Sunday, March 09, 2014

Second Best Key

I have been sitting on this for a while. Sometimes I need to find the time and properly Zen-like mental state to read a 27 page opinion in enough detail to post a summary. As it happens, a chess tournament in which parents are sequestered away from the players and given free wifi is such a setting.

You should re-read the original post on Best Key to understand what is going on here. The underlying issue is that Customs originally classified certain imported yarn as metalized, which has a HIGHER rate of duty than non-metalized yarn. Subsequently, Customs revoked the ruling and reclassified the yarn as non-metalized with a LOWER rate of duty. That circumstance almost never produces controversy. However, Best Key knows that garments made of metalized yarn are subject to a lower rate of duty than garments made of non-metalized yarn. As a result, the revocation of the ruling creates a disincentive to use Best Key's yarn in garment production for products to be imported into the U.S. That is why Best Key is attacking the application of a lower rate of duty.

In this case, the Court is reviewing the revocation decision under the Court of International Trade's so-called residual jurisdiction. This is different than the review of denied protest. According to the Court, this is on-the record review and Customs' decision will be upheld unless it was arbitrary and capricious, which is a very deferential standard. For those who care, the actual level of deference is less than full-on Chevron deference. Instead, revocation rulings are entitled to Skidmore deference which depends on the written decision's power to persuade the court that it is correct.

In that context, the Court reviewed the revocation decision to determine whether it was arbitrary and capricious. The plaintiff raised numerous traditional classification arguments about, for example, the application the Explanatory Notes and the application of tariff language to later developed products. None of these were persuasive to the Court.

One argument that stands out is that the decision was unduly influenced by input from the domestic industry or its paid lobbyists. The gist of this is that the decision was not objective and that the administrative record provided to the Court of International Trade did not reflect the role of the domestic industry in influencing Customs and Border Protection. In a similar vein, the Plaintiff argued that Customs failed to accord adequate weight to its technical comments, while giving undue weight to the conclusory opinions of the domestic industry.

This line of argument is completely rational and also shows the frustration sometimes experienced by importers and foreign producers who have to deal with Customs and Border Protection. The appearance that Customs might be making result-driven decisions to support U.S. industry tarnishes the standing of Customs as an objective decision maker. The hard question is whether it is true and also whether a party can prove it. In this case, the Court did not find compelling evidence of the unseen hand of industry unduly influencing a decision. The problem for litigants is that finding proof of that is extraordinarily difficult. If, and note that I am saying "if," Customs and Border Protection were to act as a protectionist tool, it should only do so in accordance with a mandate from Congress.

Absent a congressional mandate, Customs and Border Protection should, to quote a respected long-term CBP official, stick to "calling balls and strikes."

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