Tuesday, May 27, 2014

Make it so . . . .

Speaks for itself.

Stolen from Julie Whitt by way of Pete Mento. Hat tip to both.

Monday, May 26, 2014

Don't Blink

We have previously considered the narrow slice of time in which an importer can file a protest against the exclusion of merchandise by Customs and Border Protection. That opportunity dissolves if Customs seizes the merchandise before the case is brought before the United States Court of International Trade. See here and here for prior discussions on this topic.

In Blink Design, Inc. v. United States, the Court of International Trade had to decide whether the merchandise had been seized and, if so, whether that seizure occurred before the case was properly before the court.

The background is interesting and hints at possible shenanigans by the importer leading to fairly strong action by CBP. The triggering circumstance for this case is that CBP discovered that containers of imported wearing apparel were found to contain approximately twice the quantity of merchandise as was shown on the invoices and declared to CBP. To Customs, that might look like an attempt to smuggle clothing into the U.S. On the other hand, it might also be a mistake. As the wise person (probably Robert Heinlein) once said: "Never ascribe to malice that which is adequately explained by stupidity."

Attempting to fix the apparent mistake, the importer secured new invoices and tried to correct the entries via the Post Entry Amendment process. Customs returned the PEAs and did not release the merchandise. Dates will become important in what follows.

When Customs failed to release the merchandise within 30 days, it was legally deemed to be "excluded." That happened on various dates in December 2013 and January 2014. An exclusion, even if by operation of law, is a protestable event. Recognizing that state of affairs, the importer protested the exclusions on December 30, 2013. Between December 6, 2013 and January 2, 2014, Customs actually seized the merchandise on the grounds that the entries "were used to facilitate the importation of the wearing apparel . . . that was attempted to be clandestinely introduced" into the U.S. Customs sent notices of those seizures between December 20, 2013 and January 16, 2014. Customs then denied the protest on January 15, 2014 and the importer filed the case in the Court of International Trade on January 28, 2014. Got all that? I'll wait why you re-read it.

The main issue here is when the goods were deemed excluded. That happens when CBP fails to release merchandise within 30 days of presentation to Customs for examination. So, that raises the question of when merchandise is presented to Customs for examination. Blink believes that happens at the time of entry and the filing of the CF 3461. According to Blink, that is when Customs makes the decision whether the goods should be detained or further inspected. This makes some sense because, as Blink argued, "presentment" must happen for all merchandise entering the U.S., not just merchandise Customs decides to inspect. Customs, on the other hand, believes presentment happens when the goods are delivered to the CES for examination.

The Court did not follow Blink's lead. Rather, it found that the meaning of presentation for examination to be ambiguous. Consequently, the Court turned to the ordinary meaning of the words and found them to require that the goods be "laid out or put before" Customs. That does not happen with the filing of the CF 3461. The Court also pointed out that in some cases the 3461 is filed before the merchandise reaches the port, which should not start the clock running for CBP examination.

With that sorted out, the next issue was when a Customs seizure is effective. This is important because if the seizure happens before the Court has jurisdiction, the Court of International Trade will never get jurisdiction. Instead, judicial review will be in the local U.S. district court. On this question, the Court held that an internal CBP decision uncommunicated to the importer cannot be a seizure. Turning the to date on the seizure notices sent to Blink, the Court found that all of the seizures took place after the 30th day following presentment for examination.

Because the seizures were more than 30 days after presentment, what follows is important. It means that during the gap between the 30th day and the seizure, the goods were legally deemed excluded and subject to a valid protest prior to seizure. That's a good thing for the importer in this case.

The importer argued that its protest was directed only at the exclusion and not at the seizures. Further, it noted that the underlying reason for the ultimate seizures was a violation of the customs penalty statute (19 U.S.C. § 1592), which is squarely within the jurisdiction of the Court of International Trade.

But, that Court disagreed. Rather, it found that this case is fundamentally a challenge to the seizures. Because the seizures occurred prior to Blink filing a case in the CIT the reviewing seizures is in the hands of the district court.

