Thursday, October 22, 2015

When Does A Treatment Start?

Do you know what I hate? Change. Once I get comfortable with something, I am not a big fan of changing it up until something demonstrably better comes along. I drive my cars until I can't and I have gone to the same place to get my hair cut for 15 years. I have an 8 year old computer at home that is only now getting annoying enough to merit a trip to the recycling center.

I also do not like it when Customs and Border Protection makes a change without an obvious and good reason. I get that if the Harmonized System Committee changes the law, Customs will implement the change. Also, I am completely in favor of the movement to ACE, which will provide demonstrable benefits to the trade. But other times, it seems to just be a matter of Customs rethinking the issue or never having been happy with the result the first time around. See, first sale valuation

This comes up in the context of American Fiber & Finishing, Inc. v. United States, a recent decision of the Court of International Trade. The case involves a change in practice with respect to the classification of cotton gauze fabric. AFF had been entering and Customs had been liquidating the guaze in 5803.00.10, which is a duty-free provision. In January of 2010, CBP issued a Notice of Action changing the classification to 5208.21.40, which carries a 10.2% rate of duty. AFF protested the rate increase.

In its protest, AFF asserted that Customs violated 19 USC § 1625(c) when it changed the classification of this merchandise without public notice and comment. Under that law, Customs must follow notice and comment procedures before it issues an interpretive ruling or decision that has the effect of modifying a treatment previously accorded by Customs to substantially identical transactions.

Unpacking that, if AFF can show that there was a "treatment" in place regarding the classification of these products, then Customs can't simply rate advance the entries. Before changing the treatment, Customs would need to publish a notice and give the public opportunity to comment on the change.

The first issue is whether the rate advance announced in a CF-29 Notice of Action is an interpretive ruling or decision. That question has been addressed in previous cases. If a decision is the functional equivalent of a ruling or internal advice, if it "unilaterally changes the rules," then it is an interpretive ruling or decision requiring notice and comment under 1625(c). In this case, there is some remaining question about whether the Notice of Action was the equivalent of a ruling, so the Court set that issue aside for now.

The second issue was whether AFF could show a treatment. To do that, AFF needs to prove that there was an actual determination by a Customs officer regarding substantially identical transactions and that over a two-year period immediately preceding the claim of treatment, Customs consistently applied that determination. At this point in the case, the parties have asked the Court to rule on when the relevant two-year period begins to run. As you can probably imagine, this would be important if there was evidence of inconsistent treatment at some point in the past. By selecting the proper two-year period, AFF might be able to establish a treatment.

Customs says the relevant period is the date of the protest, which is when AFF first asserted that a treatment existed. AFF says the protest is simply a document in which the treatment is referenced. According to AFF, the claim for treatment was made at the time of entry consistent with the prior treatment. That would push the starting point for the two-year period back as much as 494 days (314 for liquidation and 180 for the protest).

The Court found that a "claim" can be either the assertion of a right or the means by which the assertion occurs. Think about a prospector in the old west. The moment he is jumping up and down shouting that he struck it rich, he is making a claim. On the other hand, he has to go down to the county office to file his claim. Both are claims. Looking at the larger context of the relevant regulations, the Court held that the relevant claim is the assertion of the right, not the administrative mechanism. The "defining operative facts that gave rise to [AFF's] claims" are the entries. In other words, AFF jumped up and down asserting its right to duty-free treatment at the time of entry, not in the protest.

This case is not over. The issue of whether there is an interpretive ruling remains to be determined. In addition, the parties now must gather and present evidence of treatment for the two-year period immediately prior to the earliest entry. So, relax; there is more to come.


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