Sunday, November 22, 2015

Deemed Liquidation and Notice

[UPDATE: Sometimes, Congress fixes things. That is the case here. The Trade Facilitation and Trade Enforcement Act of 2015 includes, at § 911 a fix for the issue discussed in this post. The relevant amendment changes the existing law "by striking 'on which notice of the original liquidation is given or transmitted to the importer, his consignee or agent' and inserting 'of the original liquidation'.” This should make the relevant date the date on which the deemed liquidation occurs, not the date of notice, which is how it should be (if you ask me).]

The second recent case from the Court of International Trade involves the deemed liquidation of an entry. It is United States v. Great American Insurance Company of New York. This is a collection case in which the United States is seeking $50,000 from a surety for unpaid antidumping duties, plus pre-judgment and post-judgment interest.

For purposes of my own time management, I am just going to give you the take-aways. If you want more detail, read the decision.

The first question is whether Customs and Border Protection can reliquidate a deemed liquidation within the 90-day period set in 19 USC 1501. A deemed liquidation occurs when Customs fails to liquidate an entry within the time allotted by statute. In the ordinary case, this is one year from the date of entry. See § 1504(a). Under 1504(d), an entry that has been suspended is deemed liquidated if not liquidated within six months of the lifting of the suspension. In this case, the defendant argues that Customs cannot reliquidate an entry deemed liquidated under § 1504(d). The Court of International Trade disagreed, noting that since 2004, § 1501 has specifically referenced § 1504. That reference covers deemed liquidations under both § 1504(a) and § 1504(d).

The second question was when the 90-day clock starts to run for the voluntary reliquidation. The defendant asserted the entirely reasonable position that it starts to run on the date of the deemed liquidation. That would make the reliquidation in this case untimely, and therefore void. The Court found the statute specifies that the relevant date is the date of notice, not the date of liquidation. In this case, the notice was provided some 10 months after the liquidation date. Using the notice as the start date, the reliquidation was timely. Further, the 10-month delay was not unreasonable.

If you were in law school, taking notes on this decision, that is what you would write down.

Saturday, November 21, 2015

Suspension, Assessment, and Liquidation

Interesting court decisions are piling up.

The first is American Power Pull Corp. v. United States. This case involves two entries of hand trucks from China, which are subject to an antidumping duty order. At the time of entry, the importer deposited 26.49% of the value of the merchandise as a dumping duty deposit and Customs issued a notice of suspension of liquidation. A periodic review covering the entries followed and Customs continued the suspension of liquidation. After the review, and no doubt much to the disappointment of the plaintiff, the assessment rate was set at 383.60%. The producer filed suit to challenge that determination, no doubt making the plaintiff in this case happy. The Court granted an injunction against liquidation of the entry. Eventually, the rate was reduced to 145.90% and Commerce issued liquidation instructions to Customs and Border Protection. When CBP liquidated the entries with the additional assessment, American Power Pull protested, asserting that the entries had liquidated by operation of law at the rates asserted at the time of entry. Customs denied the protests and American Power Pull filed suit in the Court of International Trade.

The issue here is whether liquidation of the entries was properly suspended. If not, then the entries liquidated by operation of law at the 26.49% deposit rate. If they were properly suspended, then the dumping assessment can be properly applied.

The plaintiff argued that there is no statutory authority for the suspension of liquidation. This is premised on there having been no affirmative determination at the time of the suspension. Absent an affirmative determination, Commerce lacks authority to suspend the liquidation of entries. The United States moved to dismiss.

