tag:blogger.com,1999:blog-121542532024-03-27T18:38:26.487-05:00Customs LawThe postings of a customs lawyer in Chicago on the state of customs law and international trade law. <b>Important Disclaimer:</b> None of this is legal advice, don't act on it. Don't ascribe these statements to my law firm, its partners or clients. Don't steal from my blog. I wrote it, I own it. But, feel free to link to me. Also, under the rules regulating speech by attorneys, this blog may be construed as lawyer advertising. I am the sole party responsible for the content.Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.comBlogger1257125tag:blogger.com,1999:blog-12154253.post-23236571600813596402024-03-27T18:34:00.001-05:002024-03-27T18:37:54.757-05:00HTSUS Snippets and Fragments<p> For the most part, the Harmonized Tariff Schedule of the United States has an internal logic and consistent format that eases navigation. Most of us who work with the HTSUS can easily communicate about Sections, Chapters, Headings, and Subheadings. There is, however, the occasional need to talk about the fragments of text that are neither subheadings, nor tariff items, nor statistical breakouts. They are the un-numbered lines. Take, for example, 8504.90, the subheading for parts of electrical transformers and similar products. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEij7cZ2lWlmQDdofDK-lPgNoDS-YbZwqo9erSBdIinxPfURrJOsEdnEmsd2uZPJwDs1XapG7ppqKFYxCY13XyximfD6wzbnwP279w5FIycbx9pXk1pNt3gBeiyR_REhx_iQsQExMD4uhhaQBP600aW13338e3oyPQz-_Rz7Quy6AsquVHHa4sVv5g/s976/Screenshot%202024-03-27%20160958.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="616" data-original-width="976" height="404" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEij7cZ2lWlmQDdofDK-lPgNoDS-YbZwqo9erSBdIinxPfURrJOsEdnEmsd2uZPJwDs1XapG7ppqKFYxCY13XyximfD6wzbnwP279w5FIycbx9pXk1pNt3gBeiyR_REhx_iQsQExMD4uhhaQBP600aW13338e3oyPQz-_Rz7Quy6AsquVHHa4sVv5g/w640-h404/Screenshot%202024-03-27%20160958.jpg" width="640" /></a></div><p>8504.90 is the subheading. The first tariff item below the subheading is 8504.90.20 covering printed circuit assemblies that fit within the scope of the un-numbered language between 8504.90 ("Parts") and 8504.90.20 ("Printed circuit assemblies"). There are two more of these un-numbered subdivisions below 8504.90.41.</p><p>Normally, this oddity would not merit any discussion. For classification purposes, it is pretty clear that these un-numbered snippets of text limit and define the scope of what follows indented below. That is not controversial. </p><p>However, the legal impact of those un-numbered categories did merit discussion from the Court of International Trade in <a href="https://www.cit.uscourts.gov/sites/cit/files/24-10.pdf" target="_blank">Spirit Aerosystems, Inc. v. United States</a>, which is a drawback case. "Drawback" is the procedure of requesting a refund of duties paid on previously imported merchandise because it has been destroyed or exported from the United States. There are many variations on this involving, for example, goods used in manufacturing and goods exported without having been used. Under "substitution drawback," claimants are permitted to match duty-paid imports to other exports or destroyed merchandise provide the goods are sufficiently similar.</p><p>Normally, exported or destroyed merchandise is eligible to be substituted for unused merchandise drawback purposes when it falls within the same 8-digit subheading as required by statute (<a href="https://www.law.cornell.edu/uscode/text/19/1313" target="_blank">19 USC 1313(j)(2)(A)</a>). However, this rule does not apply where the 8-digit tariff item begins with "other," unless the imported merchandise and the exported or destroyed merchandise are classified in the same 10-digit statistical number. </p><p>The "statistical reporting numbers" in the example above are the 00, 10, and 30. This level of detail has traditionally been used for economic analysis and reporting, with no impact on duty. However, they have become increasingly relevant as, for example, Section 301 duties may vary at the 10-digit level. </p><p>In this case, Spirit imported aircraft parts under tariff item/statistical reporting number 8803.30.0030. The item 8803.30.00 covers, "Other parts of airplanes or helicopters." That "Other" means the exception to the 8-digit rule applied. Below that is the un-numbered line "For use in civil aircraft." Indented below that are two statistical breakouts at 15, "For use by the Department of Defense or the United States Coast Guard," and 30, "Other."</p><p>Here is how it looks (in the 2020 version relevant to this case):</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2GMQjP3wpw-v1bWqk5FJ2b4PT6YuLnOXoMwgbpSMRxO4s1oez-tpj97HMYmFNMo8tExvAtFRBuJU6w-r02_WUSdLgK_mYNIMopMDQaR7Kk2sb3SZFcgu-IZ9RTeObdOqBrA7xytAd67fvUnno4ayMr32Qng01eovqi6Gdeyaa_L6gGiQnmZ1wHQ/s827/Screenshot%202024-03-27%20164412.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="460" data-original-width="827" height="356" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh2GMQjP3wpw-v1bWqk5FJ2b4PT6YuLnOXoMwgbpSMRxO4s1oez-tpj97HMYmFNMo8tExvAtFRBuJU6w-r02_WUSdLgK_mYNIMopMDQaR7Kk2sb3SZFcgu-IZ9RTeObdOqBrA7xytAd67fvUnno4ayMr32Qng01eovqi6Gdeyaa_L6gGiQnmZ1wHQ/w640-h356/Screenshot%202024-03-27%20164412.png" width="640" /></a></div><div><br /></div>Customs denied Spirit's drawback claims because 8803.30.00 starts with "Other" and Spirit did not prove that the exported or destroyed merchandise was in the same 10-digit breakout as the imported merchandise. Spirit argued that the "For use in civil aircraft" snippet, which the Court refers to as "numerically unaligned text,"<b> is the 10-digit level</b> that covers statistical breakouts 15 and 30. This makes perfect sense when you look at the HTSUS above and see that the breakout at 60 for "Other" <b>is at the same level as the numerically unaligned text.</b><div><br /></div><div>If the indents mean anything, that text is the 10-digit level and the lines at the indented level below are within the unaligned text. Right?<div><br /></div><div>Despite the elegance of this simple argument, the Court was not convinced. According to the Court, the plain meaning of the drawback statute is that the 10-digit level is the text adjacent to the statistical suffix, regardless of its level of indent. That means civil aircraft parts for use by the DOD or Coast Guard are not interchangeable with "Other" parts for use in civil aircraft. <br /><p>As a result, the Court granted summary judgment to the United States, ending the case (at least at this level).</p><p> </p></div></div><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-74565043084629655552024-03-23T12:13:00.005-05:002024-03-23T12:13:40.034-05:00Liquidation Un-Deemed by CITWhat happens when Customs decides that an entry was "deemed liquidated" while the entry is suspended by the Commerce Department? Apparently, nothing. That is the gist of the decision in <a href="https://www.cit.uscourts.gov/sites/cit/files/24-08.pdf" target="_blank">Fraserview Remanufacturing Inc. v. United States</a>, a (relatively) recent decision from the Court of International Trade. <div><br /></div><div>The facts of this case are a bit complicated. The imported merchandise was softwood lumber from Canada, which is subject to an antidumping and countervailing duty order. As part of the administrative process, on March 19, 2020, Commerce ordered that CBP suspend the liquidation of the 80 entries subject to this case. Customs, however, mistakenly scheduled the entries for manual liquidation. Inexplicably, Customs, citing "system errors," failed to actually liquidate them. After noticing the failed (and incorrect) effort to liquidate the entries, CBP marked the entries as having been deemed liquidated by operation of law on August 7, 2020. </div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfzlfFWxREVlL6A6uFIt61IeBwVsaSbttVy7QAsgb1oP0YnWSN0gVGjgoqV534HwTTxLCQ3fQqCVk-G4KbER6Uqq9Y4hJo188SQi6-5wX04_Cc2q7yAvcNjIWU06KqQyNluMkjil5mppoRFBfwcMxdaLCxNRcyVkBjye7d_ekb7_iJynAcNvRytQ/s473/lumber.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="315" data-original-width="473" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfzlfFWxREVlL6A6uFIt61IeBwVsaSbttVy7QAsgb1oP0YnWSN0gVGjgoqV534HwTTxLCQ3fQqCVk-G4KbER6Uqq9Y4hJo188SQi6-5wX04_Cc2q7yAvcNjIWU06KqQyNluMkjil5mppoRFBfwcMxdaLCxNRcyVkBjye7d_ekb7_iJynAcNvRytQ/w400-h266/lumber.jpg" width="400" /></a></div><br /><div>"Deemed liquidation" occurs when CBP fails to liquidate an entry within six months after receiving notice from Commerce that it has lifted the suspension of liquidation. <a href="https://www.law.cornell.edu/uscode/text/19/1504" target="_blank">19 USC 1504(d)</a>. Customs published notice of these "liquidations" on September 2 and 3, 2020. </div><div><br /></div><div>When the plaintiff realized that Customs considered the entries to be liquidated, despite the suspension, it reached out to CBP asking that the agency reset the status to unliquidated. Customs responded that the 180-day period in which to protest the liquidation had passed and, therefore, the entries were final. </div><div><br /></div><div>Not having a valid denied protest, the plaintiff filed suit in the Court of International Trade under the court's "residual jurisdiction." <a href="https://www.law.cornell.edu/uscode/text/28/1581" target="_blank">28 USC 1581(i)</a>. As happens almost every time a plaintiff asserts jurisdiction under (i) to challenge a mistake Customs made, the United States moved to dismiss the case on the grounds that the plaintiff failed to protest the liquidation. Absent a protest, the argument goes, the liquidation is final and the plaintiff has no legal recourse.