But, the court took an additional interesting step. It stated that "It is not clear that the seizures negate the deemed exclusions." That means that the exclusions and the related protest are potentially a different and separate cause of action. That cause of action would be subject to review in the Court of International Trade. Consequently, the Court decided to stay, rather than dismiss, the case pending an election by the importer of how it chooses to challenge the seizures. Presumably, if Customs ultimately succeeds in defending the seizures, the issue will be moot. Similarly, if the importer secures the release of the merchandise, the denial of the protest of the exclusions will be moot. But, if for some reason the seizure is determined to be inappropriate and Customs refuses to release the merchandise, the CIT will have a case before it and will be ready to decide whether the goods were properly excluded. That may seem like an exercise in counting the number of lawyers dancing on the head of a gavel, but it is a good exercise of judicial efficiency.

Wednesday, May 21, 2014

Happy Tariff of Abominations Day

"What's that," you ask. It's my holiday for customs lawyers and compliance professionals. Read all about it here. I'm a couple days late, but that's OK since I am the only one celebrating.

Tuesday, May 20, 2014

Supreme Court Takes No Action on Customs Cases

A couple interesting customs matters were presented to the Supreme Court this term. Unfortunately, the Court declined to hear either.

The first was the Deckers case about the meaning of the tariff term "slip on" as applied to footwear. The reason this was potential Supreme Court fodder was that the Court of International Trade and the Court of Appeals for the Federal Circuit gave weight to a definition of the term set out in a Customs and Border Protection document. That document was not a regulation and had not been vetted by public notice and comment. Deckers argued that the courts gave too much deference to this document and opened up the possibility that all CBP internal documentation will be subject to excessive judicial deference.


The second was a pair of cases involving the question of whether Congress violates the Equal Protection Clause of the U.S. Constitution when it assigns rates of duty to merchandise based on the gender or age of the intended user. The Court of International Trade and the Federal Circuit both held that despite clear gender-specific and age-specific language in the HTSUS, the possible discrimination was not "facial." As a result, the plaintiffs were required to show discriminatory intent, which they were unable to do. This effectively puts an end to the valiant effort of some customs lawyers to eliminate apparently discriminatory tariff rates.

The details of these cases are in prior posts, to which I have linked above.

If you doubt my journalistic ability to report these events, the Supreme Court order is here.

Friday, May 16, 2014

The "Scope" of Protestable Events

After an antidumping or countervailing duty order, the job of collecting duty deposits and ultimately assessing the correct amount of duty falls to Customs and Border Protection. Like it or not, that requires that Customs exercise some judgment as to what merchandise is and is not within the scope of the order. Every day, at every Port of Entry, CBP Officers do exactly that.

What happens when CBP incorrectly interprets the scope of an order and improperly collects AD or CV duties on goods outside the scope of the order has been the subject of much debate. LDA Incorporado v. United States may help settle that debate.

LDA imports rigid steel conduit from China. There is an ADD and CVD order covering certain welded carbon quality steel pipe and tube from China. The order, however, explicitly exclude "finished electrical conduit." Customs subjected the imported merchandise to laboratory inspection and forwarded the matter to Headquarters for advice. Headquarters decided (see where this is going?) that the pipe products are within the scope of the order. Commerce was not involved in that process. Subsequent to liquidation of the entries, the importer filed a request for a scope clarification with Commerce, which ultimately confirmed that the goods are excluded from the order.

Prior to receiving the scope ruling, the importer filed protests with CBP challenging the liquidations. Customs denied those protests and the importer then filed a summons in the Court of International Trade. Now we get to the issue.

In court, the government moved to dismiss the case for lack of subject-matter jurisdiction. The basis for that argument is that scope determinations are not subject to protest and may only be brought to the CIT as a challenge to a scope determination by Commerce. That is because 19 USC § 1514(b) excludes from protest determinations by Commerce as to whether particular merchandise is within the class or kind of merchandise described in an existing finding of dumping or antidumping or countervailing duty order.

