Monday, November 28, 2016

Quick Post: Tyco Affirmed

The Court of Appeals for the Federal Circuit has affirmed the Court of International Trade decision in Tyco Fire Products v. United States. You can read the background on this case here. The Federal Circuit held that liquid-filled glass bulbs of the sort used in fire sprinklers are properly classified as articles of glass in Heading 7020 rather than as mechanical appliance of Heading 8424.

There are two interesting points to take away from this decision. The first is that the Federal Circuit, at least this panel, is skeptical of the value of the Brussels Tariff Nomenclature Explanatory Notes when interpreting the current Harmonized Tariff Schedule of the United States. This is in part because Customs declared the HTSUS to be a wholly new system and that the BTN Notes are of no value when interpreting the new text. The CAFC did not definitively decide this issue, but it certainly creates doubt as to the continuing value of the old notes.

The second point is that the CAFC indicates that tariff language requiring a "high proportion" of some material should usually be read to mean "more than 50%." Again, this is not a definitive holding and the Federal Circuit itself pointed out that this will not be the case where there are more than two materials. Nevertheless, this is useful guidance for interpreting the Tariff and the legal notes going forward.

Friday, November 18, 2016

Perpetuating Testimony

I am on the record complaining about the amount of discovery that is requested in many, not all but many, customs cases before the U.S. Court of International Trade. My belief is that in many cases, mostly tariff classification cases, there is not a reasonable basis to dispute the nature of the product. That is not necessarily the case when issues like principal use or essential character are concerned. But, in many cases, the actual physical characteristics of the item are known and not reasonably subject to debate. That physical reality will usually trump arguments based on personal understandings, marketing, and intention. As a general rule, I don't think it matters that Malcom down in Engineering always calls the electric toothbrushes he designs "machine tools." Nor do I think it matters that an Import Specialist at the Port of Smallville, Kansas once said that the electric toothbrush should be classified as toothbrushes rather than as electromechanical domestic appliances. [Or whatever, I am just making this up. If you care, see (HQ 966794, Sep. 7, 2004).]

That said, there are times discovery is important. For example, in a penalty case when the issue is whether someone knew or had reason to know that a statement was false. Also in a penalty case, discovery is necessary when the issue is whether there was "contributory customs error." If the toothbrushes were misclassified because someone at CBP told the company to do it, that is a relevant area for discovery.

This is relevant because of Ganz U.S.A., LLC v. United States. Ganz imports gifts, collectibles, and home d├ęcor products. For reasons that relate to a customs valuation ruling, Customs and Border Protection has notified Ganz that it will assess a penalty of nearly $22.7 million, which is enough to get the attention of most companies. But, CBP has not yet filed an action in the Court of International Trade seeking to collect anything. At this point, Ganz is waiting to be sued.

Ganz also knows that it has a defense. According to the CIT opinion, if sued, Ganz will present evidence that the Port of Buffalo instructed Ganz that CBP would allow the company to maintain its current valuation practice pending a decision on the reconsideration of the relevant value ruling. Customs denies that it provided that instruction. Ganz believes that a retired former Supervisory Import Specialist from Buffalo knows the truth. This is the equivalent of a CIT-based Perry Mason Moment waiting to happen.

Ganz is not waiting around to be sued. Nor does it want to risk losing track of the potential witness. CIT Rule 27 provides an opportunity to reduce that risk. Under the Rule, a petition may ask the Court for an order authorizing the deposition of a witness "to perpetuate their testimony." In other words, Rule 27 allows parties to current or threatened litigation to get something on the record now for later use if needed. This option is not always available; it is intended to be used where there is a risk that the evidence might be lost. To be successful the petitioner must show:

(A) that the petitioner expects to be a party to an action cognizable in this court but cannot presently bring it or cause it to be brought;
(B) the subject matter of the expected action and the petitioner’s interest;
(C) the facts that the petitioner wants to establish by the proposed testimony and the reasons to perpetuate it;
(D) the names or a description of the persons whom the petitioner expects to be adverse parties and their addresses, so far as known; and
(E) the name, address, and expected substance of the testimony of each deponent.
 Here, Ganz is sitting on a substantial demand it apparently does not intend to pay. Thus, it has a reasonable expectation of future litigation in the Court of International Trade. Furthermore the penalty creates a clear interest for Ganz. Gans also knows exactly what information it needs and from whom.