</div><div><br /></div><div>The thing about this case, though, is that the entries should never have liquidated to start with. Both parties seem to agree with that. There is <a href="https://customslaw.blogspot.com/2012/03/water-clearer-after-alden-leeds.html">caselaw</a> (even if in the legal netherworld of "nonprecedential" decisions) stating that erroneous liquidations can, and therefore, should be protested. The government leaned into that, putting the responsibility on the importer to monitor liquidations and file protests accordingly. This is consistent with the government's current position in the Section 301 litigation that Customs actions can only be undone by reliquidation and that reliquidation is impossible without a timely protest. </div><div><br /></div><div>The interesting question in this case is whether liquidation every actually happened. Remember, the first mistake was that CBP scheduled the entries to liquidate contrary to Commerce's order to suspend liquidation. Then, Customs tried and <b>failed to liquidate </b>the entries in accordance with its erroneous understanding of the instructions. Given that everyone agrees the entries should not have liquidated, this seems like a perfectly good way for the that the United States to fix its mistake and resolve the case.</div><div><br /></div><div>Instead, Customs argued that its notice of the deemed liquidation is a protestable event, making it the equivalent of a liquidation. That may be true for a manual liquidation, for which notice is treated as the evidence of liquidation. A deemed liquidation is different. Under the customs regulations, a deemed liquidation occurs on the expiration of the six-month period after suspension ends, not notice. <a href="https://www.law.cornell.edu/uscode/text/19/1504" target="_blank">19 USC 1504(d)</a> and <a href="https://www.law.cornell.edu/cfr/text/19/159.9" target="_blank">19 CFR 159.9(c)(2)</a>. Here, Commerce did not lift the suspension so deemed liquidation was never triggered. </div><div><br /></div><div>Moreover, the current version of the protest statute, <a href="https://www.law.cornell.edu/uscode/text/19/1514" target="_blank">19 USC 1514</a>, requires that the importer (or other authorized party) file the protest within 180 days of the liquidation. For deemed liquidations, that is the actual date of liquidation, not the notice. Because the notice is irrelevant to the protest clock and because the deemed liquidation never actually occurred, the entries are still suspended, exactly as they should have been. The Court, therefore, denied the motion to dismiss and ordered CBP to reset the entries to unliquidated status. When the AD/CVD process is complete, Commerce will tell Customs what to do and we will all hope Customs does it right.</div><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-70114965071267133782024-03-20T09:26:00.006-05:002024-03-20T14:51:50.056-05:00Hybrid Sheep and the Lacey Act<p>The <a href="https://www.fws.gov/law/lacey-act-amendments-1981" target="_blank">Lacey Act</a>, as you likely know, prohibits the international movement of plants and animals that were harvested illegally. Typically, a violation involves <a href="https://www.justice.gov/opa/pr/gibson-guitar-corp-agrees-resolve-investigation-lacey-act-violations" target="_blank">a company</a> that imported wood or wood products for use in production or for resale. Less commonly, by which I mean never until just now, does the violation involve the importation of parts of wild mountain sheep from Kyrgyzstan as part of a plot to clone the sheep to produce breeding males to make hybrid giant sheep for private hunting in Montana. That real live plot, recently noted in a Department of Justice <a href="https://www.justice.gov/opa/pr/montana-man-pleads-guilty-federal-wildlife-trafficking-charges-part-yearslong-effort-create" target="_blank">press release</a>, sounds like the hobby or side hustle for the villain in a James Bond movie. </p><p>Thanks to Tom B. for the tip and the nudge to do this update.</p><p>The crazy facts are that the owner of an "alternative livestock ranch" in Montana violated the Lacey Act when he conspired with others to import "parts" of Marco Polo argali sheep. These are among the largest sheep in the world and are native to the Pamir Mountains of central Asia. According to DOJ, they can weight more than 300 pounds and have horns that span five feet.</p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEht6_jY_pkGeTWoHZZgmcLm7LUbS6Z20rrqinl75jGmUUiApuCaHcM2ZLk0gwrIYufedJeKsaa_pgoRC893aGb6pfbfH44v67GxJJ13yHgEKCSs-0iQr0qtEDvEo6z7r5OUHICJYujltaLMX2innd5D-bZnUf1Xkz-L-fsJboGZPsRZenfLYLGw/s1256/sheep.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1241" data-original-width="1256" height="395" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEht6_jY_pkGeTWoHZZgmcLm7LUbS6Z20rrqinl75jGmUUiApuCaHcM2ZLk0gwrIYufedJeKsaa_pgoRC893aGb6pfbfH44v67GxJJ13yHgEKCSs-0iQr0qtEDvEo6z7r5OUHICJYujltaLMX2innd5D-bZnUf1Xkz-L-fsJboGZPsRZenfLYLGw/w400-h395/sheep.jpg" width="400" /></a></div><br /><p>The idea was to use the imported samples to clone a male Marco Polo and then use that male to impregnate ewes of other species, creating a "giant" hybrid sheep for "captive hunting." This was not just an idea, the ranch owner got as far as having actual cloned sheep embryos and produced a single pure-bred male Marco Polo named "Montana Mountain King." That ram's semen was actually used to artificially inseminate ewes. </p><p>It is not clear how the Lacey Violation occurred. Possibly, the killing and/or butchering for export in Kyrgyzstan was illegal under local or international law. More likely, the problem for the rancher-turned-defendant is that the species ovis ammon, of which the Marco Polo is a subspecies (ovis ammon polii), is listed on <a href="https://cites.org/eng/app/appendices.php">Appendix II</a> of the Convention on the International Traffic in Endangered Species (CITES). Appendix II lists species that are not yet recognized as threatened with extinction but need protection from unregulated trade to prevent that risk. Importing Appendix II animals or products derived from them <a href="https://www.ecfr.gov/current/title-50/chapter-I/subchapter-B/part-23/subpart-C/section-23.36" target="_blank">requires </a>an export permit from the source country. Presumably, that was not obtained. </p><p>Here is a related law-school hypothetical for you: What if they did this Jurassic Park-style with an already extinct, and therefore not endangered, species? This is not too crazy of an idea. People seem to be actively working toward de-extinction for a <a href="https://colossal.com/mammoth/" target="_blank">mammoth</a> and a <a href="https://arstechnica.com/science/2022/08/de-extinction-company-sets-its-next-first-target-the-thylacine/">thylacine </a>("Tasmanian tiger"). At least initially, it seems those creatures or hybrid (<i>e.g.</i>, half mammoth-half elephant) would be unregulated. Or, they may fall into some more generic regulation prohibiting the keeping of "exotic" or invasive species. Whatever, when it is possible for me to have a pet dodo (<a href="https://en.wikipedia.org/wiki/Dodo" target="_blank">raphus cuculattus</a>), I'm in.</p><p>Also, while I am thinking of CITES,<a href="https://www.hstoday.us/subject-matter-areas/customs-immigration/cbp-officers-thwart-smugglers-attempt-to-smuggle-toucan-and-parrots-at-tecate-port-of-entry/" target="_blank"> do not smuggle birds</a>, even if they are cereal mascots.</p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-78934312118424098812023-10-01T17:03:00.004-05:002023-10-01T17:03:47.226-05:00Counter-Counterclaim Decision<p>This is a two-parter covering three decisions including <a href="https://www.cit.uscourts.gov/sites/cit/files/23-116.pdf" target="_blank">Second Nature Designs Ltd. v. United States</a>. This part covers an interesting procedural question with implications for importers deciding whether to file a challenge to a customs decision in the Court of International Trade. In this case, that decision was the proper classification of decorative objects made from branches, wood, dried flowers, and other material. Customs classified these items in HTSUS item 0604.90.60 <b>other </b>foliage, branches and other parts of plants . . . dried . . . or otherwise prepared (7%). Plaintiff believes the merchandise is properly classifiable in 0604.90.30 covering the same merchandise except in "dried or bleached" form (free). </p><p><br /></p><table cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLlwUnilZLd2bvT4KS-V_9u8ORT46-9MzrCmWmTii6MC3EhQX_rCukTtOYXKBkxQtNNa1lprBwvdVOQoZz-ZZHZVA_suzlznWWQtC7lEWDIRI98sn1Ey15_tCCjpnTCOZO-oYgtAlkeNEhJFi0SoS9jhvNdQH8OLdNQ4gseSLENPd8Y2P-lWiyOA/s1200/00081.jpg" imageanchor="1" style="clear: left; margin-bottom: 1em; margin-left: auto; margin-right: auto;"><img border="0" data-original-height="1200" data-original-width="800" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiLlwUnilZLd2bvT4KS-V_9u8ORT46-9MzrCmWmTii6MC3EhQX_rCukTtOYXKBkxQtNNa1lprBwvdVOQoZz-ZZHZVA_suzlznWWQtC7lEWDIRI98sn1Ey15_tCCjpnTCOZO-oYgtAlkeNEhJFi0SoS9jhvNdQH8OLdNQ4gseSLENPd8Y2P-lWiyOA/w266-h400/00081.jpg" width="266" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;"><span style="font-size: xx-small;">From Second Nature Designs</span></td></tr></tbody></table><br /><p><br /></p><p>This first decision does not resolve the classification. It goes to whether the United States properly asserted a counterclaim against the plaintiff. A counterclaim is a claim the defendant asserts against the plaintiff. Here, after Second Nature sued the United States over the classification of the imports, the United States appears to have reconsidered the classification and decided that some of the merchandise should have been classified in tariff item 6702.90.65 as artificial flowers and foliage. If correct, that merchandise should have been liquidated at 17%.