Wednesday, February 25, 2015

The Rolls Royce of Protests

What makes for a valid protest is one of those ever green questions that generates litigation before the U.S. Court of International Trade. The most recent entry in the parade of cases on this topic is Ovan International Ltd. v. United States.

The background here is simple. Carriage House Motor Cars came into ownership in the U.S. of a 1958 Royce Silver Cloud. As will happen when one owns a classic car, Carriage House planned to sell it at auction in the UK. The car did not sell and was returned to Carriage House in the U.S. with Ovan acting as the customs broker and the Importer of Record.

At the time of entry, Ovan claimed the entry should be duty free under HTSUS item 9801.00.25. Customs issued a Notice of Action stating its intent to liquidate the vehicle as a dutiable passenger car at 2.5% There was some back and forth between counsel for Ovan and Carriage House on the one hand and Customs on the other hand. On February 22, 2013, Customs liquidated the entry as dutiable and Ovan, the IOR, paid the duties. Forty six days later, counsel e-mailed an affidavit attempting to satisfy Customs that the vehicle qualified for duty-free entry. Subsequently, 189 days after liquidation, plaintiffs' counsel filed a formal protest on CBP Form 19. The protest was filed in the name of Carriage House, the owner of the Rolls Royce. Customs denied the protest as untimely.

In case you are wondering, Ovan paid $23,641 in duties, meaning the value of the car was about $945,000. Ovan was the importer of record. It is very likely that the agreement between Ovan and Carriage House makes Carriage House responsible for reimbursing Ovan, which is why Carriage House filed the protest.

Standing is the legal requirement that a plaintiff have an appropriate interest in the subject matter of a case to bring that case to court. Without a standing requirement, I could go ahead and sue Bruno Mars for impersonating the Police (the band, not the law enforcement agency). The Police can (and should) do that, not me.

Standing in the U.S. Court of International Trade is controlled by 28 USC 2631(a), which says that:
A civil action contesting the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930 may be commenced in the Court of International Trade by the person who filed the protest pursuant to section 514 of such Act, or by a surety on the transaction which is the subject of the protest.
That is a problem for Ovan, which is not the party that filed the protest and not the surety. End of story. Ovan lacks standing and is not an appropriate plaintiff. The Court dismissed Ovan from the case. But, the case continued with Carriage House as the remaining plaintiff. First lesson, as a general matter, a protest should be filed by the IOR. After all, the IOR pays the duties and is seeking the refund.

That leads to the second issue, did Carriage House file a valid protest? If not, there is nothing for the CIT to review.

As to the formal protest, there is no real debate that it was late. A protest must be filed within 180 days of the date of liquidation. This protest was filed nine days too late.

But, did the affidavit count as a protest? It was filed within the acceptable time and the law is clear that a protest need not be on Form 19. Carriage House argued that the affidavit was sufficient to satisfy the requirement for a timely protest.

Historically, the courts have said that protests are to be liberally construed in favor of the protesting party. As a result, informal or unofficial documents have been found to be valid protests so long as they are sufficiently detailed to alert Customs to the challenged decision. On the other hand, there are minimum requirements that must be satisfied. Most important for this case are the requirements set out in the customs regulations at 19 CFR 174.13(a). The Court of International Trade relied on an 1999 Federal Circuit decision called Koike Aronson, Inc. v. United States for this proposition. That pre-dates this blog, so I have no post on Koike.

Following Koike, the CIT held that the protest, in whatever form, must contain all of the information required by the customs regulations to qualify as a protest. For your reference, those requirements are:

(1) The name and address of the protestant, i.e., the importer of record or consignee, and the name and address of his agent or attorney if signed by one of these;

(2) The importer number of the protestant. If the protestant is represented by an agent having power of attorney, the importer number of the agent shall also be shown;

(3) The number and date of the entry;

(4) The date of liquidation of the entry, or the date of a decision not involving a liquidation or reliquidation;

(5) A specific description of the merchandise affected by the decision as to which protest is made;

(6) The nature of, and justification for the objection set forth distinctly and specifically with respect to each category, payment, claim, decision, or refusal;

(7) The date of receipt and protest number of any protest previously filed that is the subject of a pending application for further review pursuant to subpart C of this part and that is alleged to involve the same merchandise and the same issues, if the protesting party requests disposition in accordance with the action taken on such previously filed protest;

(8) If another party has not filed a timely protest, the surety's protest shall certify that the protest is not being filed collusively to extend another authorized person's time to protest; and

(9) A declaration, to the best of the protestant's knowledge, as to whether the entry is the subject of drawback, or whether the entry has been referenced on a certificate of delivery or certificate of manufacture and delivery so as to enable a party to make such entry the subject of drawback (see §§ 181.50(b) and 191.81(b) of this chapter).

