Friday, July 29, 2011

Judge Wallach Nominated to Federal Circuit

Usually, I do not cover breaking personnel news, but this is interesting, relevant, and good news for the customs and trade bar. Here is an article from The Blog of Legal Times stating that Judge Wallach may be moving to the Federal Circuit.

Here is what the White House had to say (which is easier than writing something myself):

WASHINGTON, DC – Today, President Obama nominated Judge Evan Jonathan Wallach to the United States Court of Appeals for the Federal Circuit.  Judge Wallach is currently a judge on the United States Court of International Trade.
“Judge Wallach has distinguished himself throughout his legal career in both the public and private sectors,” said President Obama.  “He possesses a keen intellect and a commitment to fairness and integrity that will serve him well as a judge on the Federal Circuit.”
Judge Evan Jonathan Wallach:  Nominee for the United States Court of Appeals for the Federal Circuit
Judge Evan Jonathan Wallach has been a judge on the United States Court of International Trade, based in New York, since 1995.  He has also served as an adjunct law professor on the law of war at numerous institutions, including Brooklyn Law School and New York Law School, since 1997.  Born in Superior, Arizona, Judge Wallach enlisted in the United States Army in 1969, and served in the Vietnam War from 1970 to 1971 as a terrain reconnaissance sergeant in the 8th Engineer Battalion.  He was awarded the Bronze Star Medal.  He returned from the war to complete his B.A. at the University of Arizona in 1973.  He received his J.D. from University of California at Berkeley's Boalt Hall School of Law in 1976, and also received an LL.B. in public international law from University of Cambridge Law School in 1981. In 1976, after completing law school, Judge Wallach joined the law firm of Lionel Sawyer & Collins in Las Vegas as a litigation associate, becoming a partner in 1983.  He took a leave of absence from the firm from 1980 to 1981 to study at Cambridge in the United Kingdom, and then another leave of absence from 1987 to 1988 to serve as general counsel and public policy advisor to Senator Harry Reid.  From 1989 to 1995, Judge Wallach served in the Nevada Army National Guard as an attorney-advisor, providing legal counsel for his brigade’s commanders and all brigade personnel.  In 1991, he entered active service during the Persian Gulf War, serving as an attorney-advisor in the International Affairs Division of the Office of the Judge Advocate General of the Army at the Pentagon.  Judge Wallach was appointed to the Court of International Trade in 1995.  Since that time, he has presided over more than 230 cases to verdict or judgment addressing questions of international trade and customs law.  He has also frequently sat by designation on several federal trial and appellate courts, hearing more than 80 cases on the Courts of Appeals for the Second, Third, and Ninth Circuits.

Tuesday, July 26, 2011

Hillary Clinton Agrees with Me

Secretary of State Clinton was quoted in the New York Times today warning our Asia trading partners to avoid a multitude of inconsistent and complicated trade deals. Rather, she encouraged a broader regional approach to avoid creating difficulties for businesses. According to Mrs. Clinton:
"There is now a danger of creating a hodgepodge of inconsistent and partial bilateral agreements which may lower tariffs, but which also create new inefficiencies and dizzying complexities,” Mrs. Clinton said. “A small electronics shop, for example, in the Philippines might import alarm clocks from China under one free trade agreement, calculators from Malaysia under another, and so on — each with its own obscure rules and mountains of paperwork — until it no longer even makes sense to take advantage of the trade agreements at all. Instead, we should aim for true regional integration."
Think about that for a minute. 

Mrs. Clinton is so far into the pot calling the kettle black territory that she could star as Mrs. Potts in a remake of Beauty and the Beast.

Consider the plight of a company that seeks supplier certificates for purposes of its NAFTA certification. Later, one of its customers wants certification for the U.S.-Australia FTA. Oops, the rules of origin are different, so the company has to go back to the supplier for a new certificate. Of course, the supplier might not be familiar with the rules for Australia and assumes that since its product is NAFTA originating, it must qualify for the Australia agreement as well. Or maybe not, because in order to comply with NAFTA, its purchasing department was careful to find critical suppliers in Mexico. That effort, of course, hurts in the context of every other FTA. Now, multiply that set of problems for U.S. free trade agreements with Central America, Chile, Singapore, Jordan, Morocco, Israel, Bahrain, and soon Colombia, Panama, and South Korea. Each of these agreements (most of which were Bush-administration initiatives) is fundamentally at odds with the others.

The other effect of all these bilaterial and multilateral agreements is that many U.S. trading partners have better than most-favored-nation status. Today, if a country has MFN status, it is at a disadvantage to an FTA partner. So, one might wonder, why bother with finishing up the WTO talks (which Secretary Clinton would call larger integration)? It seems like the better approach is to seek an individual sweet deal.

But, as the Secretary of States seems to acknowledge, the proliferation of sweet deals makes it increasingly hard to comply with any of them. For that, I thank Mrs. Clinton, for pointing out the difficulty that U.S. trade policy has created at home.

How Do You Classify a Diaper Machine? Depends.

The question in National Presto Industries v. United States, is whether an adult diaper-making machine is classified in 8441 as other machinery for making up paper pulp, paper, or paperboard or in 8479 as other machinery having an individual function, not specified or included elsewhere in Chapter 84. Typically, one would assume that 8441 will apply because it is more specific than 8479, which is a basket provision. But, that analysis skips past General Rule of Interpretation 1. If the goods fit in 8441, they go there.