</p><p>Counterclaims are fairly standard in federal litigation. The Federal Rules of Civil Procedure recognize counterclaims at <a href="https://www.law.cornell.edu/rules/frcp/rule_13" target="_blank">Rule 13</a>. <a href="https://www.cit.uscourts.gov/sites/cit/files/Rule%2013.pdf" target="_blank">Rule 13</a> at the Court of International Trade similarly recognize that defendants may state a counterclaim, usually in the Answer to the complaint. Moreover, Congress specifically granted to the CIT exclusive jurisdiction to hear counterclaims provided "(1) such claim or action involves the imported merchandise that is the subject matter of such civil action, or (2) such claim or action is to recover upon a bond or customs duties relating to such merchandise." <a href="https://www.law.cornell.edu/uscode/text/28/1583" target="_blank">28 USC 1583</a>. That grant of jurisdiction, however, does not create a cause of action. That has to arise from some other authority.</p><p>In a <a href="https://www.cit.uscourts.gov/sites/cit/files/22-86.pdf" target="_blank">2022 decision</a> also involving Second Nature, the Court of International Trade held that there is no legal authority permitting the Government to assert a counterclaim seeking a different classification.</p><p>If that were the end of the matter, that would be an important change in the nature of litigation before the CIT. Lawyers who practice in this area know that a terrible outcome would be going to court to seek a reduced rate of duty and corresponding refunds only to have the outcome be a third classification not previously asserted by the importer or by Customs and resulting in not just a lack of a refunds but an actual increase in the duties owed. That's a nightmare. </p><p>This case and similar decisions including <a href="https://www.cit.uscourts.gov/sites/cit/files/22-85.pdf" target="_blank">Cyber Power Systems</a> seem to make that outcome less likely. The decision in Cyber Power explicitly concludes that "Nothing in the provisions of the statute upon which Defendant relies gives the United States a cause of action to assert a counterclaim challenging CBP’s classification." </p><p>But, as is often the case, the law is more complicated. In a 1984 decision called <a href="https://scholar.google.com/scholar_case?case=10605471323838283833&q=jarvis+clark+co&hl=en&as_sdt=4,131" target="_blank">Jarvis Clark Co. v. United States</a>, the U.S. Court of Appeals for the Federal Circuit had to sort out the burdens on plaintiffs challenging tariff classifications. There is a long story here. All you need to know is that in the old days, plaintiffs had to meet a dual burden to succeed. First, the plaintiff had to show that Customs' classification was incorrect. Next, the plaintiff had to also prove that its proposed classification was correct. Even if the Government was obviously wrong, if the plaintiff's classification was not demonstrably correct, the plaintiff would still lose. That was onerous and I am glad I never had to deal with it.</p><p>According to the Jarvis Clark decision, Congress fixed that problem in the Customs Courts Act of 1980. That is the statute that created the CIT. In doing so, Congress gave the CIT the power to order additional adjudicative or administrative steps that are necessary "to enable [the Court] to reach the correct decision." Under this law, the current understanding is that in classification cases the CIT is to determine the correct classification even if that is not a classification asserted in the pleadings. </p><p>The CIT's obligation to find the correct result appears to be independent of any requirements of pleadings. According to Cyber Power, "Defendant is not barred from arguing for a different classification at a higher duty rate." In that case, the Court simply changed the proposed counterclaim into a defense to the plaintiff's claim. In Second Nature, the CIT followed the same path and allowed the United States to assert its preferred classification not as a counterclaim but as a defense. </p><p>In the end, this does not seem to change the fundamentals of classification litigation. Assuming this analysis holds up on the inevitable appeal, it may change the way the Government responds to complaints. But, it seems we are just moving the same argument from the counterclaim bucket to the defense bucket. Traditionally, a defense is asserted to undercut the plaintiff's claim, rather than to seek a remedy. That makes a defense a somewhat awkward mechanism for this. Even that fact may not be meaningful. As long as the Court has to get to the right result and has the power to enforce that result through reliquidation or a money judgment, the Government might take that position that all it needs to do is make the argument in its brief without any prior pleading. </p><p>What might change is discovery. Normally, parties can seek discovery of information that is relevant to a claim or defense. If the Government cannot assert a counterclaim, but the Court has to get to the right result, the basis for discovery relating to an alternative classification would likely need to be that it is relevant to the defense. Otherwise, I (for one) might move for a protective order. Let's not get too far down that road. Some way or another, the Court is going to get what it needs.</p><p>Part Two on the substance of this classification will follow. </p><p><br /></p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-10730495946631317432023-08-18T14:37:00.003-05:002023-08-18T14:37:24.923-05:00Ellwood City Blues<p>Despite being judicial review of agency action, principles of administrative law do not always apply to customs law. That is because most decisions by Customs and Border Protection affecting the importation of merchandise are subject to administrative review in the protest process and then judicial review on a de novo standard. That means the judge will make a decision based on the evidence presented to the court rather than the administrative record on which the agency based its decision. </p><p>For comparison, in a trade case, the court will uphold a Commerce Department dumping margin calculation as long as the decision is based on substantial evidence <b>in the record</b> and is otherwise in accordance with law. That means the agency can prevail even if the court would have reached a contrary conclusion. That is the opposite of, for example, a tariff classification case in which the court is required to reach the correct result based on the evidence before it with little regard for Customs' original decision. There is some nuance involving so-called <i><a href="https://scholar.google.com/scholar_case?case=3762971005508365670&q=skidmore+swift&hl=en&as_sdt=4,60" target="_blank">Skidmore</a></i> deference and the power of Customs' prior decision to persuade the court, but that is a pretty marginal circumstance. After all, if the CBP determination is sufficiently logical and consistent to persuade the judge, that just means it is how the judge would have decided on his or her own.</p><p>Even traditional on-the-record review in dumping and countervailing duty cases do not rely on the <a href="https://www.law.cornell.edu/uscode/text/5/706">Administrative Procedure Act</a> standard of review. The trade laws set the standard of review in <a href="https://www.law.cornell.edu/uscode/text/19/1516a" target="_blank">19 USC 1516a</a>. Cases brought under the Enforce and Protect Act have their own standard of review in <a href="https://www.law.cornell.edu/uscode/text/19/1517" target="_blank">19 USC 1517(g)</a>. The trade cases that directly apply the APA are those brought under the Court's so-called "residual jurisdiction" of 28 USC 1581(i), which has been getting a workout in challenges to Section 301 and 232 duties and is also relevant where Commerce's instructions to Customs, but not the underlying decision, are being challenged.