Two important facts provide context for why Ganz wants to depose the witness now. First, customs penalty litigation can take a long time. While Ganz can technically force CBP to file suit by declining to extend a statute of limitations waiver, that hurts Ganz's efforts to resolve the case administratively. The Court will not put Ganz, the potential defendant, in that position. Combine that with the fact that the proposed witness is 68 years old. There is the real risk that his recollections will fade, or worse. At best, the witness might move to an inconvenient location.

Given these factors, the Court granted the petition to depose the witness to perpetuate his testimony. This is not particularly controversial. It is, however, a good reminder that this little-used tool is available to the parties. We should all make sure it is in our quiver.

Friday, November 11, 2016

Two Days Left to Vote Bigly

Two days left to vote for my work blog in the Best Legal Blog contest. Because I learn from current events, I would like to modify my previously friendly and polite pitch.

This blog contest is rigged. The IP lawyers and immigration lawyers are out to get me. Lawyers from big firms in NY and Washington are sneaking in, pretending to be niche boutiques, but they are really old, tired, losers with no stamina. My blog is the best, the best. It bigly covers import law, which really is the most important law. I know customs law like no one else. I just do. If you vote for me, you'll see, it will be great. I will win because that's what I do. I will make my blog great again and that will make you all great again. Who will pay for that? Mexico, that's who.

Wednesday, November 09, 2016

Anyone Curious About Withdrawing from NAFTA?

For some reason, I have been asked what it would take for the U.S. to withdraw from NAFTA or another trade agreement. Funny how that comes up today, the day after the U.S. presidential election.

The answer is not 100% clear.

In Article 2205, the NAFTA says the US can withdraw with 6-months written notice. If that happens, the agreement stays in place between Mexico and Canada. How that happens is a question.

The US would certainly be out of the agreement going forward, but most of the implementation of NAFTA was through legislation. That legislation might still be in place until Congress removes it.

Arguably, the legislation might automatically repeal itself. 19 USC 3451 says that if a country withdraws, the amendments made to implement NAFTA “cease to have effect with respect to that country.” It is not clear whether “that country” can be the US or whether that implies that Canada or Mexico has left NAFTA. There would be much litigation. Other trade agreements likely work the same way, but I have not looked.

Also, should the US pull out of NAFTA, the pre-existing US-Canada Free-Trade Agreement comes back from the dead. We would need to brush up on those rules.

Also, if the President tries to impose new duties, he runs up against WTO tariff bindings. US law, specifically so-called Section 301, lets the US increase duties or take other actions to address violations of trade agreements or unfair practices by our trading partners. Countries that feel increased duties are not consistent with WTO obligations can seek relief through the WTO dispute settlement process and, of authorized, retaliate. The potential for serial grievances and retaliation is what we call a "trade war."

Monday, November 07, 2016

Vote for Me, Too

Election day is here. If you have not already voted, get out tomorrow and vote.

After you have voted, come back and vote for this blog in the Expert Institute Legal Blog Contest. There are only about six days left to vote and my early surge is fading. Please show your support.

You can vote at this link.

Friday, November 04, 2016

Customs Law: Presidential Edition

Next week we in the U.S. will have a new president-elect. Getting there has been an unusually disheartening referendum on the mood and direction of the country. Voting always matters, but it might matter more this year than in a very long time.

With that, we take a quick look at Von Stade v. Arthur, 28 F. Cas. 1274 (S.D.N.Y. 1876)(I cannot find a fee link). Here is the decision in its entirety:

SHIPMAN, District Judge.  The second section of the act of June 6, 1872 (17 Stat. 231), provided, that, on and after August 1st, 1872, the existing duties upon the articles which are enumerated in the section should be reduced ten per centum.  The section specifies, among the enumerated articles, "all wools, hair of the alpaca goat, and other animals, and all manufactures wholly or in part of wool, or hair of the alpaca and other like animals, except as hereinafter provided." The question in this case is, whether the duty of fifteen cents per pound upon hogs' bristles was reduced by virtue of the act which has been cited.

