Monday, June 29, 2015

91 Cups and Mugs, 2 Experts

One of the problems of trying to chronicle all modern American jurisprudence on customs law is that I need to read it all. Sometimes that hurts more than other times. In this case, G.G. Marck & Associates, Inc. v. United States, the blame for my current headache does not lie in the drafting. It may be that I spent the afternoon in tasting rooms at breweries. Or, it may be the substance of the case.

I rarely call out individual judges. In this case, I want to be clear that Judge Richard Eaton wrote a cogent opinion. The problem here is that there are 91 cups and mugs involved and two complicated issues. This decision is a yeoman's task of wading through facts and applying the law.

The imported merchandise is 91 styles of cups and mugs. At liquidation, Customs classified the merchandise either as "mugs" in 6912.00.44 (10%) or as "other" in 6912.00.48 (9.8%). The difference is that "cups," as opposed to "mugs," fall in the "other" category.

The importer protested and claimed that the correct classification for all of the merchandise is in 6912.00.39, which covers ceramic tableware, available in specified sets, in any pattern for which the aggregate value of the articles listed in additional U.S. note 6(b) of this chapter is over $38. The parties did not dispute that the goods are classifiable in Heading 6912, which covers ceramic tableware that is neither porcelain nor china.

The impact of Note 6 is to define the phrase "available in specified sets" as requiring that specific articles of particular sizes be sold or offered for sale in the same pattern. That is the meaningful legal principle to be explored in this case. Also of interest is the discussion of the role of experts in classification cases.

The Court of International Trade decided to follow the guidance from a Court of Customs and Patent Appeals decision to define "mug" and "cup." According to that case, which was decided under the TSUS, a mug is a relatively cylindrical drinking vessel that is not traditionally used with a saucer. A cup, on the other hand, is a bowl shaped drinking vessel usually used with a saucer. From there, it should not be terribly difficult to go through the 91 items and classify them.

But, there is a third option. The importer argued that because the items are offered for sale and sold with other ceramic items in the same pattern, they are sets classifiable in 6912.00.39. For this, you need the full text of the U.S. Note 6(b) to Chapter 69:

If each of the following articles is sold or offered for sale in the same pattern, the classification hereunder in subheadings 6911.10.35, 6911.10.37, 6911.10.38, 6912.00.35 or 6912.00.39, of all articles of such pattern shall be governed by the aggregate value of the following articles in the quantities indicated, as determined by the appropriate customs officer under section 402 of the Tariff Act of 1930, as amended, whether or not such articles are imported in the same shipment:
12 plates of the size nearest to 26.7 cm in maximum dimension, sold or offered for sale,
12 plates of the size nearest to 15.3 cm in maximum dimension, sold or offered for sale,
12 tea cups and their saucers, sold or offered for sale,
12 soups of the size nearest to 17.8 cm in maximum dimension, sold or offered for sale,
12 fruits of the size nearest to 12.7 cm in maximum dimension, sold or offered for sale,
1 platter or chop dish of the size nearest to 38.1 cm in maximum dimension, sold or offered for sale,
1 open vegetable dish or bowl of the size nearest to 25.4 cm in maximum dimension, sold or offered for sale,
1 sugar of largest capacity, sold or offered for sale,
1 creamer of largest capacity, sold or offered for sale.
If either soups or fruits are not sold or offered for sale, 12 cereals of the size nearest to 15.3 cm in maximum dimension, sold or offered for sale, shall be substituted therefor.
This means that for the mugs and cups to be classified as parts of a set under 6912.00.39, they must be of a single patterns and must be sold or offered for sale in that pattern. The government conceded that two collections sold under the "Cancun" trademark in cobalt blue and light blue meet this definition.

The problem is that there are other colors available but the creamer and sugar are only available in the two shades of blue. The sugar and creamer are necessary parts of the set and must be offered in the same pattern. So, this boils down to the question of whether tableware of differing colors but similar surface design are of the same pattern?