</p><p>Despite all that, I am certain that the law school class that had the most day-to-day impact on my work life was Administrative Law, because sometimes agencies have to be held accountable for actions that are not specifically identified in the trade laws. These are bigger-picture issues including things like requiring that agencies follow their own regulations and follow notice and comment requirements for new regulations. That was true in <a href="https://customslaw.blogspot.com/2023/07/cafc-eapa-process-really-does-violate.html" target="_blank">Royal Brush</a>, which we discussed in the last post, in which the Federal Circuit required Customs to comply with due process in EAPA investigations.</p><p>That is also where <a href="https://www.cit.uscourts.gov/sites/cit/files/23-113.pdf" target="_blank">Ellwood City Forge Co. v. United States</a> is relevant. This case involves a dumping order on something called a forged steel fluid end block. A normal part of a dumping case is an on-site verification of information the respondent foreign manufacturer or exporter provided. That requires international travel. In this case, that process got waylaid by COVID travel restrictions. As an expedient alternative, Commerce issued a written questionnaire in lieu of a verification. Commerce accepted and relied on that information as "facts available," but did not make an adverse inference.</p><p>The domestic petitioner argued that the information the respondent provided was incomplete or false and resulted in lower general and administrative expenses. That adjustment made an affirmative dumping determination less likely. When the petitioner sued, Commerce (eventually) moved for a voluntary remand to reconsider its position with respect to the information it collected via the questionnaire.</p><p>On remand, Commerce changed its treatment of the questionnaire response and determined that it had in fact verified the information, just not in person. </p><p>This is the nub of the controversy. Remands are generally limited in scope to what was ordered by the Court. Moreover, remands for further agency action usually require that the agency reconsider some specific fact or methodology and provide a fuller explanation of the decision the agency had already made. The decision to treat the questionnaire response as verified is not the decision Commerce had already made. </p><p>According to the Court of International Trade, in 2020, the Supreme Court gave agencies an additional path forward in a case called <a href="https://scholar.google.com/scholar_case?case=12243232080456836379&hl=en&as_sdt=6,44" target="_blank">Dep’t of Homeland Sec. v. Regents of the Univ. of California</a>, 140 S. Ct. 1891 (2020) (<i>Regents</i>). Under <i>Regents</i>, the agency can either provide a fuller explanation of its original decision or it can take new agency action and provide new reasoning. An agency that does the latter, must comply with the procedural requirements for a new action.</p><p>Here, the Court could not discern that Commerce had properly taken either available path. The remand decision was not a fuller explanation of a prior decision. Rather, in the remand, Commerce changed its position and treated the questionnaire response as verified. That, according to the Court is a new agency action. In the words of the Supreme Court, that is looking at the question "afresh." The problem for Commerce is that it failed to follow the procedural requirements for a new agency action. Those requirements include (1) explaining why it will not now conduct an on-site verification, (2) consideration of possible alternatives, and (3) explaining of how the new decision does not violate any of the Plaintiff's legitimate reliance interests.</p><p>As a result, the Court remanded the matter back to Commerce to act in accordance with <i>Regents</i>. </p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-44106850245728904092023-08-02T20:22:00.000-05:002023-08-02T20:22:12.783-05:00Target on Finality<p>In <a href="https://customslaw.blogspot.com/2023/07/cafc-eapa-process-really-does-violate.html">the last post</a>, about the Federal Circuit’s very important
decision on due process and allegations of evasion of antidumping duties, I
made a snarky, offhand comment that the government believes “liquidation is
magic.” That was in the context of the government arguing that Customs’
liquidation of entries mooted an appeal, thereby taking away the importer’s
right to further judicial review. I said that knowing full well that I still
needed to write this post summarizing <a href="https://www.cit.uscourts.gov/sites/cit/files/23-106.pdf">Target Corp. v.
United States</a> in which Target made what I want to be a valid and righteous argument that
Customs’ improper liquidation of entries at a favorable rate of antidumping
duty prevents the Court of International Trade from ordering Customs to collect
the legally applicable duties. But it turns out that while liquidation is an
important legal step, in at least one unusual circumstance it is not
sufficiently powerful to overcome the full force of an Article III court.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Understanding this case requires a lot of background from a
prior decision called <i>Home Products</i>, which <a href="https://customslaw.blogspot.com/2019/11/enforcement-of-judgment-and.html">I
posted about here</a>. Reading that post will provide useful context. The
quick and dirty version is that <i>Home Products</i> involved the antidumping duty
order on ironing boards from China. Target imported ironing boards and
deposited estimated antidumping duties at the then-prevailing rate of 9.47%.
Pursuant to a court order, the liquidation of those entries was enjoined while the parties to the dumping case argued about the correct rate.<o:p></o:p></p>
<p class="MsoNormal">In <a href="https://www.cit.uscourts.gov/sites/cit/files/19-126.pdf">Home Products</a>,
after significant litigation, the Court of International Trade accepted a
settlement resulting in an antidumping duty assessment rate of 72.29%. The
Court lifted the injunction and Commerce directed Customs to reliquidate the
entries at the correct rate of duty. Customs, however, liquidated 40 of
Target’s entries at the 9.47% deposit rate. The government discovered the
incorrect liquidations after the 90-day period in which Customs could
reliquidate to correct its error. A very important note here: this reliquidation
was not just an administrative error; it was contrary to the judgment from the
Court of International Trade. <o:p></o:p></p>
<p class="MsoNormal">Target was not happy about having to pay additional duties
on entries that were liquidated at a favorable rate. What followed was a lot of
litigation in which Target tried to figure out how to use the <i>Home Products</i>
case as a vehicle to preserve its favorable liquidations. That resulted in interesting procedural litigation on whether Target could intervene in <i>Home
Products</i>. While intervention was not allowed, the CIT let Target
participate as a non-party under the Court’s <a href="https://www.cit.uscourts.gov/sites/cit/files/Rule%2071.pdf">Rule 71</a>.
When the CIT eventually ordered Customs to reliquidate the entries consistent
with its prior order, Target appealed. <o:p></o:p></p><p class="MsoNormal"><br /></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeKKZnQ8T2sI5YA1S8ycy3qUVZv---WJYHXTk5s9pGAkq-LPZC4Ci4ZLe-w7da_DhqV5gJ2idmEdo6TLEiWjZSAHwlQrgJcApEFmiD1SJ1hS3xFiVS_RmgqdI0OsM6_zoluPuFndaS7KPJvBkIn10g5nIMRg3EQz7tZikZkNKJq8bMiWbVf2UXlQ/s5124/filip-mroz-gma1zfS3_6E-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="5124" data-original-width="3660" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeKKZnQ8T2sI5YA1S8ycy3qUVZv---WJYHXTk5s9pGAkq-LPZC4Ci4ZLe-w7da_DhqV5gJ2idmEdo6TLEiWjZSAHwlQrgJcApEFmiD1SJ1hS3xFiVS_RmgqdI0OsM6_zoluPuFndaS7KPJvBkIn10g5nIMRg3EQz7tZikZkNKJq8bMiWbVf2UXlQ/w286-h400/filip-mroz-gma1zfS3_6E-unsplash.jpg" width="286" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@mroz?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Filip Mroz</a> on <a href="https://unsplash.com/photos/gma1zfS3_6E?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p class="MsoNormal">The Court of Appeals for the Federal Circuit decided the
appeal on procedural grounds. The Court held that Target might have
appealed the CIT’s decision prohibiting it from intervening, but it did not,
and the intervention issue was not before it. Moreover, the Court found that Target had not
established that it satisfied the requirements to participate in the case as a
non-party. As a result, the Federal Circuit dismissed the appeal. But, before
slamming the door shut on Target, the Court noted that Target had protested the
reliquidations and, if Customs denied those protests, Target can challenge the
liquidations in its own case. The current case is exactly that challenge.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">That set up a clash between the statutory finality of
liquidation and the power of the Court of International Trade to issue orders
to enforce its judgments. It also highlights a bigger-picture question about
the power of the Court of International Trade to fashion a remedy in a lot of
cases that involve liquidated entries but not the merits of the liquidation.<o:p></o:p></p>
<p class="MsoNormal">At this point, we need to discuss the finality of liquidation.
