Sunday, December 30, 2012

Broker Penalty by Default

I am barely back from a brief vacation. I note that in the ramp up to being a way from the office and while I was gone, the U.S. Court of International Trade did not stop pushing out decisions. So, this is the first in what should be a small group of catching-up posts.

United States v. Alejandro Santos is an action to recover a civil penalty from a licensed customhouse broker. That, in and of itself is relatively unusual. In the ordinary circumstance, the importer bears the brunt of the penalty. If you see a broker penalty case, you can usually assume there is some interesting story in the background. In this case, we don't get much in the way of background because the defendant failed to respond to the complaint. Thus, the only question here is whether the uncontested facts as asserted by the government are sufficient to establish its right to recovery.

The bottom line is that the government was able to plead facts sufficient to satisfy the Court that it was entitled to a default judgment against the broker. What is instructive here is the nature of the violations. Brokers should be aware of the complaints made against this defendant and take a moment to consider their own compliance process to ensure that similar errors do not arise.

Count One involved the broker billing entries to a freight forwarder without notifying the importer of record or ultimate consignee. If you don't know why that was a violation, see 19 CFR 111.36(a). That cost the broker $5,000.

Count Two involved the failure to produce a power of attorney from the importer of record on an entry. When the broker did produce a corresponding POA, it was dated subsequent to the date of entry and did not properly identify the broker as the attorney-in-fact. A valid POA is required under 19 CFR 141.46. This cost an additional $5,000.

Count Three involved the misclassification of corn husks as "vegetable hair" under subheading 1409.90.10 rather than 1404.90.90. Apparently, the entries involved in this count were made after Customs and Border Protection gave the broker advice concerning this classification. That was a $4,000 penalty.

The last count involved an entry of alleged U.S. goods returned, which were not entirely U.S. goods. The broker apparently acknowledged the error, but never corrected the 7501 entry document. As a consequence, Customs alleged both a misclassification and a failure to exercise due diligence. That was a $5,000 penalty.

Given the asserted facts and the lack of a challenge from the broker, the Court of International Trade held that the amount of the penalty (a total of $19,000) was reasonable.

One down . . . .

Thursday, December 20, 2012

The Tale of theTempura Tariff

R.T. Foods, Inc. v. United States involves the tariff classification of prepared tempura vegetables. Somehow, I was surprised to find out that this is an imported product, though a mental walk through the frozen food isle reminded me that just about any food product can be bagged, frozen, and shipped. In this case, the specific products were a tempura vegetable medley and tempura vegetable bird's nests. The medley consisted of a mix of sweet potato, carrot, something called "wing bean," green bean (or long bean), and eggplant. The bird's nests were julienned carrots, onion, and kale mixed together. Both products were dipped in tempura batter, frozen, packed and shipped.

Before it could get to the classification issue, the Court of International Trade had to deal with a jurisdictional issue. Remember that for the Court to have jurisdiction to hear a classification case, the importer must have filed a protest within 180 days after the date of liquidation and filed a summons in the Court within 180 days following the denial of the protest by Customs and Border Protection. In this case, the summons was filed about 200 days after the denial of the protest. That makes it appear to be untimely.

The plaintiff, apparently aware of the 180-day rule, noted in a footnote on the summons that it had requested that Customs set aside the denial of the protest. According to the plaintiff, that request tolled the running of the 180-day clock. The Court disagreed and held it lacked jurisdiction to review that protest. Although the Court did not reference it, this conclusion is consistent with an earlier case involving Sears.

On another protest, the Court of International Trade found it lacked jurisdiction to review Customs' decision because of the lack of a case or controversy. This is an important constitutional consideration for all federal courts. But, for our purposes here, it boils to the notion that if Customs liquidates your entries in a favorable provision and you have no injury, there is no jurisdiction by which the Court can review the protests. Such was the case here where Customs accidentally liquidated a number of entries under the plaintiff's proposed classification.

This decision left the Court with three entries on a single denied protest with which to consider the classification issue.

The classification proposed by Customs is 2004.90.85, "Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, frozen . . . ." This carries an 11.2% rate of duty. Plaintiff asserted that the vegetables were properly classified in 2106.90.99, which covers "Food preparations not elsewhere specified or included . . . frozen." This is a duty-free provision for products of Thailand.

The Court wisely and clearly unpacked Heading 2004 to find that there are five elements that must be present for goods to be classified in that heading:
  1. The goods are vegetables,
  2. that are prepared or preserved,
  3. otherwise than by vinegar or acetic acid,
  4. that are frozen, and are
  5. not products of heading 2006.
The Court then found that both the medley and the nests satisfy these five requirements. That makes 2004 a contender.

To be classifiable in 2106, the products must be:
  1. a food preparation, that is
  2. not elsewhere specified or included.

Given the Court's conclusion that the goods are specified and included in 2004, this makes 2106 the dark horse. To bolster its case, the plaintiff noted prior Customs rulings addressing the classification of vegetable chips and hors d'oeuvres. But, the Court found these products to be distinct from tempura-coated vegetables, apparently because of the number of other ingredients. The Court also noted that Customs has often classified tempura products based on the nature of the coated food item. Thus, these rulings were unavailing. Of course, we might also note that a Customs ruling cannot bind the Court of International Trade and is only relevant to the degree it has the power to persuade the judge. Apparently, he was more persuaded, if at all, by the tempura rulings.

Lastly, there was a bit of a tussle over whether the sweet potatoes in the mix should force the mixture to be classified in the heading for tubers. The Court first found that the sweet potatoes were not sufficiently material to require that the mixture be classified as such. Without saying so, it appears the Court conducted a GRI 3(b) essential character analysis and found that the sweet potatoes were not the essential character of the mixture. Finally, assuming the sweet potatoes were relevant, the Court noted that the proposed alternative only applied to edible parts of plants "not elsewhere specified or included. Because this mixture is include in 2006, it cannot be classified in heading 2008.

As a result, the mixed vegetable products, dipped in tempura, fried, and frozen were found to be classifiable in Heading 2004.90.85.

And now, I am hungry for a shrimp tempura udon.

Tuesday, December 11, 2012

A Saucy Decision

Generally, if I fall behind in my effort to report on decisions of the Court of International Trade, it is because I am busy. Such is the case currently. I have been traveling about the country for various events and business meetings. At the present, I am in Detroit having just enjoyed a shwarma dinner and a brief interlude with an elliptical machine. Now, I will take advantage of free WiFi to catch up on a relatively interesting case that I have so far failed to cover.

That case is International Custom Products v. United States. If that sounds familiar to you it is because this case has been in the Court of International Trade and the Federal Circuit in one form or another since 2005. The basic underlying issue is whether a prepared food product is classifiable as a dairy product or as a sauce base. This matters a lot because if it is a food product and the entries at issue were made without proper quota, the rate of duty owed increases 2400%. That is the very definition of a classification case worth litigating.

The issue in this specific case is whether the Notice of Action Customs issued to rate advance the entries conflicted with a ruling Customs and Border Protection had issued on the merchandise. If the Notice of Action was effectively a modification or revocation of the ruling, then Customs was statutorily required to go through a public notice and comment process to change the ruling. Customs argued that the ruling actually did not cover the products in the entry because the ruling request did not describe the same merchandise as was imported. This was based on an alleged difference in the amount of milk fat in the product and the possible absence of some thickening agents.

There is a lot of language in the decision (which is part of the reason I have waited so long to read it). The upshot is that the Court found that the ruling request did describe the same merchandise as was imported. Further, the ruling request properly described range of uses for the product. Thus, the Court found that the ruling was binding on Customs and could not be modified or revoked except by the notice and comment process (see 19 USC 1625).

The next step is critical. In the face of a binding ruling, is a conflicting Notice of Action the same thing as a modification or revocation of the ruling? According to the Court of International Trade, it is. As a result, Customs could not simply rate advance the entries without notice and comment. That means that the goods should be liquidated as entered and, therefore, this is a potentially big win for the plaintiff.

On the long road to this decision, there is some interesting side reading. First, there is an unusually long discussion of the credibility and scope of knowledge of the government's expert witness. The Court gave little weight to much of the expert's testimony because the Court believed that the expert was too personally invested in the outcome.