Good question. It turns out that the answer cannot be found in the HTSUS, the Explanatory Notes, or any prior court decisions. It is, however, discussed in a Tariff Classification Study from 1963. In that publication, the same pattern is said to mean "articles in coordinated shapes, colors, or decorations, including plain white articles, designed to be used together as sets."

The government's main contention on this point is that 77 of the items are not in the Cancun blue colors and, therefore, are not part of the same sets. The plaintiff's position is that a collection of separate vibrant colors, two-toned patterns, and special finishes make up an eclectic but coordinated set. Personally, I can buy this. At home, we have casual dinnerware that is in three or four coordinated colors with the same surface pattern. As it happens, the sugar and creamer are in a separate color not used on the plates. But sugar and creamer are clearly part of the set.

Plaintiff offered expert testimony to show that all of the imported item coordinate into sets. The role of experts in any court case is to help the jury or judge understand evidence through expert opinion based on sufficient facts and data and on reliable principles and methods. In other words, the expert is there to explain to lay jurors or a judge what they might not otherwise know or understand. This breaks down when the only issue before the Court is one that a reasonably insightful person might understand on his or her own. Such is the case here.

According to Judge Eaton, "a person of usual discernment does not need the assistance of an expert to make a decision of whether dinnerware items are in the same pattern. Were this not the case, an expert would be needed to accompany each shopper that enters a housewares store." That's not "jiggery-pokery," but it is a nice turn of phrase. Plus, the judge did not believe the testimony.

That left the Court to consider physical samples and catalogs. Doing so, the Court found that color is not the only important factor but is "largely determinative" of whether two items coordinate. Here, the Court found that the colors were so vibrant and varied that the items not in Cancun cobalt blue or light blue cannot be part of the same coordinated set.

With this framework, the Court was able to address the individual items. Looking at the sales literature for the merchandise, the Court found that only 16 of the 91 items were of the same pattern. Of those 16 items, five are available is sets and classifiable in 6921.00.39. Of the remaining mugs and cups, 58 are classifiable in 6912.00.44 as mugs and 28 in 6912.00.48 as cups in the "other" tariff item.

Sunday, June 28, 2015

Scope, Protests, and De Novo Review

The scope of antidumping and countervailing duty orders is one of those issues that sits right at the intersection of trade law and customs law. The Department of Commerce determines the scope of an order and can issue rulings clarifying whether particular products are within the scope of the order. Customs and Border Protection makes the day-to-day decisions whether to apply an order to imports as they arrive and the entries are liquidated. Traditionally, Customs' role in this process has been described as "ministerial," meaning it simply does what Commerce says to do. On the other hand, Commerce has not envisioned every possible product and product description. What Customs does is, in reality, more than ministerial. It requires the analysis of the scope of the order and the nature of the merchandise. Customs applies facts to law--that is not really ministerial.

That is what LDA Incorporado v. United States is about. LDA imports rigid electrical conduit from China. After it arrived, LDA became embroiled in a dispute with Customs about whether the merchandise was finished electrical conduit. If it is finished, the merchandise is outside the scope of the order covering "circular welded carbon quality steel pipe" from China. It is unfinished, it is included in the scope of the order. The dispute centered on whether the conduit was internally coated with a non-conductive liner, a requirement apparently not in the order.

As entries liquidated, Customs demanded the deposit of antidumping duties. The importer protested. Parallel to the protests, the importer also sought a ruling from Commerce clarifying whether the conduit was within the scope of the order. Commerce returned a decision saying the merchandise was excluded from the scope of the order. That should be a win for LDA, but CBP diod not see it that way.

The Court previously considered whether Customs and Border Protection's decision that merchandise is within the scope of the order is protestable. Here, the Court of International Trade first reiterates that "CBP made a protestable decision as to the application of the Orders to Plaintiff's entry."

This raises a new and interesting question: What is the Court reviewing in this case? The plaintiff is challenging the denied protest, not the scope of the order. It is certainly not challenging the Commerce Department ruling issued in its favor. The sole question is whether Customs properly applied the scope of the order. That is protestable because it relates to factual errors and other inadvertence by Customs that is adverse to the importer. Importantly, this is not a review of the scope of the order itself; just Customs' application of it to specific imported merchandise.