The law (<a href="https://www.law.cornell.edu/uscode/text/19/1514">19 USC
1514(a)</a>) provides that specified <b>decisions</b> <b>of Customs</b> are
“final and conclusive upon all persons (including the United States and any
officer thereof) unless a protest is filed . . . .” That means once CBP
liquidates an entry, the classification, value, rate of duty, and other
specified decisions within the jurisdiction of Customs are set in legal stone
unless there is a valid protest filed or another exception applies. When the
importer is happy with the treatment of the entry, the finality of liquidation
is a good thing as CBP cannot go back and assess additional duties. When the
importer disagrees with the liquidation, the 180-day protest deadline becomes
vitally important. In the absence of a valid protest, any effort to challenge a
protestable decision will be dismissed for failing to state a claim on which
relief can be granted.<o:p></o:p></p>
<p class="MsoNormal">Exceptions to finality include the 90-day period in which
CBP can <a href="https://www.law.cornell.edu/uscode/text/19/1501">voluntarily
reliquidate</a> the entry. The other major exception is where the liquidation
was the result of a material false statement or omission by the importer or
other person involved in the entry. In <a href="https://www.law.cornell.edu/uscode/text/19/1592">that circumstance</a>,
Customs can reliquidate the entry to collect the correct duties, taxes, and
fees and can assess a penalty as well. <o:p></o:p></p>
<p class="MsoNormal">Next, a quick primer on the Court of International Trade.
The Court was created in the Customs Court Act of 1980 as the successor to the
Customs Court. The CIT is a court under Article III of the Constitution,
meaning its judges are nominated by the President and confirmed by the Senate
to lifetime appointments. It also means CIT judges can, and often do, sit in
other courts. They can do this because they are, for all intents and purposes,
district court judges. Like all federal courts, the CIT is a court of special
and limited jurisdiction. Unlike other federal courts, the CIT has nationwide
jurisdiction but relatively narrow subject matter jurisdiction. Important for
this discussion, the CIT has “all the powers in law and equity of, or as
conferred by statute upon, a district court of the United States.” <a href="https://www.law.cornell.edu/uscode/text/28/1585">28 USC 1585</a>.<o:p></o:p></p>
<p class="MsoNormal">Target’s argument was basically that the liquidation at
9.47% was final and Customs had no authority to reliquidate after the initial
90-day period for voluntary reliquidations. There are plenty of cases that support that argument. But the facts here are unique. The original erroneous liquidation appears to have been Customs’ fault and Customs’ decision to liquidate at the lower rate is arguably a protestable event, even though no one is going to protest a lower-than-expected liquidation (which is also not contrary to the importer). But the problem here is whether the <b>reliquidation at the higher rate</b> to correct the error was Customs' decision, making it a protestable event. Although the Federal Circuit seems to have found it to be without actually addressing the issue, it does not really matter. Commerce’s instructions to reliquidate at 72.9% appear to have been correct and consistent with the Court’s order and Customs had no choice but to follow the instructions. The question now before the CIT is whether that erroneous liquidation, done in violation of a valid Court order is binding on all parties, making the subsequent reliquidations invalid.</p><p class="MsoNormal">The Court rejected that notion. Basically, the <i>Home Products</i>
case was properly before the Court of International Trade. As is often the case in the trade remedy cases, the outcome
of that litigation impacted many enjoined entries including entries by
importers like Target who were not party to the case. In other words, it
is agreed that had CBP acted properly, it would have liquidated the entries at
the higher rate as ordered by the Court. By failing to act in accordance with the
order, CBP accidentally frustrated the remedy the Court granted to the
petitioners in that case. Moreover, that remedy was agreed upon as part of a settlement, so it was arguably acceptable to lawyers representing exporters and producers.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">Courts do not have to sit on their hands when someone interferes
with the enforcement of an order or judgment. According to the CIT, statutory
finality of liquidation does not interfere with the Court’s inherent ability to
enforce its orders. That is most evident here where the underlying issue was the section
1516 review of a Commerce Department determination for which the liquidation
was first suspended and then enjoined to prevent exactly this kind of mootness argument. See <a href="https://www.law.cornell.edu/uscode/text/19/1514">19 USC 1514(b)</a>. In
such cases, the law requires that the entries be liquidated in accordance with
the final decision of the Court. The only way to ensure that happens is to
recognize that finality of liquidation does not apply in trade remedy cases once
the Court’s jurisdiction over the entries has been invoked. The
liquidation-protest process does not divest the Court of the power to ensure
that its final judgment is implemented. To find otherwise leads to the absurd
possibility of the parties expending the time, money, and effort to litigate
often complex trade matters before the Court only to find that their hard-won
result (either way) can be frustrated by Customs making a mistake. That cannot be the result Congress had in mind when it passed the Customs Court Act of 1980,
which gave the new Court of International Trade all the powers in law and
equity that are necessary to provide complete relief.<o:p></o:p></p>
<p class="MsoNormal">This is a big case. It is a direct challenge to the scope of
the authority of the Court and whether the CIT is truly a court of equal stature
and power to the regional district courts. That seems to be what was intended.
The quirky set of facts in this case may not be the best vehicle to make that
determination, but I fully expect the Federal Circuit to have to weigh in.<o:p></o:p></p>
<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><o:p> </o:p></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-44218598895942963282023-07-28T15:04:00.001-05:002023-07-28T15:04:15.938-05:00CAFC: EAPA Process Really Does Violate Due Process<p>Hot on the heels of my complaining about how the <a href="https://www.law.cornell.edu/uscode/text/19/1517#:~:text=19%20U.S.%20Code%20%C2%A7%201517%20-%20Procedures%20for,of%20evasion%20of%20antidumping%20and%20countervailing%20duty%20orders" target="_blank">EAPA law</a> and process is stacked against importers, the Court of Appeals for the Federal Circuit has issued an important decision that will have a major impact on how those cases work. If you are unfamiliar with evasion cases under the Enforce and Protect Act and how Customs and Border Protection handles them, go back and look at these two posts: <a href="https://customslaw.blogspot.com/2023/06/ikadan-and-eapa.html" target="_blank">Part 1</a>, <a href="https://customslaw.blogspot.com/2023/07/eapa-part-2-whats-problem.html" target="_blank">Part 2.</a></p><p><a href="https://cafc.uscourts.gov/opinions-orders/22-1226.OPINION.7-27-2023_2163900.pdf" target="_blank">Royal Brush Manufacturing, Inc. v. United States</a>, is the decision in an evasion case against Royal Brush involving pencils allegedly transshipped from China through the Philippines. Customs determined that there was evasion of an antidumping duty order based in part on evidence that was not disclosed to Royal. Specifically, Customs sent a representative to the facility in the Philippines to photograph the interior and provide a report. Customs refused to disclose all the photographs to Royal. Moreover, CBP's report concluded that the facility did not have sufficient capacity to produce the number of pencils allegedly made in the Philippines and exported to the U.S. In its report, Customs refused to disclose the numbers it used to calculate production capacity. Customs also withheld other information it gathered. </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-AyGaFIJS5wW-tynzWEw4qw5eN731XzYPn9SQta1rsgXLRKyP-1SKqnrm4yO8SFQM_k54wFTUeDtUnz2-9VTkyeoddcogoqNLS4-ygDUGurB6QuonSrePeL6ryANDzIDjCWZPaw7uVk3OhlMunS9p-M8pEvm1pRAbgBD1dhyZpsrJknWvQh6Akw/s6000/david-perkins-dROvuPA-TLY-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4000" data-original-width="6000" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi-AyGaFIJS5wW-tynzWEw4qw5eN731XzYPn9SQta1rsgXLRKyP-1SKqnrm4yO8SFQM_k54wFTUeDtUnz2-9VTkyeoddcogoqNLS4-ygDUGurB6QuonSrePeL6ryANDzIDjCWZPaw7uVk3OhlMunS9p-M8pEvm1pRAbgBD1dhyZpsrJknWvQh6Akw/w400-h266/david-perkins-dROvuPA-TLY-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@prkns?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">David Perkins</a> on <a href="https://unsplash.com/photos/dROvuPA-TLY?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p>Royal challenged Customs' withholding of the information on which it based the affirmative evasion determination. The U.S. Court of International Trade ordered Customs to provide a summary of the redacted information (as it is required to do under the regulations), but also held that there is no requirement that Customs disclose business confidential information. </p><p>A second issue related to Royal's effort to respond to Customs' "Verification Report." Customs rejected the rebuttal on the grounds that it had not relied on any new factual information. </p><p>The CIT sustained Customs' determination and Royal appealed. In the meantime, and contrary to the way EAPA is supposed to work, Customs liquidated the subject entries, with antidumping duties assessed on two of them. As a result of the liquidation, the government tried to get the appeal dismissed as moot because the government believes that liquidation is magic.</p><p>On the mootness question, it is true that most issues involving the assessment of duties that result from a decision by Customs can only be challenged through the administrative protest process. The Court of International Trade can then review the denied protest. Absent a protest, the liquidation is final and conclusive. In this case, Customs assessed duties when it liquidated the entries and Royal did not protest. According to the government, that should end the matter.