Thursday, January 07, 2016

Reconciliation and NAFTA Post-Entry Claims

No one likes it when a pet theory dies. It is even worse when the theory was smart and creative. Unfortunately, this one seems to have finally been put out of its misery.

I am talking about the notion pursued with vigor and righteousness by Ford Motor Company concerning post-entry NAFTA claims. There is useful background here and here. I'm not going to go into detail again, so take the time to read those previous posts. It's OK, I am not going anywhere.

The single salient fact here is that Ford made a timely post-entry NAFTA claim but failed to provide Customs with the NAFTA certificate of origin until after the running of the one-year period for a claim. Customs denied the claim on that basis, not on the merits. Ford smartly pointed out that while a post-entry NAFTA claim under 19 USC 1520(d) requires a certificate of origin, an equally post-entry claim made via the ACS Reconciliation Prototype does not. Customs specifically and affirmatively waived the requirement for the presentation of a NAFTA CO for claims made under Reconciliation. I know because Customs said so in this Federal Register notice (scroll down to page 6259, top right).

Ford argued that Customs' waiver of the CO in the Reconciliation context and refusal to waive or accept a late CO in the "normal" § 1520(d) process was arbitrary and capricious, and, therefore, unenforceable. The Federal Circuit previously remanded this issue to Customs for a better explanation of why the disparate treatment is reasonable. Now, the issue is back at the Federal Circuit with a shiny new explanation.

First, the Court notes that § 1520(d) is not the sole authority on which a post-entry NAFTA claim may be based. To start, that section requires Customs and Border Protection to promulgate regulations to implement the statute. The regulations, therefore, are relevant. In addition, 19 USC § 1484 governs entry and Reconciliation. That means that a single law is not being given two different interpretations.

Next, the Court agreed with Customs that Reconciliation includes additional safeguards that warrant waiving the CO as part of the claim. In particular, the Court points to the continuous bond required for Reconciliation.

Thus, with an apparently reasonable explanation in hand, the Federal Circuit accepted the remand explanation for the different filing requirements. That means Ford will not be getting its refunds. It also means we can't as easily argue that Reconciliation is a blanket waiver of the requirement for a NAFTA CO in the post-entry claim context.

But, there is a vigorous dissent. I love a good dissent. This one, by Circuit Judge Reyna, starts:

I find no principled explanation for Customs’ decision in this case to treat duty refund claims under NAFTA differently depending on whether those claims were filed traditionally or through an electronic process known as “reconciliation.”  I dissent. 
Judge Reyna sees several issue. The first is very administrative law-wonky. It has to do with whether Customs' explanation that the authority for the waiver does not come exclusively from § 1520 is entitle to deference from the Court. The majority of the panel found deference appropriate because Congress had not addressed the issue, leaving it to the judgment of Customs. But, Judge Reyna sees the explanation as having been "crafted for the purpose of this litigation." That would make it a post-hoc rationalization that is not entitled to deference.

Looking at the original source material, Judge Reyna finds that the authority to waive a NAFTA CO stems from Article 503(c) of the Agreement itself. That provision apparently covers waivers for purposes of claims made at the time of entry and post-entry claims. When NAFTA was negotiated, Reconciliation was not a thing. Consequently, there is no reason to assume or conclude that the waiver requirement would be any different for a post-entry claim implemented under Reconciliation. Further, the law authorizing Reconciliation did not directly address NAFTA claims. Thus, it seems there is only one source for the waiver authority and one law should be interpreted in a consistent manner.

Regarding procedural protections inherent to Reconciliation, Judge Reyna finds the differences less than compelling. To the extent Reconciliation claims are subject to record keeping requirements and to audit, traditional post-entry claims have similar requirements. With respect to the bond required for Reconciliation, the dissent notes that in a traditional post-entry claim the importer has already paid the duties, making Customs pretty secure that it will not lose any money. If it does improperly pay a post-entry claim, it can seek to recover the duties and potentially penalties through other enforcement options.

Despite the interesting dissent, the majority carried the day (as it should). The upshot being that Customs' refusal to grant Ford a waiver of the requirement to present a NAFTA CO with its post-entry claims is not arbitrary and capricious and is, therefore, affirmed.

The truly sad part of this is that I only recently added the prior Ford case to my textbook. Now, I need to make a quick update before the second edition comes out.

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