Thus, on the review of this protest (and similar future protests), the Court's role is to review de novo Customs' factual analysis of the merchandise and its decision to apply the orders to the merchandise.

On the facts presented, the Court found it undisputed that the merchandise is finished rigid electrical conduit. That means that Customs improperly applied the orders to this merchandise. This also means that importers are not required to go to Commerce for a ruling when they do not dispute the clear meaning of the order.

A Little Catching Up to Do

I've been busy. That's a good thing. The U.S. Court of International Trade has been busy as well. That is also a good thing. I am taking this week off. That is a good thing. The Venn diagram of this situation looks like this:

Thursday, June 25, 2015

Penalties and Default Judgments

What is the Court of International Trade supposed to do when the defendant in a penalty case refuses to show up? The answer is issue a default judgment against that defendant based on the well pleaded facts of the complaint. Unless challenged, those facts are taken as admitted and true. That is the background to United States v. NYCC 1959 Inc.

The imported goods appear to be petroleum wax candles from China, which are subject to antidumping duties. At the time of entry, they were described as merchandise outside the scope of the order. Customs determined that the false statement was a violation of 19 USC 1592, and imposed a penalty based on gross negligence.

A couple interesting points about this otherwise unremarkable case:

The judge found that the uncontested allegations that (1) the importer provided a false description of the merchandise and (2) the importer had prior notice from Customs and Border Protection of the false nature of the statement sufficient to establish liability for gross negligence.

Also, the penalty assessed by CBP was 40% of the value of the merchandise even though the maximum penalty was the full forfeiture value. CBP appears to have mitigated the penalty because the goods were not successfully entered and the goods were abandoned. The Court noted that the 40% figure appears to be based on the inapplicable provision relating to penalties in non-revenue violations. Nevertheless, the Court accepted and imposed judgment based on the mitigated amount.

I may have more to say on this case, but for reasons that may become apparent, I am going to wait.

Prejudgment Interest: Statutory and Equitable

You may recall that in United States v. American Home Assurance Company, the U.S. Court of International Trade held that a surety could not be held liable for statutory prejudgment interest owed by the importer because the statute reaches only "ordinary" duties and not antidumping duties. However, in the same case, the CIT held that the government is entitled to prejudgment interest under equity. The Court of Appeals for the Federal Circuit has now reversed the CIT on the first point and vacated the decision with respect to the second point.

The facts you need to know are few. American Home was the surety for an importer of crawfish tail meat from China, which is subject to an antidumping duty order. At the time of entry, the deposit rate applicable to the specific exporter was zero, which is convenient. But, following a review, liquidation occurred with a 223.01% assessment rate, which was inconvenient. The importer defaulted and Customs and Border Protection sought payment from the surety. There are some interesting procedural issues involving the various liquidations, protests, and the lack of protests; but, know that there is $1,157,898.22 in unpaid duties at issue.

In the collection action, the United States sought prejudment interest under 19 U.S.C. § 580, which provides that "[u]pon all bonds, on which suits are brought for the recovery of duties, interest shall be allowed . . . from the time when said bonds became due." The CIT held that this did not apply to antidumping duties because, at the time the statute was originally enacted in 1799, it was not intended to apply to antidumping duties. The Federal Circuit disagreed.

On this point, the Federal Circuit said:

The language—“all bonds” on which the government sues for “the recovery of duties”—is clear and unqualified. As written, the term “duties” does not modify the type of “bonds” on which interest shall be allowed. Instead, the statute calls for interest on “all bonds.” The term “duties” reflects only the requisite res litigiosae—i.e., the general nature of the disputed property in the government’s legal action against the surety. Thus, by the statute’s plain terms, it covers, among other things, bonds securing the payment of antidumping duties when the government sues for payment under those bonds.

[Note: I feel that I have a good grasp of law Latin. Nevertheless, "res litigiosae" is new to me. Black's defines it as "In Roman law, things which are in litigation; property or rights which constitute the subject-matter of a pending action." It sounds more like a Harry Potter spell for turning someone into a convict.]

