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.