Among other things, the affidavit was not labeled as a protest and did not list the liquidation date of the entry. The Court was not swayed by evidence of a course of dealing making it clear that Carriage House was complaining about the liquidation of the one entry covering this one Rolls Royce. Given the lack of required information, the Court dismissed the case in its entirety.

This seems like a harsh result, and it is. Except that it is hard to see how either plaintiff would have won on the merits. 9801.00.25 has very specific requirements for duty-free entry. One of which is that the goods be returned to the U.S. because they do not conform to sample or specification. I have no idea what facts the plaintiffs' might have been able to present. But, it appears the car was returned to the U.S. because it did not sell at auction. We'll have to wait and see if there is a successful appeal of this decision to know whether we will learn the true facts.

One side point, reading this decision, you might come away with the notion that a valid protest must be filed via CBP's electronic systems. That is not the case. The relevant statute is 19 USC 1514(c)(1). As the Court correctly quotes, a protest may be filed in writing or via the electronic system.

Sunday, February 22, 2015

Ruling of the Week 2015.7: When is a Porsche More Than A Car?

I am late on this ruling of the week. I have been busy milking my Walking Dead posting, which got picked up by my friends at Law and the Multiverse. But, as far as I am concerned, I have another couple hours to go in this week. And, since most of you are probably busy watching the Academy Awards, I will sneak this post on to the site and give it a Hollywood connection.

This will be quick because there is not much law in this week's ruling. The ruling is NY N254307 (Jun 11, 2014). As you may know, rulings issued by the NY office of Customs and Border Protection often do not contain a lot of legal analysis. Given the short deadline and volume of requests, this makes sense.

My guess is that whoever wrote this particular ruling is a car buff. He or she certainly expended a lot of language to find that this particular 1969 Porsche 917K is classifiable not as a passenger car but as a collector's item. That was probably a good result for the importer, because the car was to be sold at auction and was expected to go for as much as $20 million.

Why? Well, a couple things. First, just look at it (although this is not the same one):

From Amanti delle Supercar

Next, the car in question was driven by Steve McQueen in the movie Le Mans.

From Cinemasterpieces
Third, and this is where I am out of my depth, the car belonged to Jo Siffert, who is apparently a legend in racing and in Porsche circles. If you read the ruling, you can easily feel the admiration the writer has for both the car and the driver. At least I think I can feel that.

For example, rather than just recount the facts in one of two sentences, CBP says:

To set the record straight, the 1969 Porsche, 917, chassis 917-024, had a long tail body, and was removed from its competition debut of May 11, 1969 in the 1000km Spa Francorchamps due to unstable vehicle conditions resulting from the vehicle’s long tail frame generating significant lift factors on straights using all of the road at speed. Records do indicate that racecar drivers Jo Siffert and Brain Redman managed to clock an unofficial lap time in the 917 Porsche, chassis 917-024, of 3:41.9 which would have beaten the pole of 3:42.5 set by the Lola, but they chose to use the Porsche 908LH long tail with which they won the race and set the fastest lap at 3:37.1. 
None of that is particularly relevant, nor is the detail of Siffert's career. But, it makes for good reading as these things go.

For our purposes, the important thing is Customs' conclusion that the rarity of the vehicle and its connections to Siffert and Hollywood  was sufficient reason to classify it in HTSUS item 9705.00.00 as a collector's piece. That made it duty free.

Thursday, February 19, 2015


[Updated for clarity improvements.]

Customs has updated the NAFTA CO Form 434, now with the date "11/14." The new form has some nice automated features to select dates. It is not immediately obvious, but when you click the field, you will see a drop down for a calendar. This should eliminate ambiguity as to dating formats (although I note that the printed date will be in U.S. mm/dd/yyyy format).