The second side issue is equally interesting. the government subpoenaed a former employee of the importer. While the Court also did not give much weight to this witness, her testimony gives a lot of insight into why the government has been pursuing this case so hard for so long. Keep in mind, I am just reporting here. I am not vouching for the content. What this witness said was that the principal of the company told her that the production of "white sauce" with high levels of milk fat "was just another way to bring in butter." In other words, this is a scheme to avoid the dairy quota.

My take on this is that the importer might have been engaging in a perfectly legitimate exercise of tariff engineering. There is nothing wrong with importing a high milk fat sauce and then processing it into butter once imported. But, that is going to be tricky to accomplish. If your plan is to do that and you get a ruling from Customs to ensure that you are doing it properly, be sure you explain ALL of it to Customs. Otherwise, you are likely to end up at the crossroads of Heartland By-Products and this case.

Friday, December 07, 2012

Customs Reauthorization Introduced

For ages, the trade has been expecting a bill to continue funding Customs and Border Protection and to make changes to facilitate legitimate trade. A bill has been introduced by Ways & Means Trade Subcommittee Chair Kevin Brady (R-TX) covering some of that ground. Here is a link to the bill summary. Here is the full text.

A few highlights include:
  1. Section 102(b) creates the office of Trade Advocate to serve as a liaison between the trade and Customs and Border Protection
  2. Field Operations would be transferred to the Office of International Trade under Section 102(d)
  3. The creation of an inter-agency Customs Review Board to provide comments on proposed regulatory changes
  4. Under Section 203, CBP must provide to Congress a report on its plans for completing the implementation of ACE
  5. A prohibition on agencies using ITDS from also using other electronic systems for cargo clearance
  6. It appears that cargo data previously only used for cargo safety and security will now be available for targeting for commercial enforcement. See Section 211(b).
  7. Joint training with the private sector to improve tariff classification and the enforcement of antidumping and countervailing duty measures. See Section 217.
  8. New requirements for non-resident importers to maintain an agent in the United States to accept service of process and potentially be liable for penalties. Section 224.
  9. The creation of a Certified Importer Program under Section 225. This gives a statutory right to expedited release for Tier 2 and Tier 3 participants in C-TPAT and ISA.
  10. The immediate release to a rights holder of an image or sample of imported merchandise suspected of infringing a U.S. copyright or trademark. Section 231.
  11. Provisions for the prevention of recurring evasions of antidumping and countervailing duty orders
  12. Increasing the de minimis value for purposes of imports from $200 to $800 in Section 402.
  13. Increasing the value threshold for formal entries to $2500, also in Section 402.

Tuesday, December 04, 2012

SCOTUS Updates

Yesterday was the Judicial Conference of the U.S. Court of International Trade, which is the biennial meeting of the judges and bar of the Court. There were some very interesting discussions about efforts to harmonize WTO dispute law, Customs seizures, and practice before the Court. Congratulations to the planning committee and the Court of International Trade staff for putting together the program. If you are interested, you can read the papers here.

During the conference, it was announced that the Supreme Court had acted on two petitions for review in Customs cases.

In the first, the Supreme Court denied certiorari in Hitachi (see here and here). As a result, Customs has no obligation to decide a protest before the two-year deadline. This means that if an importer wants to force a decision, it has no choice but to use the accelerated disposition process, which might be better termed "accelerated denial."

The Supreme Court also denied certiorari in Alden Leeds (see here and here). This result means that importers must track liquidations, whether deemed or affirmative, if they want to challenge them. The fact that the importer did not see the notice of the liquidation and that there really should not be notice of a deemed liquidation does not relieve the importer of that obligation.

Tuesday, November 27, 2012

Classification Litigation Can be Complex

Samsung International, Inc. v. U.S. proves that point. If you are interested in Samsung litigation that does not involve Apple, read on.

At its base, this is a case about whether plasma televisions and video monitors made in Mexico are entitled to be treated as originating under the North American Free Trade Agreement. If so, they may enter the United States free of duty and merchandise processing fee. The problem for Samsung is that the imported units include an assembly from Korea that consists of a plasma flat panel and various support electronics. Under the relevant NAFTA rules of origin, if that non-originating Korean assembly is classifiable as a "flat panel screen assembly" of 8529.90.53 in the HTSUS, then it fails to satisfy the tariff shift requirement of the NAFTA rule of origin.

So, the question is whether two specific configurations of subassemblies are FPSA's. It turns out that is a complicated question because FPSA is not defined in the tariff nor in the relevant Explanatory Notes. Tariff classification is always a two-step process. First, the Court must determine the meaning of the tariff terms. Only when the meaning of the tariff terms has been determined can the Court move on to step two, which is to apply to tariff language to the imported merchandise.

The parties and the Court of International Trade were not without guidance as to the meaning of FPSA. In HQ W967693 (Oct. 12, 2006)(the "Pioneer Ruling"), Customs and Border Protection adopted a definition of FPSA put forth by a NAFTA working group. According to the working group, an FPSA is "an assembly consisting of at least drive electronics, control electronics and a display device, other than LCD technologies."

This raises the issue of whether, and to what extent, the NAFTA working group definition should influence the Court of International Trade's interpretation of the term "flat panel screen assembly." In most case, when tasked with interpreting a tariff term, the Court of International Trade will turn to dictionary definitions, scientific texts, and "other reliable sources." In this case, the parties relied on the definition from the NAFTA working group and the Court agreed that it is a "reliable source." This was based in part on the fact that the definition is consistent with the language of the HTSUS and was formulated by experts in tariff classification. Thus, for purposes of this decision, the Court found that an FSPA is a part of a television set or video monitor that consists of at least drive electronics, control electronics and a display device, other than LCD technologies."

One important point the Court made should not be lost. In discussing the role of expert witnesses in tariff classification, the Court acknowledged that it may receive expert opinions with respect to the meaning of tariff terms. See footnote 18 in the opinion. In this case, the expert is not providing facts. Rather, the expert is providing an opinion as to the common meaning or understanding of a term. An expert opinion on the meaning of a tariff term, however, is advisory and given weight only to the extent it is consistent with the lexicographic and other reliable sources. If you are close to customs litigation, you should keep this notion in mind. It goes to the heart of how experts should be used in customs litigation and the degree of uselessness of fights over the scope of expert opinion on the meaning of a tariff term.

Another important point is that the Court extended Skidmore deference to the Pioneer ruling. Under Skidmore deference, the Court of International Trade will defer to a decision made by Customs and Border Protection to the extent that decision has the power to persuade the Court. In this case, the Pioneer ruling was subject to public notice and comment, which is indicative of persuasiveness. Nevertheless, the Court did not adopt Customs' the definition of drive and control electronics "in toto." Rather, the Court considered the definitions "to some extent." This point is important in that it shows that Skidmore does not require the Court to fully adopt Customs' interpretations of the law even though the Court can take them into consideration. In other words, Skidmore deference is not all or nothing.

In the remainder of the opinion, the Court sorted through the meaning of the terms "drive electronics," and "control electronics." In both cases, the Court relied heavily on both common dictionaries and technical dictionaries. The Court also reviewed inconsistencies in how the parties and their various witnesses used terms. The Court of International Trade held that drive electronics supply a signal or electrical current to another device in order to activate or run it. Control electronics accept a signal and process that signal in some way, such as translating  instructions in the signal and implementing the instructions in some other subsystem or device.

Having arrived at those definitions, the Court of International Trade went on to step two of the case and applied them to the facts. Looking at the two modules at issue, the Court found that each satisfies its requirements to be classified as an FSPA. Consequently, the non-originating components failed to satisfy the NAFTA tariff shift requirement and the imported products were not entitled to duty-free entry under the NAFTA.

Saturday, November 17, 2012

Is Luke Skywalker Still Human?

After the very successful DiCarlo Lecture at John Marshall this week, I was talking to colleagues and students about the history of funny tariff classification cases. The topics of G.I. Joe and X-Men came up. This lead to a discussion of my moot court argument over to what species Luke Skywalker and Han Solo belong. The result of that question impacts whether their plastic likenesses are dolls or other toys. Because people may be looking for that, I offer this link to the older post.