What about the fact that from 1799 to 1921 there was no such thing as antidumping duties? Not a problem. According to the Federal Circuit (and the Supreme Court), laws encompass those things and people that fall within the scope of the language, even if those things and people arise subsequently. That's why wire fraud statutes apply to the Internet (maybe, that is just a guess on my part). Furthermore, Congress knew about this law and did nothing to change it when it enacted and subsequently modified the antidumping laws. That indicates that Congress understood it to apply to "all bonds" securing duties.

Having permitted the U.S. to recover prejudgment interest under the statute, the remaining question was whether the U.S. was entitled to the same interest on an equity theory. Equity is all about doing the right thing given all of the facts and circumstances. Given the decision that the U.S. is entitled to statutory prejudgment interest, the facts and circumstances have changes. Consequently, rather than decide the equity issue, the Federal Circuit vacated the CIT decision on this point and remanded the case to the CIT for further review.

Monday, June 22, 2015

Ruling of the Week 2015.19: Balance Ball Chairs

The good news is that I have a couple interesting customs law cases to post this week. the Court of International Trade has been busy with customs matters, and that is good for me.

The bad news is that I missed posting a ROTW last week. I will try to double up this week.

This ruling of the week involves a "balance ball chair." Hat tip to an astute reader who pointed it out to me.

In N009306, Customs classified a "chair" in 9401.80.40 as an other seat, of rubber or plastic. The chair was entitled to duty-free entry to the United States. Customs considered a similar chair in N144757. In that ruling, Customs and Border Protection classified the chair in 9506.91.00 as an article or equipment for general physical exercise with a duty rate of 4.6%. Clearly, this is not your average chair, which is usually the opposite of exercise equipment.

Rather, these are balance ball chairs. In the Customs Bulletin of June 10, 2015, CBP is proposing to revoke N009306 and classify that balance ball chair as exercise equipment.

Here is the description of the chair from N144757:

The product consists of an exercise balance ball and ergonomic desk chair frame. The frame portion includes these features: an adjustable narrow cushion back, adjustable legs and lockable castor wheels. The PVC exercise ball fits securely into the metal frame, forming an ergonomic desk chair. The ball can be removed and used for exercise purposes, while the desk chair frame can not function as a chair without the ball. The retail package will also include a plastic pump and an instructional DVD demonstrating six different exercise routines. 

The Customs Bulletin has some interesting pictures of the item.

Customs determined that the item is prima facie described both as a chair and as exercise equipment. That means the classification will depend on which of the two possible headings most specifically describes the chair. This is based on General Rule of Interpretation 3(a), which is the rule of relative specificity. The heading with conditions that are more difficult to satisfy and that describe the article most accurately is generally the correct heading. Also, as between a use provision and an eo nomine provision, the use provision is generally understood as the more specific. But, according to Customs, this rule will not apply if the eo nomine provision is "obviously more specific."

"Chairs" is an eo nomine description for items on which people sit. That describes this balance ball chair. Articles "for general physical exercise" is a use provision in that the goods must be used for physical exercise. Applying the traditional rule of thumb, Customs holds that the use provision is the more specific provision. Consequently, the balance ball chairs are classified in Heading 9506.

That means CBP is proposing to revoke N009306.

Wednesday, June 17, 2015

CBP Extends a Helping Hand

If you were in customs compliance during the Clinton-years, you might remember Customs and Border Protection taking the public position that it was in the business of facilitating legitimate trade and that it would be a "kinder and gentler" agency. U.S. government people actually said that, or possibly I dreamed it. To me, it is real.

That was before 9/11/2001, the creation of the Department of Homeland Security, and the shift toward border security as an existential issue of national security. By which I do not mean to denigrate that position at all. CBP's security job is important.

Today CBP announced a possibly small program that is 100% in line with the kinder, gentler agency of yore and helps to facilitate U.S. exports. That's good for the economy.

The program is the opportunity for exporters to request assistance on tariff classifications and customs valuation in other customs territories. Here is the pre-publication notice. It should show up in the Federal Register tomorrow (meaning June 18, 2015).