The other innovation is that the contact information for the Exporter, Producer, Importer and signatory all have a space for an email address. This certainly seems like reasonable information for CBP to request. But, it raises the question of whether an importer can rely on a NAFTA CO that does not include an email address and whether CBP will accept it in the event of a verification.

Yesterday, CBP issued a notice addressing that question. Below is the full text of what Customs and Border Protection had to say. Note the highlighted middle paragraph stating that forms without the email address remain valid.

CSMS #15-000108

Title: NAFTA Certificate of Origin Enhancements and Use of Expired Certifications

Date: 2/18/2015 4:53:19 PM

To: Automated Broker Interface, ACE Portal Accounts

An amended CBP Form 434, NAFTA Certificate of Origin, now available on the CBP "Forms" page
at, provides blocks for importer / exporter / producer and signee email addresses, as well as drop-down calendars indicating "mm/dd/yy" for the input of the blanket period and signature date. These enhancements to the CBP Form 434 were made to facilitate communication and eliminate date ambiguity.

CBP will continue to accept prior versions of the CBP 434, as well as the Canadian B232 and the Mexican Certificado de Origen without the email address blocks. While a form with email blocks may assist communication, for CBP purposes, a form or format without email addresses remains valid.

CBP forms obtained from the "Forms" menu of are the most up-to-date available. CBP will continue to accept certificates of origin associated with the NAFTA (CBP Form 434), the Caribbean Basin Trade Partnership Act (CBP Form 450) and the Insular Possessions (CBP Form 3229) irrespective of any expiration date.

If you have questions, please contact the Trade Agreements Branch at

Trek Leather Owner Seeking Supreme Court Reivew

Harish Shadadpuri, the principal of Trek Leather who the Court of International Trade and Federal Circuit held personally liable for corporate negligence, has asked the Supreme Court to review his case. This is one of the most interesting customs cases in a long time. Shadapuri was initially vindicated  by the Federal Circuit, which then reversed course and unanimously held he was liable as a "person" who "introduced" merchandise to the United States through negligence.

This is the last chance for Shadapuri and the last chance for the law to recognize that while corporations may be people, and people are "persons" under the customs penalty law, the corporate people and liable persons are not necessarily the same. In most other cases involving personal liability for corporate acts, the government needs to show that the corporation was nothing more than an alter ego of the person. This is called "piercing the corporate veil" and is usually done under state corporate law. The Federal Circuit interpreted the penalty statue as creating direct personal liability on anyone who introduces goods to the U.S. That is potentially anyone who provides information that Customs relies upon in making decisions regarding admissibility and liquidation. That is a lot of people.

Friday, February 13, 2015

Ruling of the Week 2015.6 Human Remains and the Walking Dead

Note, this has been updated to add a little more context for those among you who are not trade compliance professionals.

Lately, I have been on a slow binge of watching the Walking Dead. Like most TV adaptations of graphic novels and comics, I am finding it very entertaining. I'm only in Season 3, so no one tell me . . . well, anything. As a result, I have been seeing a lot of images of corpses, both animate and inanimate. That reminded me that there is a specific provision in the Harmonized Tariff Schedule of the United States ("HTSUS") for the importation of corpses.

The HTSUS is the statute (19 USC 1202) by which imported products are assigned rates of duty. It also sets out certain other regulatory requirements and exceptions. General Note 3(e), HTSUS, exempts from customs duties "corpses, together with their coffins and accompanying flowers."

When goods arrive at a port in the U.S., they are usually subject to an "entry." That is the process of legally entering the goods into the commerce of the United States and reporting that fact to Customsd and Border Protection. The Customs Regulations provide that "all merchandise" is subject to entry unless exempted and lists HTSUS General Note 3(e) as an exemption. That seems confirm that corpses are not subject to entry requirements and not subject to duty. Or maybe not.

What if the "merchandise" to be imported is human heads, heads with necks, torsos, legs, arms, etc. taken from body donors. That is the question answered by Customs and Border Protection in its private letter ruling HQ H235506 (Jan.14, 2013). As customs rulings go, this is awesome. I don't know how I missed it when it was issued.