The Court of International Trade disagreed. The statutory authority for suspension begins with the affirmative preliminary determination by Commerce. 19 USC 1673b(d)(2). This suspension can stay in place for six months. After the final determination, Commerce publishes an order, which instructs Customs to assess the antidumping duties and to collect deposits of antidumping duties on current and future entries. The liquidation of the entries requires that Commerce tell Customs the assessment rate, which is determined in a periodic review under 19 USC 1675 (if review is requested). According to the Court of International Trade, this retrospective system of making deposits against future assessment rates has been interpreted as implying that the suspension of liquidation continues until the review (if requested) if finally resolved.The publication of the final results is the notice Customs needs to lift the suspension, at which time, Customs has six months to liquidate the entries. If litigation challenging the results follows, the Court of International Trade can issue an injunction to preserve the status quo and prevent liquidations prior to final determination of the correct assessment rates.

All of that means that the question to be decided was whether the entries were liquidated within six months of the lifting of a lawful suspension. This is where the dates become important.

  • The dumping order was issued on November 17, 2004 with a deposit rate of 26.49%. Entries from that point on were automatically suspended.
  • The entries were made on May 24 (my birthday for future reference) and June 14, 2006.
  • The second periodic review commenced, continuing the suspension.
  • On July 28, 2008, Commerce published the final results of the review, raising the assessment rate to 383.60%.
  • The producer commenced a challenge in the CIT and the court enjoined liquidations (effectively continuing the suspension).
  • The litigation ended and the injunction dissolved June 15, 2012 when Commerce published notice of the amended final results setting the assessment rate at 145.90%.
  • The entries were liquidated on August 10, 2012 (about two months later).

Because liquidation was within the permitted six-month period, the Court of International Trade found the liquidations to be proper. Thus, the Court dismissed plaintiff's claims.

This case is a sterling example of the lunacy that is the retrospective system used in the U.S., and in no other country (as far as I know). Look what happened to the importer here and, more important, what might have happened. At the time of entry, the importer should have known that its total landed cost should include antidumping duties of 26.49%. Its purchase price and subsequent resale price should have been calibrated to reflect that cost. Keep in mind that the rule against reimbursement by the producer/exporter means this cost cannot be passed back to the producer.

Granted, the importer should have known that there is a risk, even a substantial risk, that the assessment rate will be higher than the deposit rate. But how high? When will it be assessed? There is almost no way to know that. A sophisticated producer might be able to run simulations of the dumping calculations and predict its assessment rates at various pricing levels, but that is not the usual circumstance and does not help for past entries.

Instead, importers in the U.S. are faced with an ill defined risk that can wipe out profits on these products and cost substantially more. In this case, these entries were in 2006. If we assume they were sold at a nice profit of 15%, that means that by virtue of a collection in 2015 (following this decision), the importer will be in the whole to the tune of 130% of the purchase price (more or less, I know I am simplifying the math). There was no way to predict this at the time of entry. This makes it nearly impossible for the importer to manage the risk of importing products subject to a dumping or countervailing duty case.

Imagine what might have happened had the rate stayed at 383%. In some cases, assessments like that are financially untenable and the importer is forced out of business. The absurdity of this is that it was entirely out of the importer's control. The only option seems to be to stop purchasing from the subject country from the date of the preliminary affirmative determination. It can be worse if there is a finding of "critical circumstances," which pushes the effective date back 90 days earlier.

There are more rational approached. In other countries (again, so I am told), a change in rate is applied prospectively rather than to past entries. This makes the administration of process much simpler. It also means that liability can be evaluated with a far greater degree of certainty.

Another, possibly more theoretical problem, is that a dumping order can have such negative consequences for the consuming industries, workers, and consumers that it is against the larger economic public interest. What would happen, for example, if a dumping order on sheet steel made it all but impossible for auto makers in the U.S. to have an adequate supply of steel? If the American industry could not ramp up to supply the auto makers, would there be layoffs? Would factories be idled and production moved out of the U.S? It is, at least theoretically, possible. The way to resolve that is to include a public policy analysis in dumping and countervailing duty cases. Something similar happens in Section 337 cases involving intellectual property violations. If enforcement of the order is not in the public interest, the Commission can refuse to grant relief to the petitioner. If the Commission does grant relief, the President has the authority to order it be withheld. Something like that makes sense in the trade context as well.