</p><p>The Federal Circuit did not agree. The EAPA statute includes a specific authorization to challenge the evasion determination that is distinct from challenging the liquidation. The evasion determination has consequences beyond the liquidated entries including the possibility that Customs will use it to bootstrap a penalty case, as is allowed under subsection (h) of the <a href="https://www.law.cornell.edu/uscode/text/19/1517#:~:text=19%20U.S.%20Code%20%C2%A7%201517%20-%20Procedures%20for,of%20evasion%20of%20antidumping%20and%20countervailing%20duty%20orders" target="_blank">EAPA</a>. That does not mean that Royal will get back the antidumping duties it paid. That issue was not brought before the Court, but it seems likely that a protest would have been needed to challenge CBP's erroneous liquidation. On the other hand. the Federal Circuit retained jurisdiction over the appeal, which is a good thing given the result.</p><p>The meat of this decision has to do with whether Customs may legally withhold relevant information from the imported to protect confidential business information. Presumably this is the confidential information obtained from the producer and not the importer's own info. At the outset, we can stipulate that Customs comes into possession of a lot of valuable confidential business information. Customs is and should be very careful to prevent disclosure of that information. The <a href="https://www.law.cornell.edu/uscode/text/18/1905" target="_blank">Trade Secrets Act</a> applies to Customs employees and prohibits them from disclosing trade secret information "to any extent not authorized by law." </p><p>The government's argument on this point was that there is no authorization by law in EAPA or elsewhere to disclose the confidential information. Unlike antidumping and countervailing duty cases, there is no statute or regulation that creates a protective order to prevent unauthorized disclosure. In the absence of that mechanism, the argument goes, Customs was not permitted to disclose the information to Royal. </p><p>None of that matters because the Constitution requires disclosure. The Federal Circuit referred to this as a "relatively immutable principle" of due process. The Court held that where an agency makes an adjudicative decision that seriously injures an individual, due process includes the right to know what evidence is being used against that individual. Business confidential information is not exempt from this constitutional requirement. For purposes of the Trade Secrets Act, the Constitution is the authorization by law. </p><p>Given the constitutional mandate to disclose, Customs has the "inherent authority" to create a protective order mechanism. That system can allow the importer access to the full record to evaluate and rebut the evidence against it while protecting the information from unnecessary public disclosure. According to the Court, "There is no basis for CBP to violate Royal Brush's due process rights by failing to provide the information on which it relied to Royal Brush." This holding is probably broad enough to mandate that Customs create a protective order system for EAPA, which it can do by adopting some version of the system the Commerce Department uses in trade cases.</p><p>The last issue was whether Customs improperly denied Royal the opportunity to rebut new evidence Customs added to the record following "verification" in the Philippines. This also has a constitutional aspect but is directly addressed in the regulations at <a href="https://www.law.cornell.edu/cfr/text/19/165.23#:~:text=%28c%29%20Time%20limits%20and%20service%20requirements%20-%20%281%29,timeframe%20set%20forth%20by%20CBP%20in%20the%20request." target="_blank">19 CFR 165.23(c)(1)</a>:</p><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><p style="text-align: left;">If CBP places new factual information on the administrative record on or after the 200th calendar day after the initiation of the investigation (or if such information is placed on the record at CBP's request), the parties to the investigation will have ten calendar days to provide rebuttal information to the new factual information.</p></blockquote><p> The government's argument was that this regulation did not apply because no new factual information was put on the record. This argument was refuted by Customs' own report indicating that new information was provided in the Verification Report. Thus, Royal established that it had a right to an opportunity to both see and rebut that information.</p><p>All in all, this is a big win for importers who are subject to an evasion investigation and their foreign exporters. This decision will necessarily add to the transparency of that process and allow importers a full opportunity to review and address the evidence against them. This aligns nicely with the "visceral and negative" reaction I described in the <a href="https://customslaw.blogspot.com/2023/07/eapa-part-2-whats-problem.html" target="_blank">previous post</a> on EAPA. </p><p>The decision may have broader implications as well. Importers have expressed similar concerns about the transparency of the forced labor enforcement process. A common refrain is that importers do not know what information Customs has gathered indicating that forced labor is being used in the supply chain and, therefore, the importer has no way to rebut that evidence. If this decision on the due process rights of importers subject to Customs' administrative adjudication applies generally, it may require that Customs make its administrative record fully available, including confidential information. That might be an interesting unintended consequence of this EAPA case.</p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-70103565332278208002023-07-27T17:27:00.000-05:002023-07-27T17:27:05.035-05:00Excavating Tariff Classifications<p>A common error in tariff classification is to assume that some doodad used in or with a machine is necessarily classified as part of that machine. That is not always the case, which is why it is important to check the "relative" Chapter and Section Notes. For example, Section XVI, Note 2(a) states, that "Parts which are goods included in any of the headings of chapter 84 or 85 (other than headings 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings . . . ." That means, for example, that a valve of Heading 8481 will usually be classified as a valve without regard to the machine into which it is assembled. The heading for the valve prevails over, for example, 8431, which covers "Parts suitable for use solely or principally with the machinery of headings 8425 to 8430." The latter including goods of Heading 8429, meaning "Self-propelled bulldozers, angledozers, graders, levelers, scrapers, mechanical shovels, excavators, shovel loaders, tamping machines and road rollers," which is really the topic of this post.</p><p>In <a href="https://www.cit.uscourts.gov/sites/cit/files/23-108.pdf" target="_blank">Norca Engineered Products, LLC v. United States</a>, the Court of International Trade classified cast-iron counterweights for self-propelled mini excavators. There was no dispute that the mini excavators are machines of Heading 8429. Moreover, the weights, which are used on the excavators to prevent them from rolling over are classifiable as parts of the machines classifiable in Heading 843. That means the weights are classifiable in subheading 8431.49 as "other" parts of these machines and then in 8431.49.90 as "other parts." </p><p>Typically, that would resolve the case. Legally, tariff classification is complete at the 8-digit level. The additional two-digit statistical suffix is often (but not always) a compliance afterthought because the suffix does not usually impact duties, taxes, and fees. These, however, are not typical days in customs law as the Section 301 duties imposed on products from China continue to raise issues. Here, the statistical suffix controls whether the merchandise is within the scope of an exclusion from Section 301 duties.</p><p>If the counterweights are parts of "backhoes," they are classifiable in 8431.49.9044 and not excluded from Section 301 duties. If, as plaintiff contends, the counterweights are parts of "other machines" of 8429, they are excluded from Section 301. That means the resolution turns on the nature of the finished machines, which are Doosan Bobcat mini excavators.</p><p><br /></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjf_3smS9e_TgQoFljuoxSvnRe3mt_izZ3la6Ag_CxkqjkGFf11h8jl5zRTwCREYM-P2FBvUQNBWJ29uoWLTISxg6TP3Dx9Kf8jWk72rURoQaLc3a9JE9QR6EeAmuGS3mDOP3BAcCviYn46jq0jPCXjTnzIXJow6FajzgsIh3sjeTlQ3dKiVSentA/s950/excavator.png" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="576" data-original-width="950" height="243" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjf_3smS9e_TgQoFljuoxSvnRe3mt_izZ3la6Ag_CxkqjkGFf11h8jl5zRTwCREYM-P2FBvUQNBWJ29uoWLTISxg6TP3Dx9Kf8jWk72rURoQaLc3a9JE9QR6EeAmuGS3mDOP3BAcCviYn46jq0jPCXjTnzIXJow6FajzgsIh3sjeTlQ3dKiVSentA/w400-h243/excavator.png" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Source: <a href="https://www.bobcat.com/na/en/buying-tools/product-brochures">Product Brochures - Bobcat Company</a></td></tr></tbody></table><br /><p>So, when is a backhoe a backhoe? According to the United States, a backhoe is a mechanical excavator that has a bucket and an arm the extends and excavates by drawing the bucket back toward the power unit. That seems to describe the product based on the picture. But Norca pointed to a number of commercial sources including John Deere, Caterpillar, and CASE Construction Equipment to show that the commercial understanding of backhoe is distinct from an excavator. </p><p>Normally, the Court interprets the HTSUS consistent with the common and commercial meaning and those are presumed to be the same. If one side argues that a more specific commercial meaning is intended to prevail over the common meaning, that party has to meet a higher burden. Norca tried to do that with evidence of the commercial understanding that backhoes do not have the ability to rotate through 360 degrees, which these machines can do. </p><p>The Court did not buy this argument because, according to the decision, the HTSUS provides for backhoes with 360-degree rotation. This follows because HTSUS subheading 8429.51 covers excavators of the front-loading type. Subheading 8429.52 covers non-front-loading excavators and segregates them into two distinct groups: those that can rotate 360 degrees and those that cannot. That group is then further broken down into backhoes, shovels, clamshells and draglines. Of those, the only possible classification is "backhoes," which means Norca's assertion that backhoes cannot rotate is incorrect.