The ruling starts with the ancient legal principal that there can be no commercial property interest in a dead body. Among other sources, Customs cited Chief Justice of the King's Bench, Sir Edward Coke (1552-1634) for this legal proposition. At the same time, we all have a legal right to a decent burial, which puts a duty on survivors to properly care for the body of the decedent. For this, Customs cites a book I desperately want: The Law of Cadavers by Percival Jackson. All of which must be weighed against the right of the not-yet-dead to donate their body to science under the Uniform Anatomical Gift Act.

Getting to the substance of the issue, Customs looked at prior rulings in which it determined that cadavers imported for medical analysis are "corpses" for purposes of General Note 3(e). Customs has long had the practice of exempting corpses from duty and entry.

But this case involves parts of corpses. Counsel for the importers made the hand waving argument that it would be distasteful for CBP "to begin quibbling about the relative portions of human remains that are imported before qualifying for the GN 3(e)" exemption. Based solely on longstanding practice, a couple rulings, and "the weight of history," Customs agreed. Given that the body parts will eventually be given a decent burial, Customs saw no reason to interfere with the disposition of the "merchandise."

I have a couple questions. First, is there a flipside to the distasteful task of deciding how much of a body should be treated as a corpse? Counsel for the importer seemed to be wondering how much can be removed from the deceased and still have it remain a corpse for purposes of the customs laws. Apparently, the answer is that an entire body can be removed leaving the head legally a "corpse." What about a sample taken from a living human? This ruling says an arm or leg taken from a cadaver is a "corpse" and exempt from classification and entry. What about an arm or leg taken from a living person? Is that extremity now a corpse if imported into the United States. How would Customs know whether the "donor" was living or dead? Is the legal distinction administrable?

My second question has to do with the looming zombie apocalypse depicted in the Walking Dead TV series and presumably in the graphic novel. What if the unlucky victim of viral zombie reanimation happens to be visiting the Windsor Ballet at the time of his or her demise? When the undead start shuffling north toward the tunnel to Detroit, will there be a problem when it arrives at Customs? Is the walker a "corpse?" If so, it will not need to be entered as merchandise, and can continue walking.

If it is a person, it will need to clear immigration checks, which will be hard for the inarticulate shuffler lacking a passport. Customs might have to make accommodations under the Americans with Disabilities Act. Also, would the passport still be valid? It seem the correct "birthday" would now be the date of reanimation. I will leave that to the immigration lawyers.

Assuming the walker is no longer a person, Customs should treat it like an animal. If it is a dead but still walking animal, the best guidance ruling I can find (with minimal research) is HQ 975664, in which dead animals are treated as zoological specimens in HTSUS item 9705.00.00 (it's duty free!). In this case, the dead animal is walking itself across the border, which raises questions of whether the walker is the "owner, purchaser, or consignee" of the merchandise (which is the walker). Since we know there can be no property interest in a dead body (or living person), the walker would need to be his or her own consignee to have the legal right to make entry of himself or herself. If it is alive but non-human, I suggest an HTSUS classification of 0106.11.00 as live primates, which is also duty free.

Finally, there are, of course, issues of admissibility. As Customs pointed out in the ruling that sparked this post, the importation of corpses is subject to regulation by the Centers for Disease Control. Given the plot of The Walking Dead, it seems pretty certain that the CDC would have something to say about this.

If anyone from Customs and Border Protection knows what would happen if an unaccompanied non-human primate showed up at the border crossing, please drop a comment below.

Also, if any readers have rulings to nominate for Ruling of the Week treatment, please note them in a comment. I am particularly interested in bizarre products, crazy food items, and restricted merchandise. I am aware of the numerous NSFW rulings on personal massage devices, so no need to reference those. I try and keep this a family and office friendly site.

Georgetown International Trade Update

I'll be speaking at the Georgetown ITU again this year. By "speaking," I mean moderating a panel full of smart people. The topic will be principal use in tariff classification. This is not as mundane as it sounds. Identifying use provisions is getting murkier and evidence of use is not always readily available. The full two-day program features new developments in the area of international trade. Plan to attend Feb. 26-27 at Georgetown Law in Washington DC. Info is here.   

Friday, February 06, 2015

Best Key Overturned

With this post, I am momentarily caught up.