Don't walk away from this mini rant thinking I have no sympathy for domestic producers. I do. Dumping is an unfair trade practice for a reason. It hurts domestic industries and workers. I support their efforts to seek a fair free market. I also understand that the reason dumping works is usually that the producer is able to use high prices in the home market or a third market to subsidize lower prices in the U.S. That is unfair to the U.S. industry and to the consumers in the higher priced markets. Without completely frictionless exports to those countries, the U.S. industry cannot respond by selling into the higher priced markets, possibly undercutting the high local prices. I get all that.

But, the law should also recognize the rights and interests of the importers, who are almost always bystanders to the trade cases. A prospective system that takes into consideration the larger public interest would go a long way toward balancing the impact and value of trade cases.

Friday, November 13, 2015

Goodbye Sitemeter

Since the earliest days of this blog, I have used Sitemeter to count the number of visits. The count is currently 233,472. Sitemeter has gone haywire and I rarely delve deeply into my visitor data anyway. So, I am pulling the link from the bottom of the page. If anyone has a suggestion for a good and free way to get analytics, let me know.

Thursday, November 12, 2015

One Protest Per Customer

I'm going to do this one quickly because I am busy and the case is straightforward, but still an important lesson.

In Design International Group v. United States, the Court of International Trade reaffirmed the rule that an importer may only file one protest contesting the liquidation of an entry. In the case, the importer made two entries of pencils. When Customs liquidated the entries, it allegedly miscalculated the quantity and, as a result, incorrectly assessed duty. The broker for the importer filed protests for each entry. That right there is one protest per entry. Customs denied both entries.

Subsequently, counsel for the importer filed a third protest challenging the denial of both prior protests. That is a second protest challenging the liquidation of each of the entries. When Customs and Border Protection denied that third protest, the importer filed suit in the Court of International Trade, using the third denied protest as the basis for jurisdiction.

What do you think? Discuss.

The issue here arises because of 19 USC 1514(c)(1)(d), which says:

Only one protest may be filed for each entry of merchandise, except that where the entry covers merchandise of different categories, a separate protest may be filed for each category. In addition, separate protests filed by different authorized persons with respect to any one category of merchandise . . . .

Under this law, a second protest is invalid unless an exception applies. An invalid protest does not give the Court of International Trade anything to review.

Here, the plaintiff argued that the exception applies. According to counsel, the first protest on each entry was filed by the customhouse broker, who is an authorized party. The third protest (which is really the second on each of the two prior entries) was filed by the lawyer, a different authorized party. Thus, the third protest was valid and its denial provides the Court with jurisdiction.

The Court rejected this argument. In doing so, it referenced a number of cases invoking the "one protest rule." All these cases repeat that only the first protest received is valid. The Court also noted that allowing a protest of the denial of a protest could lead to the absurd result of a never-ending series of protests of the denial of protests. Consequently, the Court dismissed the action for lack of subject matter jurisdiction.

There Court is, I think, correct. But, I think I can help explain the result by articulating what I perceive to be the unstated premise in the opinion. That premise is that a protest filed by a broker for the importer and a second protest filed by a lawyer for the importer ARE BOTH FOR THE IMPORTER. See that? Brokers and lawyers are agents for the importers, not separate "authorized persons."

The exception in the statute is there to permit, for example, the surety, who has a financial interest in the liquidation, to protest the liquidation. Other authorized parties include the person paying the duties and any person seeking delivery.

Separate and apart from the importer, the statute permits "any authorized agent of" the importer to file a protest. Does that mean that each agent is a separate authorized person? Maybe. The statute can be read that way. But, that reading permits an importer to file a series of protests through a series of different authorized agents. That also seems like an absurd result. The more likely reading, based on zero research and five minutes of thought, is that each agent stands in the shoes of the importer for this purpose and the importer is limited to a single protest either on its own or through agents.

Do you agree with that analysis?