Monday, November 12, 2012

Law & Order: CBP

It is not often that case at the Court of International Trade takes on the flavor of a courtroom drama. It does happen, such as in the case of international intrigue and an an importation gone wrong. Recently, the Court decided another case that has the possibility of being turned into the most boring legal thriller ever, which is a step up from the usual customs case.

By way of background, it is important to know that not everything that transits the United States actually enters the commerce of the nation or is subject to a customs entry. One exception to the normal consumption entry process is the entry for transportation and exportation. See 19 USC § 1553(a).  Under this process, merchandise arrives at a port in the United States and is transported under bond to another port for export. The bonded carrier has certain responsibilities to prove exportation and, if it can't, then it risks being responsible for the duties owed and possible penalties.

That was the situation in United States v. C. H. Robinson Company in which Customs and Border Protection asked the Court of International Trade to order Robinson, the bonded carrier, to pay duties owed on the goods involved plus interest and liquidated damages for the breach of the bond.


In the Court of International Trade, the people are represented by two separate yet equally important groups--Customs and Border Protection, which investigates importers, and the Department of Justice, which seeks to collect from them. These are their stories. Actual importers have to get their own lawyers.

["Dum, Dum:" Fade in from black. Lawyers are sitting around a big desk. One is holding a cold scotch in a short glass.]
Essentially, what happened is that Robinson appears to have properly received the goods in Los Angeles and transported them to Laredo for export. When the goods arrived in Laredo, where a licensed broker was ready to accept them for exportation to Mexico. The broker stamped in the T&E documents at Customs and Border Protection's unmonitored date stamp machine. The broker also noted in its own log book that it received the T&E documents. However, the log does not show a date of exportation.

[Cue the ominous music.]

Robinson, for its part, had some documents to show proof of export to Mexico. Specifically, it produced the pedimentos corresponding to the exportations from the U.S. and the importations to Mexico. According to Robinson, it discharged its obligations to Customs and Border Protection when it delivered the goods and T&E documents to the broker in Laredo. That, according to Robinson, should be sufficient to end this case.

[Shot of Robinson's lawyers high-fiving.]

Unfortunately, that is not the last act in this courtroom drama. The government called an expert witness to discuss the actual contents of the pedimentos.

[More ominous music.]

It turns out that almost nothing in the pedimentos could be authenticated. The transaction numbers, tax identification numbers, and broker identifiers were all wrong. According to the expert, these documents could not have been successfully used to enter goods through the four checkpoints maintained by Mexico's customs authorities. As a result, the Court of International Trade concluded that it was more likely than not that the goods were not exported to Mexico and likely never left the United States.

This conclusion resulted in a finding that Robinson had failed to satisfy its regulatory obligation to the Port of Laredo. According to the Court, that obligation included more than simply certifying delivery of the goods to the broker. Robinson, according to the Court had to also account for the missing merchandise (i.e., the merchandise that entered at Los Angeles, was moved to Laredo, and apparently not exported to Mexico). The Court noted that Robinson had alternative measures to avoid liability such as checking with the carrier in Laredo to confirm exportation, using an immediate transportation process, or entering the goods for consumption. Having chosen to accept the responsibility of acting as the bonded carrier, it also had the associated risks. The court, therefore, ordered that Robinson pay the duties owed on the "missing" goods as well as liquidated damages and interest.

[Shot of banging gavel and government lawyers patting each other on the back.]

Wednesday, October 31, 2012

You can Tune A Piano

But tunafish in pouches is hard to classify.

In Del Monte Corporation v. United States, the Court of International Trade had to determine the correct classification of tunafish in microwaveable pouches from Thailand. The nub of the problem here is that the tuna was packed with sauces of various descriptions. Specifically, there was tuna with lemon and cracked pepper and lightly seasoned yellowfin tuna. The problem here is that tuna in airtight containers is subject to a 6% or 12.5% rate of duty when not packed in oil (depending on origin, etc.). On the other hand, tuna packed in oil is subject to a 35% rate of duty. For comparison, look at 1604.14.22, 1604.14.30 and 1604.14.10.

Thus, the ingredients in the sauce became the key issue. The lemon pepper sauce contained sunflower oil along with water, vinegar, and other materials. The oil made up about 2.48% of the weight of the product. The lighlty seasoned sauce also contained sunflower oil and other materials. In this pouch, the oil was only .62% of the weight. The tuna is not prepared or cooked in the oil, which is only in the sauce.

Protector of the Tuna

There were two problems for Del Monte, First, Additional U.S. Note 1 to Chapter 16 says, "[T]he term 'in oil' means packed in oil or fat, or in added oil or fat and other substances, whether such oil or fat was introduced at the time of packing or prior thereto." Second, there is a 1915 court decision in which the Court of Customs Appeals stated that it does not matter how the oil is applied, only that it is is part of the substance in which the fish is found packed at importation.

Faced with those two rules to follow, the Court of International Trade upheld Customs and Border Protection's classification of the fish. The fact that the Food and Drug Administration would not treat this as "in oil" did not control the CBP classification. And, the logical and scientific arguments indicating that the oil in the sauce was only a small portion of the product and was incidental to the water and other ingredients did not give the Court grounds to reverse Customs.

There was also a value issue in the case. Specifically, the importer protested the appraisal of the merchandise on the basis of post importation negotiations that resulted in a price decrease. The Court found no reason that these adjustments would not be rebates under the customs regulations and, therefore, properly ignored for purposes of valuation. If you are interested, see 19 U.S.C. 1401a(b)(4)(B).

Tuesday, October 30, 2012

Ancient Coins, Modern Courts

Despite what casual readers of this blog might think, customs law is not all about classification, value, and NAFTA. It actually covers a wide range of issues, many of which involve regulations that Customs and Border Protection enforces for other agencies. By way of example, you may already know that I have a strange fascination with the illegal (and reprehensible) trade in endangered species. Another interest of mine is the legal and illegal trade in cultural property.

A recent decision of the United States Court of Appeals for the Fourth Circuit discusses the regulation of trade in cultural property with respect to ancient coins.

By way of background, the Convention on Cultural Property Implementation Act ("CPIA") permits foreign governments, known as State Parties, to request that the United States prohibit the unauthorized importation of culturally significant items. The intent here is to staunch the traffic in illegally looted artifacts. To be eligible for protection, the object must be "archaeological or ethnological material of the State Party." That means that the object must have been first discovered within, and is subject to export control by, the State Party that requested protection for the object. Importation of protected objects is permitted if it is licensed by the home country, if it was exported from the State Party at least 10 years prior to importation to the U.S. and the importer owned it for less than one year, or the article was exported from the home State Party before the international convention took effect.

Ancient Coin Collectors Guild v. U.S. Customs and Border Protection involves the attempted importation of ancient coins from Cyprus and China. Both countries had requested protection for their cultural property. In publishing notice of the restrictions, the United States included coins among the types of objects subject to protection (even though coins were not specifically included in the requests). The coins being imported were of unknown provenance and the location of their initial discovery was also unknown. The likely, but unproven, reason for this is that the coins have been circulating among collectors for years (and probably as currency for many years before that). Customs asked for documentation proving the admissibility of the coins. The Guild produced none and Customs seized them.

On appeal to the Fourth Circuit, the Guild argued that the restrictions are ultra vires, which means that the government exceeded its authority by imposing these restrictions. The Court, however, noted that the CPIA involves a sensitive area of foreign relations in which Congress has delegated authority to the President, who exercises that authority through the State Department. Thus, the Court declined the invitation to take a searching review of the policy decisions behind the imposition of these restrictions. According to the Court, that is not a task for the judiciary.

On another point, the Guild argued that coins were not subject to seizure until the government shows that they were first discovered within and subject to export controls by the home State Party. The Court rejected this argument first on the grounds that it is logical to assume that the coins were actually discovered in Cyprus or China. More directly, it is the importer's obligation to show that the goods are admissible. Customs does not need to prove inadmissibility.

The Guild made a technical argument under the Administrative Procedure Act claiming that the decision to protect these coins was arbitrary and capricious. Moreover, the Guild argued that it was based on prejudgment and ex parte  (meaning one-sided) contact. The Court reject this line of argument first because the exercise of foreign affairs by the President is not subject to APA review. But, even if it were, the Court found that the action was not arbitrary and capricious.