This notice seems to be formalizing a practice that previously existed. If a U.S. importer or exporter identified inconsistent treatment in another country or customs territory, U.S. Customs and Border Protection has always had the ability to bring that issue to the attention of the proper WCO committee. What is new is that CBP is publicizing that this opportunity exists as a means of fostering greater collaboration with industry. Customs is also saying that it can address the issue directly with the other country.

For conflicts that raise a real substantive issue, CBP says it will endeavor to provide an initial response within 60 days and will keep the relevant party informed thereafter.

This is a potentially valuable program and, also, a genuinely nice thing. Thanks.

Thursday, June 11, 2015

Ruling of the Week 2015.18: Switchblades Redux

I covered the Switchblade Act already this year, but it is back for a second look. This time in HQ 263979 (May 29, 2015). This is an instance where the importer got a surprise, and it is not the good kind.

United Cutlery asked Customs and Border Protection for the classification of a style of "folding" knife it intended to import. The knife consisted of a black metal grip and a double-edged blade that tapers to a point. The blade retracts into the grip and is released via a button that slides in a linear track along one side of the grip. SO, the knife does not "fold" at all. Pushing the button forward deploys the blade. The blade is under pressure from an internal spring and there are two detents in the track. The button drops into the detents with the blade extended either 1/16th or 5/16th of an inch. A minimal amount of force applied to the button will bypass both detents causing the blade to spring forward fully and lock in place.

The functioning of this system is important because of the way to Switchblade Act works. If the knife contains a spring and detent mechanism designed to create a bias toward closure and that requires exertion applied to the blade to overcome the bias toward closure, it is not a prohibited switchblade.

In this case, the spring creates a bias toward extending the blade. Under the Switchblade Act, that is prohibited merchandise. So the tariff classification is "doesn't matter dot inadmissible dot sorry."

Click the link above for the ruling; it has lots of good pictures. I scoured the United Cutlery website and did not see this knife. Maybe they did not yet start importing. Getting a ruling before committing to import, is the best practice, after all.

Thursday, June 04, 2015

Thank You, Otterbox

As previously discussed, the tariff classification of plastic cases for mobile phones, tablets, and similar electronic devices has been subject to much dispute. Customs and Border Protection has long held that they are usually, but not always, classified in Heading 4202 as if they are trunks, attaché cases, or musical instrument cases. I previously explained, in a fair amount of detail, why I think this is wrong. Turns out, barring interventions from the Court of Appeals, that I was right. Being right is a circumstance that always makes me happy.

In a thorough and thoroughly well reasoned decision, the Court of International Trade has decided that cases for iPhones and similar products imported by Otter Products ("Otterbox") are not classified in Heading 4202. Rather, they are articles of plastic in Heading 3926.

Customs had classified the goods in 4202 on the basis of Note 2(m) to Chapter 39, which excludes from Chapter 39 "containers" of Heading 4202. The primary question, therefore, is whether the cases are containers of 4202. Specifically, to be excluded from 3926, the containers would have to be "similar" to the exemplars in the first clause of Heading 4202, including "[t]runks, suitcases, vanity cases, attaché cases, briefcases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers." To do that, the cases would have to have the same essential characteristics and purposes that unite all of the items in the list. According to prior court decisions, that means that the cases must be useful for organizing, storing, protecting, and carrying the contents of the case.

Before jumping into an analysis of those four factors, the Court of International Trade took the wise step of looking at the bigger picture. Are these cases even "containers?" If not, they cannot be similar containers.

The government proposed various definitions of "container" as things that contain or enclose other things. These definitions included examples such as boxes, crates, and jars. While the list of examples is not complete or dispositive, it does illustrate the nature of a container as something that completely encloses an article in a way that makes it inaccessible without some effort to open the container. That is not true for an iPhone case. When fully "encased," the iPhone remains completely accessible and useful to the owner. That is important. An iPhone in an Otterbox case is not "put away" like dried beans in a can or dirty socks in a suitcase. I cannot wear my socks (clean or dirty) when they are in a trunk. I cannot read my newspaper when it is in my attaché case. Thus, an iPhone case is not a container.