In prior cases, the Court has dismissed challenges to scope determinations that were brought via a customs protest or where the scope of the ruling was ambiguous enough to merit a scope ruling. This arguably implies that protests are not appropriate for scope cases. But, in a case involving Xerox, the Court of Appeals for the Federal Circuit allowed Xerox to challenge the denial of a protest where the goods were clearly outside the scope of the order; meaning that Customs had simply made a mistake of fact on its own, with no input from Commerce.

The Court of International Trade picked up that lead and ran with it. According to the Court, this case is different from the earlier cases and more similar to Xerox because Customs was not acting in a ministerial manner following instructions from Commerce. Rather, Customs engaged in fact finding (remember the lab report) and legal analysis (remember the opinion from Headquarters). Thus, the decision subject to review here was Customs' and is, therefore, properly the subject of a protest. Further, in this case, as in Xerox, the outcome should have been clear to Customs without the importer having to go to Commerce for a scope clarification. Any other result, according to Judge Kelly, would leave importers without any opportunity for judicial review when Customs misapplies an ADD or CVD order.

Here's a question that occurs to me: What if a scope ruling is necessary but it does not happen prior to liquidation? Cases have held that liquidation moots any possibility for relief from dumping duties. It seems an injunction against liquidation or an agreement with CBP to extend liquidation would be the necessary steps.

Wednesday, May 14, 2014

Stare Decisis and Classification Cases

If you handle classification cases in the Court of International Trade, this is an important case: Deckers Corp. v. United States.

On the surface, this case is about the tariff classification of Teva sports sandals. These are sandals in that they do not fully enclose the foot. However, they are designed for use in athletic pursuits including running, hiking, and some water sports. Here is a picture of the Terradactyl, one of the sandals at issue.

Deckers asserted that its imports should be classified as "training shoe" in HTSUS subheading 6404.11, which covers "Sports footwear; tennis shoes, basketball shoes, gym shoes, training shoes and the like . . . ."

What makes this case especially interesting is that Deckers first challenged the classification of these shoes in a 2001 case brought before the Court of International Trade. That case was designated a test case and apparently focused on whether the sandals were "Sports footwear." Deckers lost that case and the Court of Appeals for the Federal Circuit affirmed, holding that all of the products classifiable as sports footwear have uppers that completely cover the foot, precluding the classification of sandals as sports footwear.

In most areas of federal civil practice, that would be the end of the matter. But, this is not most areas of federal civil practice.

Rather than accept the decision for all of its pending cases, Deckers used a previously suspended case as a vehicle to try again. In the second Court of International Trade case, Deckers raised the new argument that the sandals are eo nomine classifiable as "training shoes" in 6404.11, separate and apart from whatever might be included in "sports footwear" or "and the like" footwear. In support of that proposition, Deckers submitted new evidence. The Court of International once again approved Customs and Border Protection's classification but did so on the basis of the prior Federal Circuit decision holding that sports footwear must cover the foot.

The issue on appeal is very fundamental to customs practice. So, a little background is necessary. When Customs and Border Protection denies a protest, the importer can challenge that decision in the Court of International Trade. Because most importers have repetitive entries, they usually has a series of protests, all of which are denied by Customs. Each of those protests and (as a technical matter) each entry on each protest, could be a separate cause of action before the Court. In a 1927 decision called United States v. Stone & Downer Co., the Supreme Court upheld a Court of Customs Appeals (now the Federal Circuit) rule that res judicata does not apply in classification cases. That means that the decision on one entry of merchandise does not automatically apply to the next entry. As a result, there is a history of re-litigating classification cases.

But, we live in a common law country. That means that the legal reasoning of prior cases (as opposed to findings of fact) applies to subsequent cases in the same or a lower court, even if the subsequent cases involve different parties and different merchandise. That allows for uniformity and predictability in the law. That principle is called stare decisis.

In this appeal, Deckers raised two arguments. First, the the Court of International improperly failed to analyze Deckers' new evidence, which would have shown the error in the conclusion of the first cases. Second, the stare decisis does not apply because Deckers presented a new issue of law in the form of the eo nomine classification as training shoes.