Which means, of course, that the Court affirmed the district court and Customs and Border Protection. However, the Guild may get a second chance at this. The Court's decision only finds as a matter of law that the seizure was proper. Should it choose to do so, the Guild may now go through the administrative and judicial process of challenging the forfeiture of the coins based on the facts it can muster. But, that is a fight for another day.

Wednesday, October 24, 2012

U.S.-Canada Cargo Security

I was recently in Toronto to speak to the Canadian Transport Lawyers Association about the so-called Beyond the Border Action Plan. One of the initiatives under that project is a pilot at the Prince Rupert port of entry in Canada to harmonize cargo screening. The ultimate goal is to move to an environment in which cargo can be screened once and admitted twice. Here is the text of the U.S. announcement of the pilot:

U.S. and Canada Announce New Pilot to Strengthen Cargo Security

(Tuesday, October 23, 2012)
Washington— The United States and Canada announced the launch of the Prince Rupert Pilot to strengthen cargo security at the Canada-U.S. border as part of the Integrated Cargo Security Strategy in the Beyond the Border Action Plan. The pilot focuses on harmonizing the screening process for maritime cargo between the two countries.
“The Prince Rupert pilot implemented under the Integrated Cargo Security Strategy is key to the ongoing efforts to facilitate legitimate trade while still maintaining our security mission at the border,” said U.S. Consul General Anne Callaghan. “Harmonization of the cargo screening processes between the United States and Canada should result in a more efficient and secured supply chain and increased competitive economic posture.”
“The Canada-U.S. relationship is one of the world’s greatest trade success stories and we are working together not just at the border, but beyond the border, to increase our shared prosperity,” said the Honourable Ed Fast, Minister of International Trade and Minister for the Asia-Pacific Gateway. “Accelerating the movement of secure cargo between our two countries will contribute to job creation, strong economic growth and greater long-term prosperity for hard working Canadians and their families.”
The pilot, which began earlier this month, focuses on maritime cargo arriving at Prince Rupert, BC with subsequent movement via rail before entering the United States at International Falls, Minn. It utilizes a harmonized approach developed by the U.S. and Canada which allows for the screening of inbound cargo arriving from offshore.
On February 4, 2011, President Obama and Prime Minister Harper released the Beyond the Border Declaration, articulating a shared vision in which our countries will work together to address threats at the earliest point possible while facilitating the legitimate movement of people, and cargo across our shared border. The Action Plan, released on December 2011, outlines the specific steps our countries intend to take to achieve the security and economic competitiveness goals outlined in the Beyond the Border Declaration.

Hey Panama, Happy Halloween

The U.S.-Panama Trade Promotion Agreement comes into effect on October 31, 2012. According to the USTR, 87 percent of exports from the U.S. will become duty-free when the agreement is effective. That includes 56% of U.S. agricultural exports to Panama. To the best of my knowledge, Customs and Border Protection has not yet published a memo on making claims under the UPTPA. I would anticipate the formalities to be similar to other TPA procedures (including these for Peru).

I'll do my best to update this when something is posted.

Thursday, October 11, 2012

Pass an FA? Go Directly to ISA.

If you want, that is.

Here are the details courtesy of my law firm.

I remain skeptical of ISA benefits for companies that are sufficiently compliant to be in ISA, but that may just be me.

Monday, October 08, 2012

For Wilton, Classification is Not a Piece of Cake

OK, I admit that is a strained pun.

This particular Wilton case apparently has nothing to do with cake decorating paraphernalia. Rather, it has to do with hand operated decorative paper punches. These are items used by people who understand the term "scrapbook" to be a verb.

I gather the punches are similar to this item, although Wilton describes it as for making edible shapes for cake decoration and not for the production of scrapbooks and similar crafty pastimes. For a brief time, my mother was a freelance cake decorator. As a result, I ate far too many practice and rejected butter-cream roses in my youth. Thus, this die-punch system seems like cheating to me.

The tariff provisions at issue were Heading 8203, which covers, among other things, "perforating punches and similar hand tools" and 8441, which covers "Other machinery for making up paper pulp, paper or paperboard, including cutting machines of all kinds, and parts thereof . . . ."

Plaintiff sought to have the goods classified in 8441 as cutting machines. The problem for the plaintiff was the language "other machinery for making up paper pulp, paper or paperboard, including" implies that the cutting machines of Heading 8441 must be of a kind used for making up paper pulp, paper or paperboard. Consequently, the Court found that 8441 does not cover cutting machines. Rather, it covers paper production machines. While some paper production machines are cutters, not all cutters are paper producing machines. Because these punches are not paper making machines, they do not fall under Heading 8441.

Heading 8203, on the other hand, is an eo nomine description of perforating punches and similar hand tools. Relying on dictionary definitions, the Court of International Trade found that the punches are hand tools and that they are perforating punches. Thus, they are properly classified in 8203. Also, given that they are properly classified in Heading 8203, they are excluded from Chapter 84 by virtue of Section XVI, Note 1(k).

Update in Active Frontier

As you might gather from the title of this post, there has been more activity in the Active Frontier case. I previously posted about the question of whether the United States had properly pleaded the materiality of an allegedly false statement of origin.

After the previous decision, the Court of International Trade gave the United States 30 days in which to amend its complaint to set forth facts showing that it is entitled to relief. In response, the U.S. filed a motion to amend but failed to attach an amended complaint to the motion. Rather, the motion stated that the government would amend the complaint with respect to the element of materiality within three days of the Court granting the order. This implies (at least to me) that the amended complaint was pretty much ready to go.

But, without the document to review, the Court found no way to determine whether "justice . . . requires" allowing the amendment. Thus, the Court denied the motion, adding that the amendment should have been included with the motion to allow the Court to determine whether it should be granted. But, the Court granted an additional three days in which the government could refile, effectively ending up where the motion had requested.

This is an extraordinarily procedural decision, which normally would not merit attention here. In fact, I feel a little bad about the whole affair. But, it does point out a question I have heard from young lawyers and extremely logical law students. A lawyer seeking to amend a pleading, file an extra brief, or otherwise submit something to the Court without permission has a bit of a chicken and egg problem. The rules generally require leave of the Court or at least the consent of the opposing party to file an extra or revised document. Once permission is granted, the lawyer can comfortably file the document. But, if you file the document with the Court before you have permission, you are  probably in violation of some rule. So, it makes sense to file a motion to ask for permission to file the document without including the document.

On the other hand, my impression is that the Court generally wants to know whether the document the lawyer is seeking to submit is proper and useful. After all, why would the Court permit an amended complaint if it does not cure the existing defect or assert a valid new claim? Consequently, it may want to take a look before deciding whether it should be filed. In some cases, like this one, the contents of the document is what will determine whether it should be filed at all.

So, what usually happens is that lawyers file the motion to submit the document with the document attached, but as an exhibit rather than as the thing itself. In other words, the document labeled "Amended Complaint" is filed as an attachment to the motion and not simply submitted to the Court as an Amended Complaint. In this way, the lawyer has not actually improperly filed anything and the Court can, if it chooses to do so, look at the document to determine whether it should be filed. If the motion is granted, the attachment is docketed and becomes the official document.

If you read Active Frontier without that context, you might have either scratched your head wondering why lawyers would possibly argue about something like this or assumed someone had made a silly mistake. With that context, maybe you'll see that things are not always as clear as they look on paper.

Wednesday, October 03, 2012

Seizures Go to District Courts

Remember how excited I was about CBB Group Inc. v. United States? That was the case about the exclusion of merchandise from the United States and reminding the world that exclusions, which are not seizures, are protestable events. Denied protests of exclusions end up in the Court of International Trade.

In a recent case, PRP Trading Corp. v. United States, the Court revisited this topic, but with an unfortunate twist. The goods involved were aluminum extrusions allegedly from Malaysia. Customs and Border Protection detained that merchandise on the suspicion that it might have a different country of origin. While not discussed in the case, this likely relates to the fact that there is an antidumping duty order on aluminum extrusions from China.

Once the importer provided the merchandise to Customs for examination, Customs had 30 days to decide what to do with the merchandise. For two of the entries, the 30 days elapsed without a decision, causing the goods to be legally "deemed" excluded. On February 7, 2012, Customs decided to seize all of the merchandise and on March 23, provided notice of the seizures to the importer. Between those dates, on February 29 (according to the summons), the importer protested the exclusions. Consequently, Customs apparently had seized all of the merchandise at the time of the protest. And, the goods had been seized by April 12, when the case was commenced.