It seems to me that the Court might have stopped there. If these cases are not containers, they are not "similar containers." But, to avoid any confusion for later proceedings, the Court analyzed the four factor test as well. On that front, both parties agreed that the cases at issue "protect" the electronic devices. That is not disputed.

But, the cases do not provide any organizational functionality at all. There is no organizational difference between your phone in a case and your naked phone. You can lose it just as easily and the cases do not facilitate holding any other items with the phone. "Organization" is the act of putting more than one item in some kind of useful order. These cases do not do that.

Nor are they useful for storing the phone or other device. To "store" something is to put it away for later use. These cases are designed to permit use while inside the case. Thus, they are not for storage.

Regarding the feature of "carrying" the contents of the case, the Court noted evidence that some of the cases included a belt clip for the fashion impaired. While the belt clip may facilitate carrying the phone, it is not always used. Further, and this is my thought, the phone continues to be fully functional while clipped to a belt. In fact, it is there so that the owner can get a call, possibly from a stylist or from Steve Urkel. This was not an important factor.

What was important is that the function of continuing to be fully functional while inside the case is inconsistent with all of the exemplars in Heading 4202. That divergent functionality separates the electronic cases from containers of 4202, some inconsistent Customs rulings notwithstanding.

That's that. A thorough, thoughtful, and to my way of thinking, correct analysis of the tariff classification of plastic electronic cases.

There is a second and also interesting point in this case.

The protests in this case were addressed to the classification question. In Court, the plaintiff sought a refund based on the change in tariff classification applied to the full value of the merchandise including an assist voluntarily disclosed after the time of entry. I suspect, but do not know for certain that this disclosure relates to the False Claims Act case involving Otter Products. According to the government, because the assist was voluntarily paid, it was not a "charge or exaction" subject to protest.

The Court started with the proposition that because CBP must liquidate an entry at the correct classification by applying the corresponding rate of duty to the correct value, a protest of the classification applied at liquidation necessarily requires a determination of the correct value to be applied to the rate of duty. That makes perfect sense. When CBP refunds the overpaid duties as a result of the change in classification, it should refund all of the excess duties paid. That necessarily includes the duty on the disclosed assist. Customs will presumably keep that portion of duty owed on the assist at the lower rate of duty. The issue here is not that Otterbox is disputing the appraised value of the merchandise. The issue is that any refund should be calculated on the undisputed value of the merchandise, which includes the assist.

Nice work Otterbox. High five.

Tuesday, June 02, 2015

Ruling of the Week 2015.17: The Drinking Dead

You may recall, I previously posted about my concerns for the proper means of entering the shambling undead. It appears U.S. Customs and Border Protection has already contemplated the tariff treatment of drinkable zombies mixes.

In NY N008597 (Apr. 13, 2007), the product was, among other things, a coffin-shaped cardboard box containing a bottle of "Citrus Zombie." The drink was about 70% water and 30% sugar with small amounts of flavoring a citric acid. The bottle included instructions to mix with equal parts of tequila, which is odd since a zombie cocktail is traditionally made with rum.

According to CBP, this product is a food preparation not elsewhere specified or included, classifiable in 2106.90.9972. Helpfully, CBP pointed out that the item was not properly marked with its country of origin and that the food preparation is subject to FDA regulation.

All of which is a segue into this cartoon from yesterday's paper. For copyright reasons, I'm just giving the link. It is a cartoon by Harry Bliss showing a man at the stove while a woman and cat relax behind him. The man says "Honey, quick -- the demi-glace is about to simmer -- pass me a shot of Don Julio 1942 tequila."

Here's the thing, I own and very much enjoy my bottle of Don Julio 1942. I also do some of the cooking in the house and I know what demi-glace means. I don't think I have ever made a demi-glace, but I watch a lot of Chopped, so I know these things.

I don't want to be overly defensive, but I am trying to see if I missed a joke in which I am the punchline. It's possible there is no joke here. Maybe the cartoonist was simply depicting a scene typical of his house. On the other hand, maybe I am a tool. Either is possible.