On the first issue, Deckers argument is that the Federal Circuit's analysis of the essential characteristics of all products under 6404, including sports footwear and training shoes, does not constitute a binding legal interpretation of training shoes for purposes of this case. According to the Court of Appeals, the prior ejusdem generis analysis determining the common characteristics of the products in 6404.11 does inform the meaning of the eo nomine designation "training shoes" and, therefore, cannot be ignored. That means that the prior Deckers case examined the meaning of "training shoes" and that the same legal issue is present here.

That slides nicely into the second issue: does stare decisis preclude a different result in this case? As was just explained, the Court of Appeals analyzed the same subheading in the prior Deckers case. Although that analysis took a different route (i.e., via ejusdem generis), the Court reached a legal determination that training shoes cover the entirety of the foot. Under stare decisis, that decision bound the Court of International Trade and the subsequent panel of the Court of Appeals for the Federal Circuit.

But, what if that prior legal decision is just plain wrong and anyone who understands tariff classification can see it? Does stare decisis foreclose ever looking at the issue again? Stone & Downer has led a lot of customs lawyers to assume that the answer is no. As I said, it is not that unusual to relitigate a classification issue on a different theory or different facts. But, what about on the same theory and facts? This appeal addressed that question.

Deckers argued that a prior decision called Schott Optical Glass permits re-litigation on the same theory and facts to permit the plaintiff to show that the original decision was based on clear error. This argument forced the Court on a long journey through the history of classification jurisprudence. If you are interested in these things, it is a very good read. But, I will spare you the details. It should suffice to say that the Court of Customs Appeals applied stare decisis except where it was convinced its prior decision was clearly erroneous. That practice continued in 1929 when the CCA was transformed into the Court of Customs and Patent Appeals. As a result, it became the practice that the Customs Court and later the Court of International Trade was bound by legal interpretations of the Court of Appeals. On appeal, the CCPA (which always sat en banc, meaning as a full court) would follow its prior decisions unless convinced there had been clear error.

When the Federal Circuit came into existent in 1982, it did two important things. First, it adopted all of the prior CCPA decisions as binding precedent of the Court. Second, because it sits in panels of three and only en banc when deemed necessary, it created a rule that no three-judge panel can overrule a prior decision of another panel. To do so, the full court would need to sit en banc.

That brings us back to Schott Optical Glass. In its second effort before the Court of International Trade, Schott tried to introduce evidence concerning the meaning of the term "optical glass," which is a pure question of law. The Court of International Trade refused to consider that evidence on the grounds that the question of law was already decided in the prior decision of the Court of Appeals. In the second appeal, the Federal Circuit held that Schott should have been permitted to introduce evidence to show clear error in that construction of the statute.

But, in this case, the Federal Circuit found that Schott does not go as far as it appears and, frankly, as far as many of us in the customs bar believed. Specifically, the Federal Circuit noted that Schott relied on cases in which an en banc court refused to follow an en banc court. That is true primarily because all CCPA and prior cases were heard en banc. It is not at all clear that that fact provided a foundation for the decision in Schott. Rather, it was an artifact of the circumstances.

Nevertheless, to square its rule requiring en banc consideration of prior panel decisions and the application of stare decisis, the Court of Appeals for the Federal Circuit announced:

We therefore hold that, while a party may challenge a prior construction of a tariff provision by a panel of this court in a classification case and may seek to introduce evidence of purported clear error in the prior classification to preserve the issue for potential en banc review, both the Court of International Trade and any subsequent panel of this court are bound by the earlier panel's classification construction. It is only as an en banc court that we can review and alter a tariff classification construction by a prior panel.

Why is this so important? First, it clarifies an issue that customs lawyers have long discussed and many have apparently misunderstood. Further, it will change the nature of litigation at the Court of International Trade. Currently, there is some sense that suspending a case pending the decision in a test case is a formality. If the test case comes out wrong, the thinking goes, we can re-litigate in one of the suspended cases. The decision in Deckers will make it much harder to do that. On the second pass through the Court of International Trade following a lost appeal, the CIT will now be far more likely to simply dismiss the case on the basis of the first decision. The plaintiff will need to make an effort to show clear error in the first Federal Circuit decision and then appeal to the Federal Circuit en banc, which is unusual. And, proving clear error is a high bar. In the alternative, counsel to importers will need to find truly new legal theories or factual differences to justify subsequent litigation.

