 2011

That's a Trebuchet

It's been a while since I blogged about a simple drug smuggling scheme. Generally, I am happy to report, I work with commercial importers. Only rarely have I had to call in a criminal lawyer for help. Still, this is a border issue, and it counts as amusing, at least to me.

Various news outlets are reporting that Mexican drug smugglers had been attempting to use a catapult to hurl marijuana across the border. Clearly, this is the work of a geek smuggler (and I mean that in a positive sense). But, looking at the poor video, it looks like the gizmo was actually a trebuchet, which is much more elegant than a simple catapult. A trebuchet is a "siege engine" used until the 13th Century to toss heavy, burning, or infected things at one's opposition. Apparently, a trebuchet is far more accurate than a catapult. The difference between the two being, at least as I understand it, that the trebuchet has a loose rope-link sling rather than a fixed basket for the projectile. This causes the sling to whip around, adding significant momentum, much like a snapped towel or quality golf swing. Also, most trebuchet were powered by counterweights rather than the spring of the main member (imaging a bunch of Medieval peasants pulling a tree trunk back and you get the idea). The image below shows the benefit of the trebuchet design.

Here is what the whole thing looks like:

Both images are from this Wikipedia article.

I have seen a trebuchet used to toss pumpkins. And, there is a guy at the Renaissance Faire in Bristol, Wisonsin (generally my image of Hell) named Doktor Kaboom, who uses one to toss eggs to great amusement. Clearly, with the advent of trebuchet smuggling, the device is experiencing its own renaissance of a sort.

Tuesday, January 25, 2011

(e) Jurisdiction: Let the Flood Gates Open

The Court of International Trade is, like all federal courts, a court of special and limited jurisdiction--just more so. If a case does not fall within the scope of 28 USC 1581-84, the CIT has no power to hear it. Some of the provisions of section 1581 have been effectively dormant. Until yesterday, that was true of 1581(e), which provides:

The Court of International Trade shall have exclusive jurisdiction of any civil action commenced to review any final determination of the Secretary of the Treasury under section 305(b)(1) of the Trade Agreements Act of 1979.

A section 305(b)(1) determination is a determination by Customs and Border Protection that an article is or would be a product of a foreign country or instrumentality for purposes of government procurement. What this is all about is the application of both the Buy American Act and the Trade Agreements Act of 1979. There is a lot of history here, and the opinion in Xerox Corp v. United States does a good job of summarizing it. What is important to know is that the BAA generally requires that government agencies provide a preference for the acquisition of U.S.-origin products. The determination of origin under the BAA is based on the goods having  been produced in the U.S. and having more than 50% domestic content.

The TAA, on the other hand, implements the WTO Government Procurement Agreement. Products from members to the GPA (which does not include all WTO members, making it "plurilateral"), receive treatment no less favorable than U.S. products for purposes of procurement. In other words, the preference is waived for products of GPA countries and certain other designated countries. To provide treatment no less favorable, the approach adopted has been to focus on whether the product was substantially transformed in the GPA country or other designated country. This created a paradox in which foreign products of countries eligible for GPA treatment received better treatment than U.S.-produced products that might not otherwise satisfy the BAA 50% rule. For years, that paradox was resolved by finding that foreign products further processed in the U.S. that undergo a substantial transformation in the U.S. are treated as U.S. goods for procurement purposes.

In Xerox, Customs issued a ruling on the origin of toner cartridges in which it held that the merchandise was not substantially transformed in the U.S. Customs, however, did not actually state the origin of the cartridges.  Xerox, (which, interestingly, was not the party that sought the ruling), challenged the determination claiming that there was a substantial transformation in the U.S.

Got all that? I can wait.

What this decision is about is only whether the Court of International Trade has jurisdiction. The government raised two arguments against the Court hearing the case. The first was that the ruling from Customs was not actually a final determination and was, therefore, not ripe for review. The basis for this is that the statute requires Customs to determine whether the merchandise originates in a designated country or instrumentality for purposes of the TAA. Rather, Customs only said that no substantial transformation occurred in the U.S. According to the government, that decision would not qualify the products for U.S. government procurement under the 50% content rule of the BAA.

