Monday, December 08, 2014

Jurisdictional Sprouts/Ruling of the Week 17

This is the last of the cases I have in my cue.

General Mills, Inc. v. United States is one of those cases only a lawyer would love or would hate, depending on which side of the dispute you happen to be. The problem for General Mills is that it wants the Court of International Trade to review a ruling in which Customs and Border Protection determined that Brussels sprouts from Belgium that were packaged with frozen butter sauce chips in Mexico are not entitled to duty-free entry to the United States under the North American Free Trade Agreement.

Part I: The Ruling

Let's start with with ruling, so that I can also call this my Ruling of Last Week 17. The relevant ruling is HQ H212296, which is in the January 29, 2014 Customs Bulletin starting at page 89. The NAFTA portion of the ruling is in dispute and is interesting.

Keep in mind that the imported product is just frozen Brussels sprouts from Belgium packed in pouches in Mexico with frozen butter chips. The finished product is classifiable in Heading 2004 as "Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, frozen, other than products of heading 2006." At first blush, the NAFTA rule of origin for the prepared sprouts requires a change from any other chapter. The non-originating frozen sprouts are classified in Heading 0710. So, it looks like there is a qualifying tariff shift from 0710 to 2006.

But, Customs and Border Protection disagrees. General Note 12(s)(ii) says that:

Fruit, nut and vegetable preparations of Chapter 20 that have been prepared or preserved merely by freezing, by packing (including canning) in water, brine or natural juices, or by roasting, either dry or in oil (including processing incidental to freezing, packing, or roasting), shall be treated as an originating good only if the fresh good were wholly produced or obtained entirely in the territory of one or more of the NAFTA parties. 
According to Customs, this precludes a finding that the packaged sprouts are NAFTA goods because the fresh produce was not wholly obtained in North America.

General Mills, of course, sees it differently. According to it, the sprouts are not "merely" frozen because they are combined with butter chips, which are not water, brine, or natural juices. That leads to the logical conclusion that Note 12(s)(ii) does not apply. Ergo, Brussels sprouts from Belgium are NAFTA goods when packed with originating butter chips in Mexico.

Customs and Border Protection takes a bit of a hand-waving approach to its conclusion. Finding that the Note applies, Customs said only that the butter sauce chips "are akin to a natural juice" and that any extra ingredients are incidental to the sprouts themselves. This is the nub of what General Mills wants reviewed. This single conclusion changes the duty status of the sprouts and is probably worth a lot of money to the importer, which is why it went to Court. Also, I have eaten many Brussles sprouts, notably the best ever from Chicago's Girl and the Goat. In no case have I ever seen natural sprout juice that was akin to butter.

Part II: The Court of International Trade

Apparently, General Mills has not made liquidated entries of these sprouts on which Customs has denied NAFTA treatment. If it did, General Mills would most likely have protested the liquidations and gone to court for review of the denied protest under 28 U.S.C. § 1581(a).

There are two other ways that importers can get a CBP decision reviewed. The first is under § 1581(h), which seems right on the money. Under that provision, an importer can directly challenge a negative ruling from CBP. The problem is that to get into Court that way, the importer needs to show that it will suffer "irreparable harm" if the decision is not reversed. When all we are talking about is money, it is almost impossible to show irreparable harm. Money can always be returned as damages in a lawsuit, so financial losses are usually reparable.

In this case, the plaintiff opted for § 1581(i)(4), which is part of the broad grant of residual jurisdiction to the Court of International Trade to review other CBP decisions regarding the administration and enforcement of the customs laws. But, a plaintiff may not rely on (i) jurisdiction if another specific grant of jurisdiction is available and not manifestly inadequate.

Here, the Court of International Trade found that General Mills had the option of importing some of the product, making a NAFTA claim, having the claim denied, protesting, having the protest denied, and then going to Court. The fact that this is a possibly circuitous route to Court or that it was a waste of time because CBP was certain to deny the claim, does not relieve General Mills of the ability to seek review. Consequently, General Mills can only get into Court if this route to relief is "manifestly inadequate."

Relief is only manifestly inadequate when it is an exercise in futility or will not produce any result. This is a relatively high standard as Congress did not intend that imports be able to avoid the usual route of reviewing a denied protest. Getting onto a slightly different tack, General Mills argued that creating test shipments for litigation will lead to a number of costs that cannot be addressed in the protest review process. But, the Court saw this as the test for irreparable harm rather than manifestly inadequate. Absent a showing that the protest process is manifestly inadequate, the Court dismissed the case.

On top of that, it refused to transfer the case to a United States District Court.

The moral of that story is that most CBP decisions involving rate of duty are going to subject to judicial review only after the importer goes through the administrative protest process.


Anonymous said...

Thanks for the pertinent review of this topic.
What ends up happening, unfortunately, is that CBP will accept the entry, accept the monies (duty & fees) that need to be submitted with same, and even accept the protest after the entry liquidates.
However, in a case such as this, I don't see CBP acting very quickly on the protest, and since CBP is not held to a "statutory" time frame to act on the protest, there exists no other "administrative" option for General Mills here.

Larry said...

That is a fair and useful comment. Customs has effectively no deadline for responding to a protest. I am not saying that the law as interpreted by the CIT is good for importers, who need certainty far sooner than CBP typically provides it. On the other hand, there is an opportunity to work with the Justice Department and Customs to identify an entry as a test, get a quick liquidation, and denied protest. I know this happens, but it depends on the goodwill of DOJ and CBP. A far better solution would be some way to get judicial review of a ruling before importation without needing to show irreparable harm. There has periodically been talk about changing the (h) standard from "irreparable harm" to "good cause." That would be a good start.