Tuesday, May 13, 2014

Ford Decision on NAFTA CO Waiver

This is a pretty specific decision, so let's be careful to not read too much into it.

As you may recall, Ford Motor Company has been fighting with Customs and Border Protection over some post-entry NAFTA claims. Ford failed to provide to Customs copies of NAFTA certificates of origin when it made its claims under 19 U.S.C. 1520(d). Customs denied the claims and Ford protested, claiming, in part, that Customs had waived the requirement for the presentation of NAFTA CO's when it began accepting NAFTA claims via ACS Reconciliation without the presentation of CO's. We most recently discussed the issue here. In that decision, the Court of Appeals for the Federal Circuit concluded that Customs had not adequately explained why it was treating the presentment requirement different in the 1520(d) context and the Reconciliation context.

Customs has now explained its position, which (spoiler alert) the Court of International Trade accepted.

Because the issue turned on the application of the statute and regulations, the Court applied the two-step Chevron analysis. Under this standard of review, Customs’ position will be upheld unless its interpretation of the statute is procedurally defective, arbitrary or capricious, or manifestly contrary to law. On remand, Custom explained that the difference in treatment between manual post-entry claims under 19 U.S.C. § 1520(d) and claims made via Reconciliation is based on the application of two different statutes and, therefore, is reasonable.

According to Customs, § 181.22(d)(1) of the customs regulations implements the NAFTA provision that permits CBP to waive the requirement for possession of a NAFTA CO at the time of claim. But, according to Customs, the fact that the presentation of the CO is waived for all a post-entry claims made under Reconciliation is derived from the statute authorizing the electronic filing of customs documents. Under 19 U.S.C. § 1484 and § 1509, Customs may waive the presentation of entry records, including certificates of origin. This waiver authority relates to regular entries and reconciliation entries. By waiving the presentation of entry documents to facilitate Reconciliation, CBP ensured that the process is fully electronic. Customs noted that it has authority to demand presentation of the CO, should it choose to do so. Customs reasonably views this as distinct from waiving an importer’s possession of a CO at the time of a claim.

Did all that underlining make it clear that Customs sees a difference between waiving the requirement to have a CO at the time of the claim and waiving the requirement to present the CO with a post-NAFTA claim. In Customs' view, it waived only the presentation requirement and only in the Reconciliation context.

For its part, Ford disputed this line of reasoning. It argued that the waiver of the CO for any NAFTA claim must stem from Article 503 of the Agreement, which is implemented in the regulations at § 181.22. Further, Ford argued that Customs has all of the same mechanisms to determine the validity of a claim and penalize a false claim whether made with respect to a manual post-entry claim or a Reconciliation claim. According to Ford, this eliminates any reasonable distinction between the waiver authority Customs has for normal 1520(d) claims and Reconciliation claims.

I think it is worth playing out a thought experiment. Assume there was no Article 503(c) of the NAFTA permitting the waiver of NAFTA certificates of origin. If that were the case, there would be no reason to create § 181.22, which permits the Port Director to waive the NAFTA CO when he or she is otherwise satisfied as to the origin of the imported goods. In that world, could CBP waive the requirement for the presentment of the CO at the time of a post-entry claim? Probably not because Article 502(3) specifically requires presentation of the CO to make a post-entry claim and the importer would have had to possess the CO to make the claim. The same waiver authority applies to both claims at the time of entry and post-entry claims. To me, this indicates that CBP's waiver authority under any circumstances stems from Article 503 and § 181.22; not from any law relating to the electronic submission of entry documents. I doubt Mexico and Canada think the U.S. can waive the presentation requirement for post-entry claims under any authority other than Article 503.

Customs has authority to waive the possession and presentation of a CO. That authority comes from Article 503. Customs appears to have exercised that authority to facilitate Reconciliation. The Court of International Trade held that Customs adequately explained why it treats Reconciliation and manual post-entry claims differently. The question for the Court of Appeals will likely be whether that explanation makes sense or whether it sounds like creative lawyering, which is never a bad thing. Of course, it might be both.