According to the Court of International Trade, the seizure on February 7 is the crux of the case. Because the seizure was accomplished prior to the commencement of the action, the Court of International Trade held that it lacked jurisdiction over the claim. The Court provided the plaintiff a week in which to provide reasons why the case should be transferred to a district court. In the absence of a reason to do that, the case will be dismissed.

There are some strange aspects of this case, which I needed to find by digging into the briefs. Apparently, Customs held on to the merchandise for a couple weeks before examining it. According to plaintiff, that caused a delay in the running of the deemed exclusion clock, which should not benefit the government. Honestly, I don't quite follow. When imported, Customs has five days in which to release the goods. After that, it is automatically considered "detained." After 30 more days, the goods are considered "excluded." That is a protestable event. So says 19 CFR 151.16. It seems to me that the clock runs pretty automatically, so I am not sure what impact CBP's delay may have had.

Second, I am really concerned about the delay between the seizure and the notice of seizure: about six weeks. The plaintiff in this case seems to have been prejudiced by that delay. This raises the question as to what is the legal date of the seizure. Is it the date CBP decides to act or the date it tells the importer it has acted. Maybe it is the date the importer receives the notice. I'm not sure of the answer as the regulation requiring notice (19 CFR 162.75) does not appear to specify. There may be an answer to this question, but that will require more work than I have time for at the moment. If anyone knows the effective date of the seizure, drop a comment.

Monday, October 01, 2012

Mozzarella Mafia?

Hat tip to my friend Paul who alerted me to this story.

Read the article.  The upshot is that police officers are being charged with smuggling American-origin cheese into Canada for sale to pizzerias. Apparently, American-origin cheese (as opposed to "American cheese") costs roughly a third of the equivalent in Canada. Thus, the officers were making $1 thousand or more per run to the U.S. cheese monger.

Mayor McCheese could not be contacted for a statement.

Monday, September 24, 2012

CIBA Vision: Questions of Law vs. Fact

In CIBA VISION Corporation v. United States, the Court of International Trade waded into one of those legal issues that I wonder about when my head is not occupied with more useful thoughts concerning beer and comic books. Specifically, the question of whether the meaning of a tariff term is a question of law or a question of fact.

The case involves the tariff classification of something called Nelfilcon Polymer Solution, which is used in the production of disposable soft contact lenses. This material is made through the acetalization of polyvinyl alcohol. You are on your own to figure out what that means (though I did provide a handy link). Apparently, after this process, the resulting material is 95% acetalized PVA (meaning Nelflicon) and used exclusively for molding into contact lenses.

Customs treated the material as "Polymers of vinyl acetate or of other vinyl esters, in primary forms; other vinyl polymers in primary forms: Other: Other: Other (3905.99.80). CIBA protested and asserted that the correct classification is under 3905.30.00 as "Polymers of vinyl acetate or of othervinyl esters, in primary forms; other vinyl polymers in primary forms: Polyvinyl alcohols, whether or not containing unhydrolyzed acetate groups."

In most classification cases, the Court will note that classification is a two step process. In the first step, the Court determines the meaning of the tariff language. That is a question of law. The second step is to determine whether the imported merchandise fits within the properly understood tariff term. That is a question of fact.

In this case, the parties agreed as to the nature of the merchandise and that it belongs in Heading 3905. The case turned entirely on which of two subheadings was applicable to the goods. More specifically, the question for the Court to decide was whether Nelfilcon is a form of PVA, in which case it falls in 3905.30.00.

The tariff term "polyvinyl alcohol" must be given its common and commercial meaning (which are presumed to be the same). To determine that meaning, the Court may rely on its own understanding of the term as well as on "lexicographic and scientific authorities." As a side note, I suspect the CIT uses the word "lexicographic" more than any other institution in the world outside of the International Journal of Lexicography.

Here, the Court was apparently presented with several good definitions of PVA from CIBA regulatory filings as well as various technical journals. Also, in HQ 964854 Customs refers to the merchandise as "an acetylized polyvinyl alcohol (PVA)." The Commerce Department lists certain types of PVA as excluded from an antidumping duty order and describes them as classifiable in 3905.30.00. While none of this is binding on the Court, it strikes me as pretty good evidence of the common and commercial meaning of the term. Nevertheless, the parties' Joint Statement of Material Facts does not contain the legal conclusion that the merchandise is commonly known as PVA.

Given this lack of a smoking gun agreement, the Court found that it was not able to fully embrace or exclude either proposed classification. Thus, it denied both motions for summary judgment.

This is where I split a legal hair. The Court denied the motion because "a genuine dispute of material fact exists as to the meaning of 'polyvinyl alcohol' . . . ." I don't think that is really correct. Rather, I think the Court is simply not satisfied that it has a sufficient basis on which to decide the question of law. In that case, there may still be grounds to deny the motion for summary judgment and reason enough to have a trial to sort out the common and commercial meaning based on documentary evidence and testimony, if that will help the Court.

The more vexing legal problem is, I think, the nature of that trial. The older I get and the more classification cases I read, the more I think we might be missing the point of these proceedings. In most cases, like this one, there is no dispute as to the nature of the merchandise. That can often be stipulated by the parties. The only dispute is the meaning and scope of various tariff terms. That means the only thing before the Court is often a question of pure legal interpretation. I think that means that field of information available for the Court to review is far and wide.

Basically, I think any example of usage or illustration of meaning is fair game for the Court to consider. That is radically different from what we often do in these cases, where we get bogged down in questions of whether a particular document using the language in question is admissible, for example, as a business record or otherwise authenticated as reliable.

When Courts review the Constitution, statutes, and even contracts, they use whatever scholarly sources they find to decide the meaning of terms. That is what judges do, they interpret laws. I doubt that a classification case should be any different. Granted, the Court might still want to have a trial (or maybe "hearing" is a better term) to consider various examples of usage and maybe hear from experts in the relevant field on their views as to usage. But, the focus would be squarely on the law, not on the facts (unless there were a material fact in dispute).

For now, I leave it to you my fellow customs lawyers to tell me where I have gone wrong. This is an idea I am batting around and I am fully willing to have it crushed on legal or practical grounds. For now, it strikes me as something worth considering.

Monday, September 17, 2012

Classification Pedagogy

The Court of International Trade, like all courts, sometimes puts on its collective professor's hat and does a little explicit teaching to the trade and, possibly, to the Court of Appeals for the Federal Circuit. I am not sure who was the intended audience for this lesson, but Telebrands Corp. v. United States is pretty explicit about the lesson for the day.

The underlying issue in Telebrands is the classification of something known as the PedEgg pedicure set. This is one of America's great "As Seen On TV" products; just behind the pocket fisherman, the in-the-egg egg beater, and spray-on hair

The PedEgg is similar to a cheese grater used to remove hard calloused skin from the foot. The genius of the PedEgg is that it conveniently collects the skin remnants inside the plastic egg shaped body. Important for our purposes, it also comes with two adhesive emery pads that are intended to be applied to the PedEgg body and used to finish the skin surface.

The Court was clearly interested in making a point, because it started its analysis with this statement (footnotes omitted):

Because there seems to be confusion in some of the Court cases about how classification is to proceed in general, the court sets forth the background here. Resolution of classification disputes under the HTSUS is guided by its General Rules of Interpretation (“GRI”). Honda of Am. Mfg. v. United States, 607 F.3d 771, 773 (Fed. Cir. 2010). What is clear from the legislative history of the World Customs Organization (“WCO”) and case law is that GRI 1 is paramount. It provides in relevant part, “classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes.” GRI 1. GRI 2 references specific issues such as unfinished goods and mixtures, not relevant here, and subsequent GRIs refer to ways of classifying goods which fit into more than one heading. GRI 2–3. The Explanatory Notes to GRI 1 state that “the terms of the headings and any relative Section or Chapter Notes are paramount, i.e., they are the first consideration in determining classification” and the GRIs are to be considered in numerical order. WCO, Explanatory Note V(a) to GRI 1, HTS. The headings and relevant notes are to be exhausted before inquiries, such as those of GRI 3, are considered, e.g., specificity or essential character. The HTSUS is designed so that most classification questions can be answered by GRI 1, so that there would be no need to delve into the less precise inquiries presented by GRI 3. Similarly, GRI 6 requires classification among the competing subheadings according to the terms of the subheadings and related notes and in the same way and order as in the previous GRIs. Thus, only after exhausting the terms of the subheadings and related notes would one turn to GRI 3 to choose between two or more potentially applicable subheadings.