Best Key Textiles Co. Ltd. v. United States has been a bit convoluted from the get go. The company makes, but does not import, metalized polyester yarns. It got a ruling from Customs and Border Protection that classified the yarn in HTSUS item 5605.00.90, which has a rate of duty of 13.2% ad valorem. Armed with this, Best Key got a second ruling on a "pullover garments" called a "Johnny Collar." Best Key's strategy seemed to be to confirm that it was making metalized yarn of 5605.00.90, which has a relatively high rate of duty, and then confirm that apparel made of that yarn would be subject to a relatively lower rate duty applicable to apparel of "other textile materials." Incongruously, Customs classified the Johnny Collar as being of polyester, thereby giving it a higher 32% rate of duty.

Best Key requested that Customs review the Johnny Collar classification. In doing so, it also reviewed the yarn classification. In a blow to Best Key, Customs revoked both rulings. It determined that the yarn was improperly classified and re-classified it as polyester yarn. Polyester yarn has a lower 8% rate of duty. The Johnny Collar ruling was also revoked and replaced, but the classification stayed the same.

That means that Best Key's actual product, if imported as is, receives a lower rate of duty. Usually that is a win for the manufacturer. Here, it is not. Best Key does not import yarn. It sells yarn to foreign producers who sell garments to be imported to the U.S. If the yarn is metalized, the garments receive a lower rate of duty. Ultimately, that is the win Best Key wants.

In the Court of International Trade, Best Key challenged the ruling revocation on the Johnny Collar, which it does not make or import. Initially, the Court said that Best Key had not established jurisdiction in the Court, but it later changed that position and reviewed the case on the merits. The CIT based it jurisdiction on 28 USC 1581(I)(4), which is a residual provision granting the CIT exclusive jurisdiction over actions commenced against the United States that arise out of any federal law providing for "administration and enforcement with respect to," among other things, revenue from imports, tariffs, and duties.

In this appeal, the United States argued that the CIT was correct that first time and the lower court never had jurisdiction over Best Key's claims. The opinion, by former CIT Judge Wallach, agrees with the United States. As a result, the CIT decision is vacated and remanded to be dismissed.

As the courts have stated repeatedly, the primary means of securing jurisdiction for review of a tariff classification is through a denied protest and then a summons under 28 USC 1581(a). If that avenue is available, the would-be plaintiff cannot get into the Court of International Trade on another basis (with a few exotic exceptions). Here, 1581(a) the protest avenue was available and not "manifestly inadequate" as a means of relief. According to the Federal Circuit, "any producer who imports items made from Best Key's yarn and believes the merchandise should be subject to a lower duty rate should protest the classification and challenge any denial of its protest before the CIT." Moreover, it would appear that Best Key could do that it imported a bunch of Johnny Collars on its own account and protested the liquidations.

There was another possibility for Best Key. Under 28 USC 1581(h), a party can challenge a pre-importation ruling if the party can demonstrate that it will be irreparably harmed unless given an opportunity for review. This sounds good, but does not help Best Key. Best Key was not harmed by the ruling on its product. Rather, at least according to the Court of International Trade, the ruling on yarn favors Best Key's product. The real issue is the potential harm a potential importer of a potential product made from Best Key's metalized yarn. In other words, Best Key, is on indirectly harmed and is trying to protect the rights of strangers to the case. There is, therefore, no "case or controversy" involving Best Key and, under pesky Article III of the Constitution, no case to be had.

Because the CIT did not proceed on the basis of (h) jurisdiction, the Federal Circuit did not address it. But, the same rule applies. If the party can avail itself of a protest and (a) jurisdiction, it needs to do so.

Personally, I wonder about that in this case. Since Best Key admits that it neither makes nor imports apparel, should it be required to do so to manufacture (a) jurisdiction? This indirect injury as the result of a prospective ruling seems to be exactly the kind of thing that makes (a) unavailable or inadequate. There is no way to quantify how much damage will be done to Best Key as a result of the Johnny Collar ruling leading its customers to other yarns. That is irreparable harm. I think (h) might deserve a second look.

Please, can I have a week or so without any new customs decisions?

Quoth the Blogger, "Skidmore?"

Continuing my effort to catch up with the Court of International Trade and one decision of the Federal Circuit, we now come upon JBLU, Inc. v. US, a recent decision of the Court of International Trade.