</p><p>Given that the machine in question is a backhoe, the counterweights are parts of backhoes of 8429, they are classified in 8431.49.9044, making them subject to the Section 301 duties.</p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-83118130769476762832023-07-06T10:03:00.005-05:002023-07-08T11:13:42.925-05:00EAPA Part 2 - What's The Problem?<p>In my <a href="https://customslaw.blogspot.com/2023/06/ikadan-and-eapa.html" target="_blank">last post</a>, we covered the mechanical aspects of evasion investigations conducted by U.S. Customs and Border Protection. These are cases CBP may initiate on its own, but which seem to more usually be initiated following an allegation by a domestic producer that an importer has evaded the payment of antidumping duties, countervailing duties, or both. The most common means of evasion is transshipping a product subject to an AD or CV duty order through a country not subject to the order and misidentifying the country of origin. </p><p>In this post, I want to run through some of the concerns that have been expressed by importers (and their lawyers) dealing with EAPA cases. You'll see that these cases require a whole new approach to customs enforcement. Because judicial review in EAPA is limited to facts in the agency record with a very deferential standard of review, these look a lot more like antidumping and countervailing duty cases minus the safeguard of complete information disclosure to the parties. As you'll see below, a lot of this feels unjust to customs lawyers who are used to a being able to deploy standard litigation tools including discovery and witness testimony to prove their case.</p><p>As an example, you should take a look at <a href="https://www.cit.uscourts.gov/sites/cit/files/23-08.pdf" target="_blank">Leco Supply, Inc. v. United States</a>, but similar to the last post, I am not going to review that decision in detail. It is just a good example of the issues importers are raising. The underlying issue in Leco was as challenge to CBP's finding that Leco has evaded antidumping duties on wire hangers from Vietnam by declaring that the hangers originated in Laos. The evidence in the case indicates, among other things that the supplier provided potentially counterfeit certificates of origin and payment records. </p><p>First, and separate from the specific legal issues, an often-unstated frustration is the very practical concern that importers can only do so much. I wrote about this for <a href="https://www.blogger.com/blog/post/edit/12154253/8311813076947676283#" target="_blank">Law360</a>. For decades, importers have generally understood their obligation to be to exercise<a href="https://www.law.cornell.edu/uscode/text/19/1484" target="_blank"> reasonable care</a> in reporting accurate and complete information to Customs. That includes the country of origin of merchandise and whether the imports are subject to an antidumping or countervailing duty order. Customs has, for years, talked about taking a risk-based approach to enforcement. Customs, for <a href="CBP uses risk-based analysis and intelligence to pre-screen, assess and examine 100 percent of suspicious containers. Remaining cargo is cleared for entry into the U.S. using advanced inspection technology." target="_blank">example</a>, "uses risk-based analysis and intelligence to pre-screen, assess and examine 100 percent of suspicious containers." The office formerly known as <a href="uses a risk-based approach to assess compliance with trade laws and regulations, " target="_blank">Regulatory Audit</a> "uses a risk-based approach to assess compliance with trade laws and regulations . . . ." </p><p>For importers, compliance risk management generally starts with gathering information from a potential supplier. That information will include the physical nature of the merchandise in sufficient detail to allow the importer to determine the tariff classification. Sometimes, that information comes from the importer, who may have designed the item or provided a detailed specification to the seller. In cases where the importer is buying an existing product, it can examine the merchandise and make its own determination as to its physical characteristics. Or the buyer/importer can specify the exact nature of the product in the purchase order and other documents, making the exporter contractually responsible for supplying merchandise that matches the order.</p><p>Because customs value is usually (<a href="https://customslaw.blogspot.com/2023/02/cit-to-meyer-still-no-first-sale-for.html" target="_blank">but not always</a>) based on the price to the buyer in the United States, value is also something importers can usually report with a degree of confidence. Value is, however, sometimes a problem for importers who are not familiar with the complex valuation rules. Value is also complicated by factors such as related party transactions, imports that are not subject to a sale, and the application of first sale for value. </p><p>Origin is a much tougher risk to manage. First, there are multiple and inconsistent rules at play. Second, the standard substantial transformation test based on a change in name, character, or use has become overly burdened with additional factors including the so-called "essence test" and whether the imported parts have a pre-determined end use. While there is <a href="https://customslaw.blogspot.com/2023/02/cyber-power-decision-keeps-lights-on.html" target="_blank">some indication</a> that the Courts may add clarity, for now, clarity is not abundant. </p><p>The underlying assumption in most commercial transactions is that the seller is not lying to the buyer. Buyers assume that sellers who do not deliver merchandise matching the order understand they are not likely to receive subsequent orders. That also applies to merchandise quality, on time delivery, price, and other elements of the deal. </p><p>On top of the business and economic considerations, importers who are smart and worried about compliance take additional steps to confirm that they are getting the merchandise ordered and that the purchase does not create other risks. In this context, the "additional risks" might include, for example, the presence of forced labor in the supply chain, a determination that the merchandise is subject to Section 301 duties, or that it is subject to AD/CV duties due to its actual country of origin. Methods reasonable importers employ to limit those risks include:</p><p></p><ul style="text-align: left;"><li>Contract terms (up to and including indemnification for losses)</li><li>Certificates of origin</li><li>Certificates of conformity, test reports, mill certificates, and other quality documents</li><li>Supplier codes of conduct</li><li>Third party audits</li><li>Site visits to observe manufacturing and confirm that the equipment, materials, and personnel exist in sufficient quantity to make the goods</li></ul><div>All of the documentation depends on the trustworthiness of the supplier. Third party audits are of varying quality and not always possible given local laws. Site visits are great but are not always practical and even they can be manipulated by an unscrupulous supplier.</div><div><br /></div><div>This relates to evasion cases because <b>it is likely that the supplier not the importer is doing the "evasion."</b> See, for example, the allegedly counterfeit documents in the <i>Leco </i>case. The importer has probably sought out a new supplier or worked with the old supplier to move production with the intention of managing duty liability and reducing compliance risks by avoiding rather than importing goods from the subject country. The importer has no interest in evading an order that it honestly believes it is legally avoiding. Duty avoidance, as opposed to evasion, is legal and prudent.</div><div><br /></div><div>What is happening in these cases that is causing so much heartburn for importers?</div><div><br /></div><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5Mt73wlG-PReWeddrnoPq_LQxUq3vyL3diIxEhVbDXCOxeeyeFKsZTTp00-c6uTpIiSA9kVgScKcK1OK4BEIS3Cx67cPWCxT5wxAltfzSK4Qy89jBAwbZLEkG6gpoquETXBYuM2-uW5Mh4RwYvRGx5C1GqkjEwi3xhe7KZhgz2DxYVlOiNX4c-A/s3999/markus-winkler-cS2eQHB7wE4-unsplash.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="2666" data-original-width="3999" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5Mt73wlG-PReWeddrnoPq_LQxUq3vyL3diIxEhVbDXCOxeeyeFKsZTTp00-c6uTpIiSA9kVgScKcK1OK4BEIS3Cx67cPWCxT5wxAltfzSK4Qy89jBAwbZLEkG6gpoquETXBYuM2-uW5Mh4RwYvRGx5C1GqkjEwi3xhe7KZhgz2DxYVlOiNX4c-A/w400-h266/markus-winkler-cS2eQHB7wE4-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@markuswinkler?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Markus Winkler</a> on <a href="https://unsplash.com/photos/cS2eQHB7wE4?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><div><br /></div><div>First, there is a perceived lack of transparency. An EAPA determination is subject to judicial review on the record CBP compiled during the investigation. That record is likely to contain confidential business information. Unlike the antidumping law, EAPA and the implementing regulations do not require that Customs use a protective order to allow the importer or its lawyers to review confidential information upon which CBP may have based the decision.</div><div><br /></div><div>In contrast, antidumping and countervailing duty investigations involve a lot of highly proprietary business information that is disclosed to interested parties subject to a detailed protective order. This allows the parties to understand the basis for the determination and, as necessary, rebut that information. In the EAPA context, without a protective order, Customs provides a public summary of the confidential information. Customs also provides redacted (or "bracketed") versions of documents in the record.</div><div><br /></div><div>Lawyers have had a bad reaction to this process. We generally believe that those subject to an enforcement action that can result in a significant liability should have access to all the relevant information on which the government has relied in making that decision. That access to information may allow parties to refute the claim and provides confidence that the process was fair.