Saturday, February 26, 2011

News You Might Want

Been slow on the news front. Here are some things that crossed my virtual desk recently:

Customs and Border Protection has July 17th as the date it will start enforcing that rule that any bulk residue in instruments of international traffic entering the U.S. must be properly manifested and entered. CBP has published a FAQ on the topic.

There will be a change to the textile rules of origin under the DR-CAFTA. According to a statement on the USTR web site:
We approved a series of changes to the Agreement’s rules-of-origin for textile and apparel goods that will facilitate regional trade and integration. These changes will expand opportunities under the CAFTA-DR Agreement and encouraging a vibrant textile and apparel supply chain in the Western Hemisphere to effectively face the challenge that Asian competitors represent. We also agreed to increase the cumulation limits to encourage greater integration of regional production through limited reciprocal duty-free access with Mexico and Canada to be used in Central American and Dominican Republic apparel, as called for under the Agreement.
The Bureau of Industry and Security has issued another notice stating that cloud computing providers are not subject to EAR so long as they are not providing anything subject to EAR. This relates to the infrastructure providers. Keep in mind that a public or private cloud user might well violate the EAR if he or she is not careful. For example, if I were to put EAR controlled technical data in a corporate cloud and let engineers in China access it, there might be a violation. That is very different from just creating and maintaining the system in which that might occur. Here is the decision.

Counterfeit iPads have hit the market. Imaging the technical resources necessary to accomplish that. If only that power were used for good, not evil.

$381,000 in your spare tire is way better than finding a $5 bill in your jeans pocket. Except, of course, for the going to jail part.

Tuesday, February 15, 2011

Hold the Mayo

Occasionally, and usually without knowing it, the Supreme Court has something to say that might affect customs lawyers and their clients. Mayo Foundation v. United States might be one of those occasions.

The issue at the front of the case was whether medical residents are "students" for purposes of the Federal Insurance Contributions Act, or FICA. As you may notice every month, FICA takes a portion of your wages for Social Security. Students who earn wages, however, are exempt. So, if residents are students, they are exempt. Apparently, there had been a period of uncertainty regarding the application of this rule to residents. As a result, in 2004 the Treasury Department created a regulation saying, among other things, that anyone working 40 hours or more in a week is not a student even if the work is related to an educational objective. The regulation specifically used medical residents as an example of a non-exempt student. Mayo started withholding FICA on its residents wages and eventually sued for a refund.

What is possibly relevant for us is the Supreme Court's analysis of this interpretive regulation. As is usually the case in these situations, the Court began by applying the two-step Chevron (1984) analysis. Under this test, if the statute is clear on its face, then the Court applies the statute as drafted by Congress without regard to the agency's interpretation. The Court found that the statute was not clear as to whether residents are students and, therefore, moved on to the second step.

In Chevron step two, the Court generally asks whether the agency's interpretation of the statute, as expressed in the regulation, is manifestly contrary to the statute. Only if it is, does the Court reverse the agency's interpretation. If the agency has adopted a "permissible" interpretation, then the Court will defer to that interpretation.

But, in this case Mayo argued for a different analysis. Rather than Chevron step two, Mayo asked the Court to look at a number of factors indicating the general persuasiveness of the interpretation. Those factors include how long the regulation has been in place, whether it was passed contemporaneous with the statute, and whether Congress has apparently accepted the agency interpretation. These factors come from a 1979 case called National Muffler, which also involved a Treasury Department regulation. Note that National Muffler predates Chevron, but is has been cited post-Chevron in Treasury cases.

Rather than accept Mayo's invitation, the Court found no reason to adopt a different approach to the review of administrative interpretations in tax cases than in all other cases. In his opinion for an 8-0 Court (Justice Kagan did not participate), Chief Justice Roberts stated "We see no reason why our review of tax regulations should not be guided by agency expertise pursuant to Chevron to the same extent  as our review of other regulations."

Why might this be of interest to customs lawyers? If you have read this far, you probably already know where I am going and that is to Skidmore deference. As you probably know, in Mead, the Supreme Court held that some determinations by Customs and Border Protection are not entitled to full Chevron deference but may be treated as persuasive under Skidmore. A decision will be persuasive when it is internally logical, consistently applied, and otherwise carries the indications of persuasiveness. The questions raised by Mayo is whether Mead and Skidmore still apply to Customs.

I think the answer is yes. The easily seen evidence for this is that the Mayo decision cites Mead in several places and makes no indication that it is less than applicable. Second, the regulation is question in Mayo was a full-blown regulation passed after public notice and comment. Under Mead, that is the kind of regulation entitled to Chevron deference. Skidmore applies to less formal decisions like Customs binding rulings and protest determinations.

So, while Mayo dances up to it, I don't think it changes anything for customs practitioners. That, of course, does not mean that the Department of Justice might not want to explore the boundaries of the case as applied to Customs' interpretations of statutes. But, as long a Mead remains the law, it appears we will continue to argue about persuasiveness under Skidmore.

Another Delayed Protest Case

UPDATED TO FIX A TYPO. Thanks, Victor.

The Court of International Trade has issued another decision in a case brought by a frustrated importer waiting too long for a protest decision from Customs and Border Protection. The case is Norman G. Jensen, Inc. v. United States. After waiting more than two years for a protest decision, Jensen went to the CIT seeking a writ of mandamus ordering Customs to act on the protests. Mandamus is available where the petitioner has a clear right to some governmental action. Since Customs has a two-year statutory deadline for deciding protests, it makes sense that the importer has a right to a decision. Typically, though, Courts will order the government to complete the action only when it is ministerial or clerical in nature. Since this involved a protest decision, it strikes me that the exercise of legal analysis needed may not have been ministerial, but that was not the peg on which the Court hung its dismissal hat.

Rather, the Court dismissed the case on the basis that it lacked subject matter jurisdiction. The plaintiff brought the case under the Court's residual jurisdiction provision 28 USC 1581(i). But, the Court has jurisdiction to review denied protests under 1581(a). The long-standing rule has been that a plaintiff cannot get into the Court of International Trade on 1581(i) grounds when it could have availed itself of 1581(a).

In the case of a protest, an importer can force a decision by requesting accelerated disposition under 19 USC 1515(b). Under this statute, an importer can ask Customs and Border Protection to act on a protest. If Customs does not decide the protest within 30 days of the request for accelerated disposition, then the protest is deemed denied. Either an actual denial by Customs or a deemed denial provides a basis for judicial review under 1581(a). Because 1581(a) is not a manifestly inadequate way for the plaintiff to get the relief it is seeking, the Court found it lacked jurisdiction to hear the case.

If this sounds familiar, it is because a similar issue was raised recently by Hitachi Home Electronics. Perhaps, on the basis of these decisions, Customs is going to see a lot more requests for accelerated disposition.