The issue in this case is whether wearing apparel from China bearing the brand-name "C'est Toi Jeans Los Angeles," "CT Jeans USA," and "C'est Toi Jeans USA" were properly the subject of a Notice to Mark or Redeliver for failure to have adequate country of origin marking. Customs and Border Protection maintains that the use of "Los Angeles" and "USA" on the labels requires the there be in close proximity and in comparable size a a country of origin marking preceded by "Made in," "Product of," or another similar phrase. This requirement comes from 19 CFR 134.46,

The importer maintains that section 134.46 does not apply because the geographical designations are part of a trademark or trade name. That argument comes from 19 CFR 134.47.

The nub of the issue comes down to whether Customs' definition of "trademark" for purposes of interpreting the regulation is correct. Customs applies the trademark regulation only to registered trademarks or where there is a pending application to register a trademark. The importer claims the regulation applies to trademarks under federal law as well as common law trademarks, which are unregistered but used in commerce. A federally registered trademark is denominated with the (R) symbol while a common law trademark sometimes gets marked with the letters TM.

To cut to the chase, the Court upheld Customs' interpretation and found that to the extent there was no pending application to register the trademarks at the time of some of the entries, the Notice to Mark or Redeliver was a valid exercise of CBP authority as to those entries.

I do have a question to raise respectfully. According to the Court of International Trade, in the absence of a definition of "trademark" in the regulation, the Court must "give Customs' interpretation of 19 C.F.R. [sec] 134.47 substantial deference, unless it is 'plainly erroneous or inconsistent with the regulation.'" For that proposition, the Court cites Supreme Court precedent and a Federal Circuit case involving a review of a dumping determination.

In the context of the de novo review of the denial of a protest, would it have been appropriate for the Court to also or instead apply Skidmore deference to CBP's determination? In that event, the Court would have to decide whether CBP's decision has the power to persuade the Court.

The decision notes that Customs' position is consistent with prior rulings and with the purpose of the marking law. Thus, I think the Court is basically saying that Customs' legal interpretation is persuasive and passes muster even under the somewhat looser Skidmore standard. That means the result is the same no matter how the Court cuts it. So all I am talking about is the label put on what the Court did.

With apologies to Edgar Allen Poe.

Wednesday, February 04, 2015

Ruling of the Week 2015.5: Inadvertent Identity Hijacking

Usually, I am happy and proud to work with my counterparts at Customs and Border Protection. The good people there tend to do their jobs in an intelligent and professional manner. But then there is HQ H157616 (Sept. 22, 2014). [Update: It appears there is an error in the numbering of this Ruling. My prior link went to a different ruling. Try this one instead.]

The facts here are simple. A customs broker filed an entry listing Lifestyle Enterprise Inc. as the importer of record. The subsequent Entry Summary also listed Lifestyle as the IOR and used Lifestyle's importer number. This was an error. Lifestyle was the domestic buyer and was supposed to be the consignee, not the importer. The seller, a company called Starcorp Furniture Inc. was supported to be the importer. The broker had no power of attorney authorizing it to act on behalf of Lifestyle. These facts seem to be undisputed.

Also undisputed is that the merchandise involved was wooden bedroom furniture from China. If you are a trade professional, you just said "Oh, crap" or something more colorful. Wooden bedroom furniture from China is subject to antidumping duties of 216%. That is a difficult cost variance for the domestic purchaser to absorb.

Five years after the entry (which was suspended due to the dumping case), Customs issued a Notice of Action stating that it would liquidate the entry and assess antidumping duties against Lifestyle. After liquidation, Lifestyle filed a timely protest saying, essentially, "Hey, we were not supposed to be the importer and the broker had no right to name us as such! Leave us alone."

The ruling is short and to the point. Lifestyle was the purchaser of the merchandise and, therefore, had the right to make entry. In other words, it could have been the importer. Implied by that is the premise that Customs had no way to know that Lifestyle was not properly named as the importer. Furthermore, Lifestyle had five years in which to correct the entry prior to liquidation. Instead, it took no action until it received the Notice of Action from Customs and Border Protection.

On those facts, Customs said it cannot resolve the dispute between the parties as to which of the two companies was supposed to be the importer of record. As far as CBP is concerned, either is an appropriate importer and Lifestyle was listed as such on the documents. Customs, therefore, liquidated the entry properly.

