Monday, December 21, 2015

Charge the Weapon and Change the Toner!

I have been sitting on Xerox Corp. v. United States while I try to take care of meaningful client work. Thank you clients for another year of interesting and rewarding work. I am always honored to be given the opportunity to work with some great companies and individuals.

[There may be spoilers in the links below. There are none in the text. Go down those rabbit holes at your peril.]

I am irrationally happy to say that saw Star Wars: The Force Awakens this weekend. It made me very happy to re-live being 14 years old, at least for a while. I am also very pleased to say that the reboot did not screw anything up. It has almost exactly the look and feel of the original trilogy, is a bit funnier, and moves at a great pace. Now, if they don't turn Star Trek into the Fast and the Furious, I will continue to be nerdishly happy. I am, however, starting to lose enthusiasm for Batman vs. Superman, which they better not screw up. [Shaking fist at heaven.]

That said, I am now about to discuss the tariff classification of a "pre-clean dicorotron high voltage power supply," which seems entirely like something Rey might be scavenging on Jakku. In reality, it is part of an iGen3 high-speed multifunction laser printer for high-volume but short run jobs. When I say it is big, I mean it is Hutt sized. It is probably big enough to climb into to for warmth on a cold Hoth night. There are two models of this printer. The smaller is over 7,000 pounds and costs about $405,000. The larger is almost 8,000 pounds and costs $610,000. So you are not going to pick one of these up on a whim at Best Buy. Despite the high price, these are printers; they lack scanners and facsimile functionality.

So what about Rey's power supply? The classification is clearly in Heading 8504 as an electrical transformer, static converter, etc. The question is whether it is a power supply "for automatic data processing machines or units thereof of heading 8471." That means the real question is whether Jabba the Printer is a unit of an automatic data processing machine.

The interesting conundrum here comes from the Note 5 to Chapter 84, which, if I could, I would make scroll up the screen Star Wars style.

(B) 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 the following conditions:

(a) It is of 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.

(D) Printers, keyboards, X-Y coordinate input devices and disk storage units which satisfy the conditions of paragraphs (B)(b) and (B)(c) above, are in all cases to be classified as units of heading 8471.

(E) 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.

There is no question that the printer satisfies the requirements of paragraph (B). Furthermore, paragraph (D) specifically references printers, which this surely is despite being the Death Star of laser printers.

What to make of paragraph (E)? This machine does perform a specific function, it prints. It only prints. And, it prints in a way that is not typical of traditional home or in-office computer use. It can print the entire run of a Lands' End catalog in 12 parsecs. Does that exclude it from being an ADP machine of 8471?

No. According to the Court of International Trade, a big laser printer that converts digital images to images on paper is continuing to perform the same data processing function as a more mundane laser printer. This is clear because paragraph (D) above specifies that printing is a data processing application. Paragraph (E) must, therefore, be referring to machines that perform some specific function other than printing when done in conjunction with an ADP machine. That would include printing presses of the Guttenberg style that use blocks of type, plates, or cylinders, for example. Those are classifiable in Heading 8443.

According to the Galactic Senate Court of International Trade, nothing in the tariff suggests that ADP printers of 8471 are constrained by size or speed (or time and space). Consequently, the iGen3 is classifiable as a unit of an ADP machine and the pre-clean dicorotron high voltage power supply is a part thereof.

One last thing, did anyone watch Jessica Jones? If not, you should. It was as good, possibly better than Daredevil and puts the currently too sunny Arrow to shame.

OK, I think that is out of my system for the moment.

Tuesday, December 08, 2015

Ruling of the Week 30: Tapenade and the Chutney Problem

It is apparent that I did not succeed in my goal of getting 52 Rulings of the Week into the Blog. Despite, that, I think this has been a pretty productive blog year. This will be my 71st post of the year, with one to follow. That will probably cap 2015. Next year, I hope to pick up the pace somewhat. I'll continue trying to post the Ruling of the Week and court cases. I'll also make an effort at other administrative news.

You know what I miss? Posts about animal smuggling. Keep an eye on my Twitter feed for news, mostly in the form or retweets from other bloggers.

For now, consider the chutney problem.

Headquarters Ruling H259324 (Sep. 3, 2015) involved the tariff classification and NAFTA status of green olive tapenade from Canada. This ruling is from a protest with an application for further review. That means that Customs and Border Protection denied the NAFTA claim made on this merchandise and the importer protested. In what appears to have been an effort to make the product satisfy the applicable NAFTA rule of origin, the importer suggested that its original classification as prepared or preserved vegetables of Heading 2005 was incorrect and the tapenade was classifiable as a sauce or a preparation for a sauce in Heading 2103.

Tapenade via Wiki Media

If you have been to a snooty restaurant serving Mediterranean-inspired New American California farm to table cuisine (and who hasn't?), you have had tapenade. It is, in my experience, a spread of mashed olives (usually black ones) with other flavorings. In this case, it was made form non-NAFTA olives, diced tomatoes, red peppers, carrots, onions, vegetable oil, garlic, and lemon juice. Not all of those ingredients originated in the territory of a NAFTA country. As a result, to qualify for the NAFTA preference, the production of the product must produce a qualifying change in tariff classification for all of the non-originating materials. The qualifying change depends on the classification of the finished product.

