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.

Saturday, July 21, 2012

Nuts! to NAFTA

Here is one I missed. Sorry, I'll be catching up.

In Rogelio Salazar Cavazos v. United States, the issue was whether the Court of International Trade had jurisdiction to review a denied claim for NAFTA preferential treatment for candied peanuts imported from Mexico. Customs classified them in a tariff provision carrying a 131.8% rate of duty, which did not make the importer happy. The importer protested the classification. After liquidation but before the protests were denied, the importer filed NAFTA post-entry claims. These claims were timely, within one year from the date of importation. Customs and Border Protection subsequently denied the NAFTA claims as well.  Plaintiff did not protest the denial of the NAFTA claim. The importer then filed a summons in the Court of International Trade seeking review of the denial of the NAFTA claim. The United States moved to dismiss on the grounds that there was no denied protest relating to the NAFTA claims.

The importer raised three arguments in support of the notion that it did not need to file a separate protest covering the denied NAFTA claim. The first was that the NAFTA claim constitutes "new grounds" in support of the action commenced to challenge the denied protest. This follows from 28 U.S.C. sec. 2638. However, the statute requires that the new grounds relate to the same merchandise [peanuts from Mexico: check] and relate to the same administrative determination challenged in the protest [classification: no check].  In this case, the Court of International trade considered the Xerox decision that a NAFTA claim cannot be asserted in a protest as leading to the conclusion that the NAFTA status of the goods is not the same administrative determination as the classification challenged in the denied protest.

The second argument has to do with what we customs lawyers call the "One Protest" rule. As you might guess, the rule is that an entry can only be subject to a single protest. In most cases, that rule still holds. Unfortunately, not in this case. Under the post-entry NAFTA process, it is possible for there to be two protests on a single entry. The timing of post-entry claims, within 12 months of the date of importation, means that NAFTA claims may be made and denied before the due date for other protests. As a result, the statute actually states that the protest relating to the origin determination and any other protest relating to classification, for example, are "deemed to be part of a single protest." And that is how Congress creates a hole in a rule. So, the "One Protest" rule did not prevent the filing of a NAFTA-specific protest in this case.

The third argument is that because the Port Director failed to properly check the box notifying the importer that the denied post-entry NAFTA claim can be protested, the requirement for a protest should not be enforced. This does not get anywhere. Because we are talking about suing the United States government, the law puts the onus on the plaintiff to get it right. As a general principal, the U.S. government can only sued if it expressly agrees to it and then the applicable law must be followed exactly. The lack of a checked box on a Customs form, even though wrong, does not change the legal requirement that the Court of International Trade needs a denied protest to review this decision. What lawyers refer to as waiver and estoppel will not give the CIT jurisdiction.

Consequently, the Court dismissed the part of the case dealing with the NAFTA claims.

What really surprised me about this case was the underlying NAFTA rule in play. These are candy coated peanuts from Mexico, what I take to be garanpinados. Image via Examiner.com.

These are an awesome snack food, which should be entitled to duty free entry to the United States regardless of origin. Last year, I bought a week's supply from a guy selling from a card table in Huatulco. I believe I finished them that afternoon, which says a lot about me.

The peanuts here originated in the United States and were finished in Mexico. Assuming the other ingredients were either also from North America or de minimis in value, a back of the napkin analysis might lead you to believe that the peanuts were clearly NAFTA originating. Not so. Instead, there is complicated fine print. Under 19 U.S.C. sec. 3332(o), peanut products of 2008.11 from Mexico only qualify as originating for NAFTA purposes if the peanuts are wholly obtained in Mexico. Nice lobbying Mr. Peanut! If , however, as plaintiff argued, the coated peanuts were classified in 1704.90 as "candied nuts," then this restriction would not apply and the goods might have been originating.

That underlying legal conclusion, unfortunately, does not matter because under Xerox you can't first raise a NAFTA claim in a protest and the importer failed to protest the denied NAFTA claim. That set of facts left the Court of International Trade with nothing to review.

One other side point: this result give more credence to what I call the Canadian position regarding NAFTA claims for duty-free merchandise. In the U.S., it is common to dispense with NAFTA claims when goods are unconditionally duty free. In Canada, many importers like to make the claim anyway. The reason is that if the classification is later determined to be incorrect and the goods are found to be dutiable, there will be no valid NAFTA claim on the goods. By making the claim on the duty-free merchandise, Canadian importers believe they preserve their right to make a claim under a different classification applied to the same entry.

Applying that to this case, what if the Court ultimately determines that the peanuts were misclassified? If they belong in 1704.90, and there is a valid post-entry NAFTA claims (although it was denied), it seems that Customs should have to reliquidate and reconsider the NAFTA claim based on the applicable rule of origin for 1704.90. That might well be round three in this litigation (round two being the classification).

Friday, July 13, 2012

A Nominee for the CIT

From the White House:
President Obama Nominates Mark A. Barnett to Serve on the U.S. Court of International Trade
WASHINGTON, DC – Today [meaning yesterday], President Obama nominated Mark A. Barnett to serve on the United States Court of International Trade.
“I am proud to nominate this outstanding candidate to serve on the United States Court of International Trade,” said President Obama.  “Mr. Barnett has a long and distinguished record of service, and I am confident he will serve on the court with distinction.”
Mark A. Barnett:  Nominee for the United States Court of International Trade
Mark A. Barnett has been Deputy Chief Counsel in the Office of Chief Counsel for Import Administration at the United States Department of Commerce since 2005 and has worked as an attorney in the same office since 1995.  From 2008 to 2009, Barnett was detailed to the United States House of Representatives Committee on Ways and Means, where he served as Trade Counsel for the Subcommittee on Trade.  Prior to joining the Department of Commerce, Barnett was an associate at the law firm of Steptoe & Johnson from 1988 to 1995.  He received his J.D. cum laude in 1988 from the University of Michigan Law School and his B.A. magna cum laude in 1985 from Dickinson College.

Congratulations to Mark, err, I guess I mean Mr. Barnett.

Sunday, July 01, 2012

NAFTA & TPP: What Happens?

Here is an interesting fact. Canada and Mexico have now joined the negotiations aimed at creating a Trans-Pacific Partnership. That makes some sense. Both countries, like the United States, have pacific coasts and both countries do a lot of business in the Asia-Pacific region. The other countries currently involved in the negotiations include Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. Many breathless commentators have described TPP as the NAFTA of the Pacific or NAFTA on Steroids.

My question is fairly basic: Assuming there is a TPP Agreement at some point in the future, what happens to NAFTA? You probably remember that when NAFTA expanded free trade in North America to include Mexico, the pre-existing U.S.-Canada Free Trade Agreement was put on hold and kept alive only to be resurrected in the unlikely circumstance of NAFTA collapsing. Will the same thing happen with TPP? Will it completely supersede the NAFTA? This same question can be asked about U.S. FTA's with Australia, Chile, and Peru.

I have not seen a lot of discussion about this, but I know people are thinking about it. While companies that do a lot of business in the Asia-Pacific region have been focusing on TPP as an opportunity for market access, investment protection, strengthened intellectual property enforcement, etc., companies primarily engaging in North American trade may not have focused on TPP.

With the addition of Canada and Mexico to the TPP mix, that strategy might need to change. In fact, companies that engage in a lot of NAFTA-facilitated trade in North America might want to get involved in the process to ensure that TPP does not result in any new burdens on trade within the NAFTA region.

I point to this question out of genuine interest. It also happens that one of my partners is involved in the TPP process as an industry representative. So, if anyone has specific questions or concerns, we might have a way of helping to sort them out.

As always, feel free to contact me if you have a specific need.