That is a tidy answer for Customs but creates a terrible mess for the parties based on what is without question an entry that was filed illegally. Without a power of attorney, the broker had no right to bind Lifestyle to be the importer of record. While Lifestyle clearly has a cause of action against the broker, it still needs to pay this assessment, even if just to get into the Court of International Trade.

Why is Starcorp off the hook here? We don't know a lot of the background, some of which might be very important to the outcome. But, it seems clear that Starcorp could have been the IOR. It has a POA with the broker and most likely a bond with a surety. We know that Customs could pursue an enforcement case against Starcorp to collect these unpaid antidumping duties because, while it did not make entry, it "introduced" the merchandise into the U.S. See, Everything ever written about Trek Leather. So CBP was not without recourse against Starcorp, the party that anticipated having the liability.

It is possible that Starcorp has abandoned the U.S. and has no assets. Also, it would appear that because Starcorp was not listed as the importer, there would be no claim against the surety.

What about the broker? It illegally filed an entry without a proper Power of Attorney. It might be subject to a penalty as well. The amount of that penalty is probably capped at $30,000, which is certainly much less than the amount of the dumping duties, but that is apparently what Congress wants.

This is not really a case where two companies were equally able to act as importer of record through the customs broker that filed the entry. Only Starcorp designated the broker. Since brokers are required to have written powers of attorney, there should be no basis on which to argue that apparent authority is enough to bind Lifestyle to be the importer. This is not a situation in which CBP cannot differentiate between two equally possible importers. Lifestyle could not have made this entry and it seems unduly harsh to hold it responsible for actions it never authorized. Rather than be a culpable party, Lifestyle is the victim of what is probably inadvertent or negligent identity hijacking.

What does this tell importers? It is a stark reminder of the importance of monitoring your entry activity. If your company has a customs importer of record number, periodically monitor the entry activity to identify entries incorrectly made on your behalf. Look for brokers you did not authorize, ports you don't typically use, manufacturer ID numbers that don't seem familiar, and other indicators of unauthorized activity. remember to cancel POA's with brokers you no longer need. If you find anything like amiss, act quickly. Lifestyle compounded its problem by sitting on its opportunity to correct the entry (or have the broker correct it).

Learn from that mistake.

Tuesday, February 03, 2015

What is a Unit of an ADP System?

Digidesign Inc. v. US involves a perennial classification question of the digital world. At what point does a digital device that manipulates data and connects to a central processing unit become a unit of an automatic data processing system? This is important as we move toward the era of the "internet of things." To the extent the connected devices perform a specific function that is not strictly data processing, this case provides an answer. Spoiler: your internet connected refrigerator, toaster, or car is not an ADP machine.

In this case, the merchandise was two music editing systems. The decision provides a detailed description of both devices and how they work. For our purposes, just understand that they are physical consoles that translate the sound engineer's manipulation of switches, sliders, and knobs into digital effects. One unit accomplished that task by sending signals to a separate computer where the digital music file is housed. The other unit can do it internally.

The court had to deal with one housekeeping matter before deciding the classification. For one of the entries, the corresponding commercial invoice listed four products, none of which were subject to the protest or the complaint. The importer argued that the invoice contains an error that can be seen by looking at the corresponding value, which matches the value of the items at issue. The government argues that the invoice does not identify the product subject to the protest and complaint and, therefore, is not properly before the Court. The court agreed that it lacks subject-matter jurisdiction over the goods on that entry.

This raises a question or two. First, could the plaintiff have avoided this problem by including in the complaint the factual allegation that the invoice covered the subject merchandise but mis-described it? I think the answer to that is, yes. That would have created a factual issue to be resolved by documents or testimony. Second, should the court have given the plaintiff an opportunity to cure the defect by amending the complaint? I'm not sure about that. It is likely that the statute of limitations had passed to file the claim and the amendment may not relate back to the original filing date. The court has an obligation to dismiss any case not properly before it, so the burden is on the plaintiff to prove up jurisdiction. This seems like a harsh result in a circumstance where the entry documentation probably asserted the correct classification and CBP likely knows that the entry covered the merchandise in question.