Waiving the question, whether it was the intention of congress to reduce the duty upon the hair of all animals, whether such hair was used or not in the manufacture of textile fabrics, I am of opinion, that, in the tariff acts, the article of bristles is separately classified, and is regarded as a different article from hair. This will appear from the act of June 30, 1864 (13 Stat. 212), which prescribes a duty upon bristles of fifteen cents per pound, and upon hogs' hair of one cent per pound. The language of the Revised Statutes of 1874 (page 480) is "Bristles, fifteen cents per pound;" "hair of hogs, one cent per pound." The term "bristles" is used in the tariff acts to denote a separate and distinct article from hair, and the bristles are not included in the general words "the hair of an animal," but have a distinct classification.

Let judgment be entered for the defendant. 
The issue here is whether a bill reducing the duty on certain animal hair applies to hog bristles? My initial thought was, are bristles hair? It turns out that they are, but that they are a unique variety of short, stiff hair. Most important to the decision is that the Tariff Act of 1864 had a separate and more specific paragraph covering bristles. By this early application of the rule of relative specificity, the Court upheld the higher duty collected by Customs.

Why is this my "Presidential Edition?" This is why:

The defendant in this case is the Collector of Customs in New York, a man known as Chester A. Arthur. President Grant had given Republican New York Congressman Roscoe Conkling authority to dole out the federal patronage jobs in New York. The Collector was the plum appointment. In that position, Arthur was able to hire hundreds of customs officers to collect duties at the then-busiest port in the country. The Collector earned as much as any federal official at the time including a portion of the value of seized property and penalties assessed. That created an incentive to find real or imagined violations. Eventually, this stopped and Customs employees became members of a professional civil service with regular salaries.

Arthur continued to rise through Republican ranks. He eventually became the leader of the party in New York and then Vice President to James Garfield. Things did not go well for Garfield.

Garfield, shot by Charles J. Guiteau, collapses as Secretary of State Blaine gestures for help. Engraving from Frank Leslie's Illustrated Newspaper
Thus, the Collector of Customs becomes President of the United States.

Wednesday, November 02, 2016

Ruling of the Week 2016.21: Holy HoloLens!

Over the years, I have opined on the tariff classification of a number of gizmos that I think are probably computers. Often, Customs and Border Protection disagreed with me. Usually, this has to do with whether the particular item is "freely programmable" as opposed to having a specific and limited function. For example, here is a discussion on big industrial digital printers. Here is another on a music editing system and another on a smart watch. I also previously admitted to being a middle-aged Microsoft fanboy. So, this next post is right in my wheelhouse.

If you are not familiar with Microsoft's HoloLens, watch this video.

The imported merchandise is the Microsoft HoloLens and its associated "clicker" controller. HoloLens is a computer [spoiler]. It has a 32-bit processor, 2 GB RAM, 64 GB storage, a graphics processor, and Wi-Fi connectivity. Most important for our purposes, it runs Windows 10 and supports applications written for that environment. What distinguishes HoloLens from your laptop is that it sits on your head, includes sensors to track your position, and places three-dimensional stereo displays before your eyes. The result is that the user can be completely immersed in a virtual world or, perhaps even more exciting, in an augmented version of reality.

I can imagine an entirely feasible scenario of basic law office productivity using HoloLens. In that world, I sit at my desk or walk about my office with Word documents and Excel spreadsheets virtually pinned to my walls until I want them. I might have a 3-D virtual model of a client's product siting on my desk. The old practice of staring into a two-dimensional monitor that sits in a fixed location will be replaced by having the data you want, everywhere you want it. HoloLens and a Bluetooth keyboard for text entry might be the ultimate set up. With cellular connectivity, the headset could replace my main laptop, my tablet, my XBox, and my phone.

Don't get me wrong. I don't expect everyone in a law firm or other enterprise to spend the entire day in a HoloLens headset. I have not been in one, but I doubt they are that comfortable. I am just waxing poetic about the possibilities, not the practical realities. I leave that to those of you who have actual access to a HoloLens (or similar device). [Side note, T-Mobile recently announced it will be selling an Alcatel IDOL Windows Phone with VR goggles, which may be the entry way to VR for many of us.] I view HoloLens as the promise of something between the current headset design and the form factor of Google Glass. That is all the functionality of your phone and PC without ever reaching for a physical device.

So, what about the ruling? Oh, that. It is N273804 (Apr. 7, 2016). Customs noted that the primary function of the HoloLens is data processing. It is a general purpose device that allows users to access multiple applications, of their choosing, including mundane tasks like word processing and spreadsheets. Customs, therefore, had no problem concluding that it is a freely programmable automatic data processing machine. Customs classified it in 8471.41.0150, which is entirely correct.