The importer asserted that the tapenade was properly classified as a sauce or sauce preparation. But, CBP and the Court of International Trade have been down that road before. A sauce is defined as a homogenous preparation that it is not intended to be eaten on its own. Rather, a sauce is to be added to food as a condiment, usually in liquid form, to make the food more palatable. And, dipping a piece of bread still counts as eating it alone.

Here, the tapenade appears to have been chunks of vegetables mixed with oil. It also appeared based on marketing information that it was both intended and actually eaten alone.

The importer did a fantastic piece of lawyering by introducing into the record recipes by which the tapenade could be added to broth and other ingredients to make a sauce. I hope Customs has a test kitchen and tried out the preparations. [GaK, please let me know if you did!] The importer argued this showed that the tapenade is a sauce preparation. Customs did not buy that argument. If it did, I suspect every tomato would also be a sauce preparation.

As I read this, it appeared to me that Customs was doing a fine analysis. But, then we hit the chutney wall. Chutney is a delicious combination of sliced fruit sweetened with sugar and flavored with lemon and mustard. It is a thick, globulous  preparation that does not readily pour over food. It is, however, used as a condiment for meat and other dishes. Personally, I like mango chutney on a turkey sandwich, but that's just me.

Muffuletta from Wiki Media

In HQ 962419, Customs held that chutney is a sauce of 2103 rather than a preparation of fruit. To distinguish the tapenade from chutney, Customs pointed out that the solid portion of the tapenade is suspended is a semi-transparent red liquid. Customs noted that unlike chutney, this tapenade is not gelatinous, not creamy, and not a spreadable paste. It sounds to me that this was a runny form of tapenade, possibly more like an olive giardiniera or even a muffuletta, either of which is delicious but not a tapenade.

You know what a runny liquid with suspended vegetables is? A sauce. If this stuff was runny enough to be poured over meat and if there was evidence of that use, it seems to me that it might be properly classified as a sauce. If, on the other hand, it looks like the muffuletta in the picture above, it is really not much more than chopped olives and other vegetables in oil, which seem not very homogenous and sauce-like to me.

Customs classified the tapenade in Heading 2005.

On the NAFTA front, once CBP determined the correct classification to be in Heading 2005, the applicable rule of origin requires that the non-originating green olives make a change from another tariff heading. Unfortunately, the olives are also classifiable in Heading 2005. That is not a qualifying shift and the goods are non-NAFTA originating. Tasty, but non-originating.

Thursday, December 03, 2015

Nitek and the Penalty Process

There is a lot on my plate at the moment, but I want to be sure to squeeze this in for you. There goes my lunch-time walk up Michigan Avenue.

United States v. Nitek Electronics is an important decision of the United States Court of Appeals for the Federal Circuit. Go read it. The gist is all you will get from me today.

The gist is that when the United States commences a penalty action in the United States Court of International Trade, the point of the action is to collect on the same penalty claim Customs and Border Protection asserted in the administrative process. In Nitek, Customs' claim was based on a finding that the importer had acted with gross negligence. When Justice filed the case in the CIT, it asserted that the violation occurred as a result of (un-gross) negligence. Nitek moved to dismiss on the grounds that Customs never made a claim based on negligence and, therefore, that claim was not properly before the Court. The CIT agreed and dismissed the case.

On basically the same reasoning, the Court of Appeals has affirmed.

The reason this is important is that it means that Customs' administrative process limits the Justice Department's ability to define the case against the defendant. In the old days, it was generally understood that once Customs imposed a penalty, DOJ could handle it any way it wanted in Court. That is no longer true, if it ever was.

Nitek is consistent with a prior case called Optrex in which the Court said that Justice may not amend a complaint to assert a higher level of culpability than was contained in Customs' penalty claim. There, the Court of International Trade found the lack of notice concerning the higher potential penalties and the different facts that must be proven precluded pursing an elevated penalty in Court.

This case is different because Justice asserted a lower level of culpability in Court. When challenged, it analogized to the criminal law concept of the lesser included offense. Under that doctrine, if I kill a man I can be charged with murder as well as manslaughter because manslaughter requires all the same facts as murder. To prove murder, the prosecutor will need to show the additional aggravating factor of premeditation (or whatever it is they say on Law & Order). In Nitek, the CAFC refused to accept the analogy and said there is no such thing as a lesser included offense in customs penalty cases.

This might have a lasting impact on the practice. Initially, I expect Customs to be much more scrupulous about detailing the facts and conclusions at each level of culpability that may apply. This is effectively administrative pleading in the alternative to preserve the alternatives for later litigation. But, administratively, Customs cannot try and collect in the alternative. At some point, it makes a claim and that claim demands that the allegedly liable party pay one amount as a penalty for some specific set of facts. It is possible that the alternative pleading will merge into the final "bill" Customs put to the defendant. That remains to be see.