All of which is true and too often forgotten. When you have a product that can be described by two or more headings, it is a mistake to ask which is more specific or to classify based on essential character until you have completely exhausted the legal notes applicable under General Rule of Interpretation 1.

In this case, the importer wanted to classify the PedEgg and the two emery pads as a manicure or pedicure set of 8214.20.90 as opposed to an other article of cutlery of 8214.90.90. That means that the product must constitute a set, and that is where the controversy arose.

According to the Court, this collection of items is not a set. The Court adopted a definition from that "a set." for GRI 1 purposes, is a collection of items to be used together or a group of things that belong together and are so used. In this case, the PedEgg is a single article to which the emery pads are intended to be affixed. They cannot be used on their own and are useful only when joined to the PedEgg shell. Thus, the Court found that the PedEgg and emery boards is a unitary item of cutlery rather than a collection of items to be used together.

There was another issue as to whether the PedEgg came in a container sufficient to satisfy the requirements of the set subheading. But, because the Court found it not to be a set, that issue became moot.

Often times people ask me to explain what I do for a living. I struggle to find good examples of classification cases that will make sense to someone who has never seen the HTSUS. This case will allow me to stop talking about shelf-bras and mellorine.

Friday, September 07, 2012

Pleading in Default Cases

One might reasonably assume that if Customs and Border Protection sues a company in the United States Court of International Trade to collect a penalty and the defendant company never shows up to defend itself, that it would be a slam dunk for the U.S. Usually, it is not too difficult to get a default judgment. But, sometimes it is. That was the case in United States v. Active Frontier International, Inc.

The case involved allegedly false declarations of origin on apparel imports. Customs asserted a penalty under section 592 of the Tariff Act of 1930 (19 USC 1592). AFI did not respond to the pre-penalty notice or the subsequent penalty notice. When it was sued in the Court of International Trade, AFI did not respond to the summons and complaint. That allowed the United States to seek a default judgment against AFI.

The problem for the U.S. was that to collect a penalty, the United States needed to assert that AFI had made a material false statement or omission in connection with the entries. The Court looked at the pleading for some facts to support a finding that the misstatement of origin was material. This is in an interesting question because compliance professionals are likely to simply assume that the country of origin is a material fact. But, the Court is essentially asking the government to at least assert in a pleading why that might be true.

In this case, the goods came from China. Initially, the government defined that false statement of origin as material because it prevented Customs from making a proper determination as to origin. The Court found this to be too circular to serve as a basis for finding the statement to be material. And, it was not enough for the government to simply state that the origin might affect the admissibility of the merchandise. In other words, the Court rejected implication from the pleadings and from Customs' Informed Compliance Publication that a false statement of origin is per se material.

For a statement to be material, it must be of "such a nature that knowledge of the [fact] would affect a person's decision-making; essential." For that U.S. to collect a Customs penalty it needs to show that the false statement was material, meaning it would affect Customs' decision-making. And, even in a motion for default judgment, the Court of International Trade will require that the United States plead facts showing why the allegedly false statement is material.

So, as we have said before, don't assume that a mistake is a violation and don't assume that Customs can collect duties or a penalty for every mistake. The details matter.

Monday, August 20, 2012

CAFC: Drawback Claims Must Be Complete

Just when I though I had some breathing room, things are getting busy again. Not that I am complaining. The Courts have been busy too. The Federal Circuit just issued a decision in a drawback case called Shell Oil Company v. United States in which is affirmed the Court of International Trade's decision. Oddly, I can't find  a post on the earlier case. You can read the opinion here.

Shell involves drawback claims for Harbor Maintenance Tax and Environmental Tax Shell paid on petroleum imports that were then exported or substitute merchandise was exported. Shell made the claims but, because the ability to claim drawback on HMT and ET were being hotly contested at the time, it did not include those amounts in its calculation of the amount claimed. Subsequently, in 1999, Congress amended the drawback law to clarify that any duty, fee, or tax imposed under federal law because of importation could be the subject of refunds under drawback. To facilitate this, Congress also created a six-month period in which claims could be made despite the normal three-year period having run. Then, in 2004, Congress further amended the law to clarify that any duty, tax, or fee imposed upon entry. This amendment was applicable to claims made after the effective date or claims not final on that date.

After the three-year period for filing drawback claims had expired, Customs liquidated the claims and did not refund HMT or ET (presumably because it had not been requested). Shell protested and in the protest asserted that HMT and ET should also be refunded. In 1997, Customs denied the protests, in part on the grounds, later reversed by Congress, that HMT is simply not subject to drawback. In 1998, Shell filed a summons in the Court of International Trade.

Unfortunately for Shell, the Federal Circuit found that the effort to include HMT and ET in the claims was too late. A party seeking drawback must make a claim for an "amount certain." It cannot put the burden on Customs to determine the correct amount to be paid the claimant. The six-month window for filing a claim did not correct or complete the previously filed claim and Shell did not assert those claims until it filed protests more than three years after the date of export. Further, the fact that Customs would likely have denied the claims, making them subject to protest, did not (in this case) excuse Shell from filing the protest. Finally, the subsequent amendment in 2004 applied only to unliquidated claims. Because Shell's claims were liquidated, it had no impact on the case.

Thursday, August 16, 2012

Lobsters, Take 3

I should read my own blog.

Apparently, I know all about how lobsters are processed at Canadian plants. See this post for background.

Image via Amazon. Go buy a can of Maine Goodness.

Wednesday, August 15, 2012

Request to Void a Protest Does Not Toll Summons Date

A statute of limitations is a tough thing. Miss filing within the provided period and you most likely lose your ability to have the case reviewed at all. This is particularly true in customs cases where an importer is trying to sue the United States. As a general principal, the U.S. government is immune from suit unless it has waived that immunity. A party that tries to take advantage of a waiver of sovereign immunity needs to satisfy the legal requirements of the waiver.

At its heart, that is what Sears Holdings Management Corp. v. United States is about. Sears filed a protest concerning the tariff classification of some footwear. Customs and Border Protection then denied the protest. At that point, the limitations period began to run giving Sears 180 days (until May 15, 2010) to file a summons in the Court of International Trade, unless something stopped the clock. Lawyers call that "tolling the period." Sears exercised its rights under 19 USC 1515(d) by requesting that Customs void the denial of the protest. Customs did not deny that request until August of 2010, at which point Sears filed a protest of that decision. Customs rejected the second protest stating that the decision not to void a denied protest is not itself protestable. Sears then filed a summons in the Court of International trade in February of 2011, within the 180-day limitations period from the date Customs rejected the second protest but after the 180-day period applicable to the first protest. The government moved to dismiss saying that the summons was time barred.

Unfortunately for Sears, Congress did not provide for tolling in section 1515(d). Rather, the law provides in section 1515(c) that "All denials of protests are effective from the date of original denial for purposes of [the statute of limitations]." According to the Court of International Trade, this language is applicable to requests for voidance, even though the language appears in the section relating to requests to set aside a protest.

And, the fact that Customs' rejection of the second protest is not itself subject to judicial review does not create a cause of action under the Court's residual jurisdiction. The Court reasoned that the decision not to void the protest was simply an unreviewable action, leaving Sears without a remdedy.

Tuesday, August 14, 2012

Sorry Sarah

I have noticed an uptick in comments that do not relate to the topic at hand or which relate just a bit but remain simultaneously devoid of content and yet filled with irrelevant links. 

So, I am turning on Comment Moderation. That means, I will read and approve comments before they are posted. I hope this is not inconvenient for you or for me.

Matt, please keep those excellent snarky comments coming.

Monday, August 13, 2012

Lobster Fight

I am just back from a week in Boston with a side trip to Portland, Maine. A few lobsters gave their lives for me and my family. Ditto a few dozen clams and sundry other sea creatures.