Xerox, pointed out that this determination does not really relate to the BAA. Rather, since 1990, the government practice has been to treat products substantially transformed in the U.S. (so-called U.S.-made end products) as eligible for government procurement on the same terms as TAA/GPA goods. This resolves the paradox noted above. So, a determination that no substantial transformation occurred in the U.S. might be a final determination if that results in a determination that the goods are not entitled to TAA status. Also, the Court noted that Customs has issued many origin rulings applying this very reasoning. The government's litigation position, therefore, appears to be that all the prior rulings were invalid exercises beyond Customs' authority. The Court disagreed. However, because the determination was incomplete in that it did not affirmatively identify the country of origin, the Court remanded to Customs with instructions to do so.

The second argument was that the case did not present a justiciable controversy, which is necessary for federal jurisdiction. The Court rejected that argument on the grounds that a ruling in favor of Xerox would make the toner cartridges available for U.S. government procurement. As a result, the case presents a real controversy that can be resolved by judicial review.

So, now we will have to see what happens on the merits. After that, it is a sure bet that the U.S. will appeal to the Federal Circuit.

This is a very interesting development. First, it should help to put government contracting lawyers as well as CIT litigators on notice that the CIT is open for business when it comes to these disputes. Also, the government's arguments, if accepted, would fundamentally change the procurement process by re-installing the BAA vs. TAA paradox. Having U.S.-made end products at a competitive disadvantage for U.S. government procurement cannot be a politically acceptable result. Thus, if the CAFC reverses, you can bet Congress will act quickly to fix the result.

Saturday, January 22, 2011

By Request: It's OK to Say "No NAFTA"

So far, I have not done very well at following my resolution to post more often in 2011. So, I will respond to a specific request for a post. This request comes from someone who has quite reasonably decided not to issue meaningless NAFTA certificates in the ordinary course.

What is a meaningless NAFTA certificate? One that provides little or no duty savings to the importer. Generally, that means where the product involved is unconditionally duty free into the other NAFTA countries. If it is already duty-free, the added benefits of a NAFTA claim are either zero or small. When compared to the administrative cost of chasing supplier certificates of origin, record keeping, and responding to possible verifications, it is perfectly rational for a producer to decide not to provide certificates for duty-free products.

Typically, producers who do that hit two objections. The first is easily dismissed. It is not true that originating goods must be the subject of a NAFTA CO to enter any of the NAFTA countries. It is just not true. Think about for a minute. What if the goods were actually non-originating for NAFTA purposes, but still of US origin? Those goods could be sent to Mexico and Canada, where they would be subject to the prevailing non-NAFTA rate of duty applicable to US goods. If a producer opts not to certify goods, they are, for all intents and purposes, non-originating goods and will be treated as such. Duty gets paid, in the US MPF gets paid, and life goes on. When customers understand that, they may agree that they do not need a CO. After all, it increases their record keeping obligation, the risk of audits, and other legal obligations.

The second objection is more substantive. It may well be that customers need a CO not to support a claim but to accumulate originating content for the regional value content of  their finished goods. That is a real concern and producers need to decide how to handle that as a matter of customer service.

Last thing, and this is only tangentially related, there is no NAFTA rate of duty for US goods returned. This comes up periodically and I have discussed it previously. Look at the column 1 special rate of duty in the HTSUS. There are two NAFTA claims available: MX and CA. If goods are sent to Canada and returned to the US without being advanced in value or improved in condition, the should come back under HTSUS heading 9801. This is a shame as 9801 has additional record keeping requirements. There should be a general NAFTA claim that also applies to US goods. Unfortunately, there is not. If you are assigning the origin based on the country of shipment and a NAFTA CO that says US, you might be doing it wrong. If the goods are processed in Canada or Mexico, the NAFTA preference override might apply.

Side Note: I am not a sports guy. I generally do not care. But, when the bandwagon picks up steam and civic pride is on the line, I jump on. So: Go Bears.