Presto, the plaintiff in this case, reasoned that because Customs classifies diapers as articles of paper pulp, the machine that makes a diaper must fall within 8441. Presto backs this up with Customs and Border Protection rulings saying that paper pulp provides the essential character to diapers. In addition, the Explanatory Notes to 8441 broadly state that 8441 covers machinery for producing made up articles of paper pulp.

The government, argues that because paper pulp makes up only a portion of the diaper, 8441 does not fully describe the operation of the machine.

Relying entirely on GRI 1, the Court of International Trade rejected the government's argument. First, it found that the heading specifically requires an inquiry into the type of product produced by the machinery. That is a diaper. Second, diapers are products of paper pulp. Thus, the machine produces articles of paper pulp and, therefore, goes in 8441. Plato could not have said it better.

[Note to self: Best. Headline. Ever.]

Monday, July 18, 2011

T. Boone Pickens Invokes NAFTA

According to this article, U.S.-based energy guy T. Boone Pickens feels that he has been unfairly cut out of a deal for the sale of electricity to Canada via wind production. I have no idea about the underlying facts, but I am always happy to see investors invoking the NAFTA Chapter 11 provisions, the corresponding investment provisions in other Free Trade Agreements, or free-standing bilateral investment treaties.

In the case of NAFTA, Mr. Pickens will need to prove that a Canadian governmental entity undertook a "measure" that violated a protection provided to U.S. or Mexican investors in Canada. Those protections include:

National Treatment: This means that the investor must receive treatment that is no less favorable than would be afforded to a similarly situated domestic investor.

Most Favored Nation Treatment: This means that the investor must receive treatment that is no less favorable than would be afforded to a similarly situated investor from any other country.

Minimum Standard: This means that the NAFTA parties must provide investors from other NAFTA countries treatment consistent with international law, including fair and equitable treatment. For American lawyers, this generally correlates to due process

Compensation for Expropriation: If a measure imposed by a NAFTA party directly or indirectly expropriates the investment of an investor from another party, is is "tantamount to nationalization or expropriation" of the investment, the investor is entitled to compensation unless an exception applies. Again, for American lawyers, this is comparable to fifth amendment takings law.

So, investors under NAFTA Chapter 11 and similar agreements have important rights. In the case of the NAFTA, these rights can be invoked through the Chapter 11 dispute settlement process. Here's wishing Mr. Pickens and Mesa Power the best of luck.

Sunday, July 17, 2011

Customs and Border Protection Updates ISA

Customs and Border Protection has posted an updated Importer Self Assessment Memorandum of Understanding. You can read that document here.

I don;t want to sound like a curmudgeon; I am at least two years away from that status. But, I have long had questions about the value of ISA participation. Looking at this MOU, the ISA member agrees to a number of things including:
  • Agreeing to comply with applicable CBP laws and regulations
  • Perform annual risk assessments
  • Make appropriate disclosures
  • Maintain results of testing for three years and make test information available to CBP upon request
  • Maintain an audit trail from financial records to CBP declarations, or an alternate system that ensures accurate values are reported to CBP
So, the ISA member has to perform annual testing and maintain the records for review by CBP. 

An importer that is not in ISA but behaves as if it were would undertake annual (or more often) risk assessments. Those reports, however, if done at the direction of counsel, would be privileged against disclosure to Customs. Further, the company could decide what to disclose to Customs. A company that is careful and interested in compliance would make disclosures to protect itself from penalties and to ensure that it has paid the appropriate amount of duties to the U.S. Further, a careful and compliant company is going to maintain records in accordance with the law.

It seems to me that ISA members have agreed to give up the flexibility that goes with internal controls. The main benefit for this undertaking is to be removed from the random audit pool. That is true and a valuable benefit. But, importers should keep in mind that ISA membership does not remove them the responsibility of responding to a so-called Quick Response Audit. Nor does it mean that Customs and Border could not launch a full-blown audit if it sees a reason to do so. And, the MOU specifically states that ISA members are not immune from penalty liability (although membership may be taken into consideration in setting penalty amounts).

So, I have a question for ISA members out there: Is it worth it? If so, how?

Sunday, July 03, 2011

Happy 4th, Happy Canada Day, Etc.

It's a long weekend here. I am catching up on e-mail and news. Here are a couple interesting things.

Australian Customs and Border Protection foils a plot to smuggle reptiles in teddy bears.
More smuggling in teddy bears; this time it's cash.
Detroit area boater finds Czech national swimming to US.
UPS package contained nearly $1 million in allegedly counterfeit watches.

Here is Steve Chapman in the Chicago Tribune dissing Trade Adjustment Assistance. The point I think he missed is that the difference between someone in Pennsylvania losing a job to someone in Texas and the same worker losing a job to Brazil is that no affirmative change in policy by the federal government helped the job move to Texas. Since the U.S. government entered into a trade agreement that ultimately cost that American a job, it seems only decent to provide some benefits to help the worker adjust.

Chapman also forgets that tariffs are only one variable in a complex decision on where to locate production facilities. It is true that most countries and most goods already have low duty access to the U.S. market. But, an FTA removes additional barriers to trade including creating protections for investors, improved intellectual property protection, more transparent customs practices, etc. The trick for policy makers in the U.S. is to be sure that our trading partners do not enhance their cost advantages by lower labor and environmental standards or failing to enforce their laws. That is the race to the bottom, which the U.S. should not facilitate.