The competing headings here are 8471, units of automatic data processing machines, and 8543, electrical machines having individual functions not elsewhere specified or included. Units of ADP machines in Heading 8471 are duty free. The relevant provision in Heading 8543 has a duty rate of 2.6% ad valorem.

The definition of an ADP machine is set out in Chapter 84, Note 5(B), which states:

Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all of the following conditions:
(a) It is a kind solely or principally used in an automatic data processing system;
(b) It is connectable to the central processing unit either directly or through one or more other units; and
(c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.

The difficulty here is that Note 5(B) references Note 5(E), which says:

Machines performing a specific function other than data processing and incorporating or working in conjunction with an automatic data processing machine are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.

Looking to Note (E), the court first found that the merchandise at issue performed a function other than data processing. Both models include microphone pre-amp and room monitor functions, neither of which are ADP functions.

The question is whether the machines work in conjunction with an ADP machine. The tariff does not define what it means to "work in conjunction with." Turning to dictionaries, the court held that "working" means acting, doing, or functioning. "In conjunction," according to the court means "joined together for a common purpose." From that, the court concluded that these machines perform specific functions in conjunction with ADP machines. As such, they are precluded from classification in Heading 8471 by Chapter 84, Note 5(E). There being no other more specific Heading, the machines were properly classified in the residual Heading of Chapter 85. 

Monday, February 02, 2015

"The 2004 Ford Drawback," Worst Vehicle Name Ever

Ford Motor Company had 17 drawback claims that it believes liquidated by operation of law and, as a result, that U.S. Customs and Border Protection should pay to it. Customs, as you might imagine, disagreed. That is why the U.S. Court of International Trade had to decide Ford Motor Company v. U.S.

The nub of the issue is 19 U.S.C. § 1504(a)(2)(C), which states:

An entry or claim for drawback filed before December 3, 2004, the liquidation of which is not final as of December 3, 2004, shall be deemed liquidated on the date that is 1 year after December 3, 2004 [i.e., on December 3, 2005], at the drawback amount asserted by the claimant at the time of the [drawback] entry or claim.

Ford's claims were filed prior to December 3, 2004 and not liquidated by December 3, 2005. As a result, Ford believes it is entitled to the drawback claim in full. Customs, on the other hand, believes that because the drawback claims involved underlying entries that had not yet liquidated, the claims were not ripe and 1504(a)(2)(C) did not apply.

Rather, according to Customs, the controlling law is paragraph (B) of the same section, which states:

An entry or claim for drawback whose designated or identified [i.e., underlying] import entries have not been liquidated and become final within the 1-year period described in subparagraph (A), or within the 1-year period described in subparagraph (C), shall be deemed liquidated upon the deposit of estimated duties on the unliquidated imported merchandise, and upon the filing with the Customs Service of a written request for the liquidation of the drawback entry or claim. Such a request must include a waiver of any right to payment or refund under other provisions of law. The Secretary of the Treasury shall prescribe any necessary regulations for the purpose of administering this subparagraph.

According to Customs, the Ford claims could not be paid unless the entries were liquidated or Ford paid the estimated duties and filed a written request coupled with a waiver of any other refund. Ford did not do that.

Note that both (B) and (C) are exceptions to the rule of (A). The basic rule is that a drawback claim will liquidate as made by the claimant if it is not liquidated within one year of the date of the claim.

The Court disagreed with Customs and the Government. The way the Court reads the statute paragraphs (B) and (C) perform separate and independent duties. Paragraph (A) sets the general rule of one-year deemed liquidation. Paragraph (B) allows a claimant to force the liquidation of the drawback claim even though Customs has not yet liquidated the underlying entries. This is akin to the accelerated disposition of a protest. It forces CBP to act and the claimant can then decide what to do with the result. Paragraph (C) is the clean up provision that deals only with drawback claims pending on December 3, 2004. Paragraph (C) basically tells CBP to act on those claims within a year or they will be deemed liquidated as claimed.

To make a very long story short, that is how Ford won this case. The claims it filed prior to December 3, 2004 were deemed liquidated on December 3, 2005 even if underlying entries remained unliquidated. Paragraph (C), according to the Court of International Trade, is clear and unambiguous in its meaning. Nothing in the legislative history appears to be contrary to that conclusion.