While we were in Maine, the local news was covering a dispute between Maine lobster-men and their New Brunswick, Canada counterparts. Because of the glut of lobsters, prices have fallen. The New Brunswick industry wants to keep low priced Maine lobsters out of the market and protested by literally blockading the Maine lobster boats from dropping their haul at New Brunswick processing plants.

This raised several questions in my head. First, what "processing" is done to lobsters? Most are pegged or banded in the boat and then live out the remainder of their lives in tanks waiting to be steamed or otherwise prepared. I suppose there are also industrial producers making frozen tails, lobster meat salad, and other goodies.

The second question I had was whether anyone was taking any legal action as a result. It turns out that the Maine industry did get an injunction against further protests. Also, Maine Senator Olympia Snowe has asked the State Department to help resolve the dispute. Her press release and letter to Secretary of State Clinton is here.

In my mind, this looked like a potential NAFTA Chapter 11 issue. I wondered whether the actions of the Canadian industry might count as a "measure" that is in violation of the national treatment provisions of the agreement. Certainly, the U.S. product is being treated in a manner that is less favorable than the local industry in similar circumstances because only the U.S.-origin lobster is being prevented from entering the processing plants. In intent and effect, the blockade hinders only the U.S. industry.

Second, I wonder whether there is an investment in Canada that is being harmed. Probably not. The Maine industry, as I understand it, just drops its catch in New Brunswick for processing. But, the recent NAFTA panel decision involving Cargill's sales of high fructose corn syrup to Mexico provided a very broad definition of an investment to include, in part, the development of a supply chain. So, may be there is an investment in the broader North American market that can be protected via NAFTA Chapter 11. 

But, this is a private action, not a measure adopted by the government, so that is a problem for my theory. The current lack of a governmental measure probably means there is no NAFTA case. That, of course, does not prevent me from musing on the topic, which might end up as an law school exam question at some point.

Sunday, August 12, 2012

Jensen follows Hitachi

Remember the Hitachi decision in which the Court of Appeals for the Federal Circuit upheld a Court of International Trade decision that Customs and Border Protection is under no legal obligation to decide a protest within the two-year period provided in the statute and regulations? We discussed it here.

A related issue was addressed in Norman G. Jensen, Inc. v. United States, which we discussed here.
The Federal Circuit has now decided the appeal in Jensen. And, in what is probably not a surprise, has affirmed the dismissal of the case. Jensen is different than Hitachi in that Jensen tried to force Customs to decide the protest via a legal tool known as a writ of mandamus. Jensen brought its case under 28 U.S.C. 1581(i), which is the residual provision giving the Court of International Trade jurisdiction to review decisions relating to the administration and enforcement of the collection of revenue on imports, provided there is no other adequate means of securing judicial review. In most customs cases, the other adequate means is via the review of a denied protest under 28 U.S.C. 1581(a). Because there has been no decision on the protest and the two-year period has expired, Jensen went to Court under (i) to force Customs to approve or deny the protest.

In response, the Government moved to dismiss the case. The government argued that 1581(i) was not the proper basis for jurisdiction. The Government would have Jensen wait for, or force, a decision on the protest. The Court of International Trade agreed and dismissed the action.

On appeal, Jensen argued that forcing a decision via a request for accelerated disposition is not an adequate remedy because it will inevitably lead to a denied protest and further litigation. Rather, its goal in seeking a writ of mandamus is to force Customs to consider the protests and issue a reasoned decision.
The Federal Circuit did not agree. According to the Court, a request for accelerated disposition under 19 U.S.C. 1515(b) would result either in a reasoned decision from Customs or in a deemed denial. Assuming the protest was not approved, either a deemed denial or a denied protest would provide the Court of International Trade with jurisdiction to review the protested liquidations under 1581(a).

Jensen also argued that it had a statutory right to an immediate decision because of the passing of the two-year period. This argument, however, did not hold up following Hitachi, which held that the two-year period was not a meaningful deadline. The fact that Jensen was only seeking a decision from Customs—as opposed to Hitachi, which asked the Court to hold that the protests were automatically approved—was not a meaningful distinction. As a result, the Federal Circuit affirmed the decision to dismiss the case.

All of which is interesting background given that Hitachi has filed a petition for review in the U.S. Supreme Court. As in all cases, the chances of the Supreme Court granting review are slim. That may be exacerbated by the fact that this issue can only come up in the Court of International Trade and Federal Circuit. On the other hand, Supreme Court watchers tell me that the Court may look more closely at Federal Circuit decisions because the issues raised there cannot be worked out in other circuits. We shall have to wait and see.

Ford Jurisdiction Ruling Reversed at Federal Circuit

The Court of Appeals for the Federal Circuit has reversed a decision from the Court of International Trade concerning Ford's effort to secure refunds of allegedly excessive duties paid. The complication in this case is that Customs and Border Protection had not yet liquidated the entries and also had not sent Ford a notice of the suspension of the liquidation. After Ford filed a suit in the Court of International Trade challenging the duty payments, Customs liquidated and reliquidated the entries via the Reconciliation process. As might be expected in the ordinary case, Ford then protested the liquidations and the protests were denied. For our purposes, the important thing to note is that the court case was initiated prior to liquidation and, therefore, did not challenge a denied protest (although Ford did initiate separate litigation following the denials).

If you understood all of that, you can guess that the government moved to dismiss the claims because Ford could have waited for the denied protests rather than ask the Court to recognize its jurisdiction under 28 USC 1581(i), the residual jurisdiction provision. Unless 1581(a) is manifestly inadequate, importers generally (but not always) need a denied protest to get into Court. In contrast 1581(i)(4) gives the CIT jurisdiction to review actions involving the administration and enforcement of the collection of revenue from tariffs, among other things. But, as was mentioned above, 1581(i) usually only applies when the importer cannot challenge a denied protest and get the same or other adequate relief.

The problem for Customs is that whether a court has jurisdiction is usually tested based on the facts present at the time the case was filed. At the time this case was filed, Customs had not liquidated the entries and there was no denied protest to challenge. The Federal Circuit recognized this rule and wrestled with various exceptions to it. However, it found that while the subsequent liquidation and denied protests created a second avenue for litigation, the government's post-summons actions did not destroy the Court of International Trade's subject-matter jurisdiction that existed at the time of the summons.

Having reached that conclusions (and deciding against the government on some other technical points), the Federal Circuit next had to decide whether Ford abandoned some of its claims. The argument was that Ford challenged the lack of liquidation without proper notice of suspension. However, Ford acknowledged in a brief that Customs subsequently extended the liquidations. This led the Court of International Trade to conclude that Ford abandoned these claims. The Federal Circuit disagreed and held that the statement in the brief was not sufficient to find the claims were either moot or abandoned.

Lastly, the Federal Circuit also reversed the Court of International Trade's remaining decision to dismiss other claims brought by Ford. This was a discretionary decision by the CIT and seems to have relied in large part on the fact that the 1581(a) case was available to get the same relief. Despite that, the Federal Circuit vacated on the grounds that the CIT's exercise of its discretion was closely connected to its other rulings in the case and those rulings were reversed.

This is not one of those cases that has obvious and immediate applicability for day-to-day compliance. It does, however, illustrate the complexity of customs litigation and the important interplay between liquidation, protests, and properly getting a case before a judge. The belt and suspender approach applied by the lawyers in this case was worthwhile as was continuing with the (i) litigation so that the rest of the importing community knows that the time of filing rule applies in these cases.

Tuesday, July 31, 2012

Testing Protests

The content and timeliness of customs protests is a perennial topic of discussion. I covered here, for example, and probably in a dozen other places. Two recent decisions from the Court of International have had to wade back into that swamp.

First, some background. Except in unusual circumstances, when Customs and Border Protection liquidates an entry, the liquidation and all of Customs' decisions wrapped into it become final and conclusive. This is what prevents Customs from trying to collect duties from an importer after liquidation. There are a few exceptions. The first is where the importer was negligent, grossly negligent, or committed fraud in connection with the entry. In that case, Customs can collect the amount owed plus assess a penalty. That protects Customs in the event it liquidated an entry based on bad information. The flip side is that an entry is not final if the importer files a valid protest within 180 days of liquidation. This protects the importer in the event Customs has made a mistake in the liquidation.

