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.

[Narrator]

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.]