Thursday, January 13, 2011

Caviar Redux

Way back in the early days of this blog, when I was funny, I covered the U.S. ban on certain types of caviar. The Fish & Wildlife Service would like you all to know that the ban applies, in certain circumstances, to cruise ships and international passenger aircraft. Basically, they can't sell the affected types of caviar because that constitutes a commercial import or export in violation of the Convention on the International Traffic in Endangered Species or the U.S. Endangered Species Act. Those carriers can serve caviar to passengers but are not permitted more than 125g per passenger. Plus, it appears from the FWS document, that the caviar must all be consumed on board.

So, for all you sophisticates out there, if you are jonesing for some caviar on your next international flight, don't expect more than 125g and don't expect to be able to buy an extra pot in flight. Personally, I'm not a big fan.

UPDATE: Speaking of FWS, is that 55 live turtles in your luggage?

Friday, January 07, 2011

Beta Test, or, Color Me Orange

Roche Vitamins, Inc. v. United States is a Court of International Trade opinion on the classification of a beta-carotene product. The tricky thing about beta-carotene is that is can be used as a dietary supplement (as a precursor for vitamin A) or a a colorant that produces a lovely carrot color. This is a good case to read if you are interested in how the Court interprets tariff provisions requiring classification based upon use.

Specifically, the Court held that the phrase "coloring matter" in subheading 3204.19 means that the "matter" must be principally used as coloring. As a result, the Court needs a lot of information to resolve the case. First, the court must determine the "class or kind" of product that encompasses the merchandise. Then, it must consider six factors including physical characteristics, expectations of purchasers, and channels of trade to determine whether the beta-carotene of that class or kind is principally used as coloring.

The problem for the Court appears to be that while it received a lot of legal arguments regarding the classification, it does not have the facts necessary to answer the question about principal use. Thus, in an anticlimactic move, the Court of International Trade refused the plaintiff's motions for summary judgment.

Riddle Me This

The regulations regarding the export of encryption software are among the most convoluted in the trade world. The problem is not so much that the regulations are poorly written. The problem is that the technology is complicated and the average trade person does not necessarily have the expertise needed to interpret the regulations.

That situation is slowly easing as the Obama administration simplifies various aspects of the export laws and regulations. For example, in this Federal Register Notice, the Bureau of Industry and Security is announcing  that certain mass market, publicly available encryption software in object code with symmetric key length greater than 64 bits is no longer subject to EAR. While they were at it, BIS also announced that "publicly available" encryption object code classified under Export Control Classification Number (ECCN) 5D002 on the Commerce Control List when the corresponding source code meets the criteria specified under
License Exception TSU is also no longer subject to the EAR.

I hear rejoicing from the Bay Area.

NOTE: I recognize that "Riddle Me This" is a bad title. I was thinking about encryption and complicated regulations as a puzzle of sorts. Mostly, it makes me sound like the giant geek that I am.

Tuesday, January 04, 2011

Pigeon Eggs from Cuba Lacey Act Violation

Here is a link to a Department of Justice press release noting the guilty plea of two Miami men charged with violations of the Lacey Act. Specifically, they smuggled pigeon eggs into the US from Cuba. Note that this raises all kinds of other Cuba-embargo-related questions, but that is not the substance of the charge. One of the defendants runs (or maybe now it is correct to say "ran") a pet store specializing in racing and homing pigeons.

GSP Instructions

As you probably know, Congress could not get its act together to pass an extension of GSP before the end of 2010. That means that merchandise that might otherwise have been duty-free is now forced to entry the U.S. dutiable. This is not an unusual circumstance. So much so that Customs and Border Protection has a means of dealing with this, which works on the assumption that GSP is not dead and will be reauthorized.

In the meantime, importers should continue to use the GSP SPI on entries. That effectively flags entries so that when Congress renews GSP, the entries can be liquidated with GSP benefits. But, until that happens, duty deposits must be made at the applicable MFN rate.

AGOA, on the other hand, has not expired and can continue to be used. And, to round out the alphabet soup of preference programs, ATPDEA was granted a short extension through February 12, 2011 for Columbia and Ecuador, but not for Peru (which should not be harmed due to the trade agreement with the US).