The problem for importers is that protests need to be timely and otherwise valid. Timeliness is the easy part: the importer has 180 days. That's it. No extensions and no excuses. Validity relates to whether the protest is of a "protestable event" and whether the nature of the challenged decision was sufficiently well explained. If the protest challenges something that is not protestable (e.g., the collection of money through a voluntary tender) or fails to explain the challenged decision, the protest will fail.

This is important for two reasons. First, a valid protest might actually result in corrective action from Customs. Much more tragically, an invalid protest might result in the loss of any opportunity to have the denied protest reviewed by the Court of International Trade.

In Acme Furniture Industry, Inc. v. United States, the first question was whether the importer's protest addressed a protestable event. Congress has listed protestable events in 19 U.S.C. § 1514 as:

(1) the appraised value of merchandise;
(2) the classification and rate and amount of duties chargeable;
(3) all charges or exactions of whatever character within the jurisdiction of the Secretary of the Treasury;
(4) the exclusion of merchandise from entry or delivery or a demand for redelivery to customs custody under any provision of the customs laws, except a determination appealable under section 1337 of this title;
(5) the liquidation or reliquidation of an entry, or reconciliation as to the issues contained therein, or any modification thereof, including the liquidation of an entry, pursuant to either section 1500 of this title or section 1504 of this title;
(6) the refusal to pay a claim for drawback; or
(7) the refusal to reliquidate an entry under subsection (d) of section 1520 of this title;

In its complaint, Acme challenged the collection of antidumping duties on imported day beds from China after it received a  ruling from the Commerce Department that certain of its beds were with the scope of the relevant order. The Court of International Trade noted that Customs' role in the collection of antidumping duties is ministerial, meaning it acts on Commerce's instructions.  Because the scope determination is not a listed protestable event and Customs has made no independent decision with respect to the collection of the duties, the protest was invalid. As a result, the Court found it lacked a basis for jurisdiction to review the issue.

Acme raised a second point (which was actually Count 1). This claim asserted that Customs improperly failed to reliquidate entries of non-scope merchandise pursuant to instructions from Commerce. Here, the Court reviewed the instructions and found that they clearly addressed only unliquidated entries. As a result, the importer was, according to the Court, not entitled to reliquidation of past entries on which it was charged antidumping duties. To the extent Customs did erroneously reliquidate entries to the benefit of Acme, it has no basis to complain. Thus the case was dismissed.

This case reminds me a little of the problem in Canadian Wheat Board. In that case, the whole antidumping duty order was revoked on remand but Commerce instructed Customs to refund duty deposits only from the date of the revocation, not for prior but still unliquidated entries. The Federal Circuit reversed that practice. But, unfortunately, that case did not reach the question of how to treat liquidated entries. Based on the above discussion about liquidations becoming final unless properly challenged, that seems easy to answer.

The second case on protests is Chrysal USA, Inc. I'll get to that one soon.

Sunday, July 29, 2012

Golden Tchotchkes

I am making progress on my continuing effort to catch up. Evidence of that is that I am about to do a post on a case from June: Salem Minerals Inc. v United States.

The merchandise at issue in this case is a little hard to picture. It consists of small glass vials containing a clear fluid with specks of gold leaf and topped with a small figurine. Happily, the plaintiff has a web site that includes pictures of its products, including this one:

The gold leaf fragments are "very small in weight per vial" and are not worked or formed during production. The anionic solution in the vial serves to magnify the appearance of the gold leaf. The themed caps are cast of tin alloys and may be electroplated with 18k gold. The gold leaf constitutes about 38% of the value of the imported products.  The vials are sold to tourists rather than through fine jewelry stores or other high-end outlets.

Customs and Border Protection classified these products under Heading 7114 as "Articles of goldsmiths' . . . wares . . .: Of other precious metal whether or not plated or clad with precious metal." The importer protested that classification are asserted that the goods are better classified in Heading 7115 as"Other articles of precious metal . . .: Other . . . Other: of gold, including metal clad with gold."

The Court of International Trade said that the issue boils down to the sole question of the meaning of the term "articles of goldsmiths' wares." After looking at a number of dictionary definitions for goldsmiths and smiths in general, the Court concluded goldsmiths' wares are generally articles of some utilitarian or decorative use made through the application of a skilled craft-person. Also, Chapter 71, Note 10 limits the scope of the heading to, for example, articles of household, office or religious use and jewelry. Further, in an interesting historical note, the Court pointed out that gold leaf is produced by goldbeaters, who form a distinct class of artisans from goldsmiths. Thus, the gold leaf is not a goldsmith's wares. And, as a result, the gold leaf vials do not constitute goldsmiths' wares because the gold flecks have not been worked by a goldsmith beyond the simple beaten state.

Props to Judge Aquilino for the turn of the phrase: "It is just a tchotchke, not something like creative exemplars of Explanatory Note 71.14."

Saturday, July 28, 2012

Customs Business vs. Compliance

Corporate compliance is tricky enough without having to worry about whether the compliance person is actually committing a violation simply by doing his or her job. This actually comes up because the law regulating customs brokers requires that no one engage in "customs business" on behalf of another party without having a broker's license. This makes perfect sense when thinking about an independent professional conducting business on behalf of others for money. That person should be licensed.

On the other hand, importers can manage compliance on their own. The law requires that importers act with reasonable care and define that, in part, as having internal customs experts. Corporate importers do this by having compliance managers to oversee import (and export) operations.

The problem is that many companies are part of families of related entities.  Often, there is a corporate parent and multiple subsidiaries and possibly subsidiaries of subsidiaries. Usually, these companies are separate legal entities.

As you may have noticed, the economy has not been great. Many companies have reacted by working hard to consolidate resources and eliminate redundancy. On way to do that is to set up shared services. Where subsidiary A and subsidiary B both need import compliance managers, it might make sense to have the same person perform that task for both companies. But, according to Customs and Border Protection, an unlicensed employee of subsidiary A cannot conduct customs business on behalf of related subsidiary B because doing so is acting as a customhouse broker without a license.

Customs and Border Protection, I must admit, has gone pretty far by limiting the definition of "customs business." As it stands now, corporate compliance people can do almost all background tasks related to import compliance. There is a grey line that separates compliance work like tariff classification and identifying dutiable assists from customs business. When the compliance person starts signing documents for submission to Customs (e.g., filing entries, responding to CF28's, etc.) that is customs business.

I am thinking about this for two reasons. The first is this ruling in which Customs mostly reaffirmed its position that unlicensed compliance professionals cannot engage in customs business for a party related to their employer. But, this ruling includes a couple wrinkles. First, the compliance professional was an officer of a number of the related entities and an employee of another. According to Customs, serving as a duly elected officer of the corporation is sufficient to allow that officer to conduct customs business on behalf of the related companies. But, Customs also held that the officer could only conduct customs business as an officer of the related parties during hours of the day that are non-concurrent with his or her employment for the other company. I think that means there must be certain hours of the day during which the employee status officially ends. As a practical matter, that may be an unworkable result, but I don't know the companies involved  and they may move forward in some compliant way.

I think it is pretty clear that Customs sees the value of in-house compliance professionals. So, it seems that Customs feels constrained by the current law and regulations. Otherwise, it would  probably do everything it can to encourage companies to hire compliance professionals to perform customs business, including letting them serve as shared resources.

Well, it turns out that this may be the time for Customs to act. It is currently undertaking a complete review of the regulations governing customs brokers. One way to fix this might be to eliminate the restriction on conducting customs business for related parties. The other way to do this might be to encourage corporation to have their internal compliance professionals be licensed brokers. To do that, Customs really needs to look at the current testing process. This is probably a topic for another post, but the current process, which has a pass rate usually less than 10% and recently had a 1% pass rate, indicates that something is fundamentally wrong with either the test itself or the people who show up to take it. Either way, something needs to change so that smart, prepared people are both encouraged to take the test and can pass it. With more licensed brokers in corporate compliance jobs, HR departments will have to jump through fewer hoops to comply.

I mentioned that there were two things that prompted this post. Besides the Ruling, the other is  news that the Business Alliance for Customs Modernization ("BACM") made similar comments about the definition of customs business during one of CBP's webinars on the re-write of the regulations. So, there are others out there worried about this as well.