</div><div><br /></div><div>The problem is that a visceral and negative reaction based on principle and practice in a related but distinct process is not a legal basis on which to challenge a decision. The argument has been that the lack of access to the full record violates the importer's due process rights under the <a href="https://www.law.cornell.edu/constitution/fifth_amendment" target="_blank">fifth amendment</a> to the Constitution. Also, EAPA cases are not penalty cases (at least initially). This is about duty collection, so the interests are not the same.</div><div><br /></div><div>Due process comes in two forms. Procedural due process requires that the importer be given notice of the claim against it and a meaningful opportunity to be heard. Substantive due process relates to circumstances in which the plaintiff has been deprived of "life, liberty, or property without due process." Engaging in international trade is not a right that is a protected liberty or property interest. On the procedural claim, the Courts have so far held that as long as the public summaries are sufficiently detailed to permit the importer to understand the substance of the information, the importer has an adequate opportunity to respond and, therefore, to be heard. Thus, the issue turns on the risk that the undisclosed information would have changed the outcome of the investigation versus the government's interest in performing its function with reasonable burdens. That is a fairly high bar for those challenging the public summary process. So far, that has not been successful.</div><div><br /></div><div>The next issue is that EAPA is being interpreted as a strict liability statute. We covered this in the <a href="https://customslaw.blogspot.com/2023/06/ikadan-and-eapa.html">previous post</a>. Let's just reiterate that while "evasion" sounds like a purposeful or at least a negligent act, it is not according to the law as interpreted to date. All that matters is that merchandise subject to an AD or CV duty order was imported without the deposit of the corresponding duties. As it stands, even where the importer exercises "reasonable care," the EAPA process can result in a significant bill for unexpected duties possibly because the <b>supplier</b> misunderstood the law or lied about the facts. </div><div><br /></div><div>"At least," you might be thinking, "this only relates to the currently unliquidated entries, not the past five years as in a penalty case." I have bad news for you: nothing prevents Customs from commencing a penalty case on the basis of information it gathers during the EAPA process. While the importer might have a meritorious defense of reasonable care, that case is going to be hard to mount after CBP has already determined that the importer is evading the AD/CV duty order. </div><div><br /></div><div>Next is the standard of review. The Court will uphold an EAPA determination that is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. This standard is deferential to Customs. The Court need not actually agree with the outcome as long as CBP has provided a reasonable explanation that comports with the evidence in the record that both supports and detracts from the conclusion. </div><div><br /></div><div>"Arbitrary and capricious" is a big departure for customs lawyers who are used to penalty cases and denied protest cases being subject to <i>de novo </i>review. That standard of review means that the Court makes an independent decision based on the admissible evidence presented to it in open court (or in the paper equivalent). I recognize the irony of arguing for a protective order process to emulate the information disclosure in a trade case while also arguing that the standard of review should be <i>de novo</i> as it is in a customs case. That is cake I would both like to have and to eat. </div><div><br /></div><div>Related to this, as the Court recently stated in <a href="https://www.cit.uscourts.gov/sites/cit/files/23-91.pdf" target="_blank">Sky View Cabinets</a>, in EAPA cases is there are no rules that prevent Customs from considering hearsay evidence as part of its administrative determination. As a reminder, hearsay is an out of court statement introduced to prove a fact. In a traffic accident case, an example of hearsay would be "John told me that the driver was texting when the accident happened." Whether the driver was texting is an important fact and John's out of court statement is hearsay. Unless one of the many exceptions applies, John needs to show up in Court and make that statement under oath and subject to cross examination. </div><div><br /></div><div>In a penalty or denied protest case, hearsay rules apply and keep out that kind of unreliable evidence. That is the context in which customs law usually happens. But, in an EAPA case, Customs can consider hearsay evidence up to and including statements and information from domestic producers that might be based on third party reports commissioned by the domestic party. </div><div><br /></div><div>From the perspective of the importer, there is a lot to complain about in the EAPA process. The lack of complete disclosure and the deferential standard of review stack the deck toward the domestic industry. While that may seem to be a reasonable measure to enforce AD/CV duty orders, the result may be serious unexpected liability for importers who genuinely believed they engaged in reasonable diligence to ensure that that they were complying with the law. When Customs concludes that the importer is wrong about the origin or nature of the goods and that evasion has occurred, it does not matter to the United States that the supplier may have mislead the importer either as the result of a genuine misunderstanding of the law or out of simple dishonesty. Under this law, the importer has no defense based on its efforts at compliance. </div><div><br /></div><div>It is a very hard time to be an importer. Supply chain visibility is the new currency of trade compliance. Importers need to know what goes into their products, where it comes from, and who processed it. That is true for forced labor compliance, the application of Section 301 duties, antidumping and countervailing duties, and other trade remedy measures. Not all importers are honest, but when conscientious importers are led astray by bad information or diligence that in hindsight was inadequate to identify deception, the risks are enormous. Nothing in the EAPA statute or enforcement process recognizes that. </div><div><br /></div><div><br /></div><p></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-45023644590510333852023-06-24T16:55:00.000-05:002023-06-24T16:55:02.530-05:00IKADAN and EAPA<p>I have not yet addressed cases brought under the Enforce and Protect Act ("EAPA"). These are important and controversial cases, so we need to change that. Also, there have been a few at this point, so we need to get going.</p><p>As a starting point, EAPA is part of the Trade Facilitation and Trade Enforcement Act of 2015. It sits in the customs laws at <a href="https://www.law.cornell.edu/uscode/text/19/1517" target="_blank">19 USC 1517</a>. The act seeks to address the "evasion" of antidumping and countervailing duties by means of written, oral, or electronic statements (or data) that contain material and false statements or omissions that result in "any cash deposit or other security or any amount of applicable antidumping or countervailing duties being reduced or not being applied with respect to the merchandise."</p><p>The act is directed at imports of "covered merchandise," which is products that, when imported, are subject to antidumping or countervailing duties. "Interested parties," who are most likely domestic producers of the covered product, may make an allegation to Customs that an importer is evading the deposit of estimated duties or the payment of duties. This may be, for example, the result of an incorrect tariff classification, false statement of origin, understated value, or another alleged scheme.</p><p>Upon receiving an allegation, Customs is required to evaluate it and determine whether it contains information that "reasonably suggests" evasion. If so, Customs initiates an investigation and has 300 days (which it can extended to 360) to make a determination of whether covered merchandise was entered through evasion. Within 90 days of initiation, Customs may impose "interim measures." That means it may suspend further liquidations of entries made after initiation and extend liquidations of entries made prior to initiation.</p><p>After an affirmative determination, Customs can suspend the liquidation of any unliquidated entry made on or after the date Customs initiated the investigation. Customs can also extend the liquidation of any unliquidated entry of covered merchandise made prior to the date of initiation. The importer will then be required to post cash deposits on those entries. </p><p>In summary, EAPA forces CBP to investigate allegations of evasions of AD/CVD orders. Where there is a reasonable indication of evasion, Customs can prevent liquidations to ensure that any AD/CV duties ultimately determined to be owed are paid. When in doubt about the scope of the order, Customs can refer that question to Commerce.</p><p>The initial determination is the responsibility of the Trade Remedy & Law Enforcement Directorate. An importer or the interested party that made the allegation can, within 30 days of the determination, seek review of the decision within Customs. Customs must make a review decision within 60 days. The review is handled by Regulations and Rulings. After that, whichever side remains angry about the decision (positive or negative) can seek judicial review in the U.S. Court of International Trade. That case must be filed within 30 days of the administrative review decision. </p><p>The scope and standard of review in an EAPA case is pretty narrow. These cases are done as a review of the agency record. That means no new evidence, no discovery, no witnesses, and no trial. The Court's role is not to determine the facts. Instead, the Court only decides (1) whether Customs followed the required procedures and (2) whether Customs' conclusion is "arbitrary, capricious, an abuse of discretion or not otherwise in accordance with law." The Court, therefore, will uphold a decision that is based on "a reasoned analysis or explanation." The decision must include a rational connection between the facts in the record and the ultimate decision. <a href="https://www.vox.com/politics/2023/5/2/23706535/supreme-court-chevron-deference-loper-bright-raimondo">At least for the moment</a>, if there is any ambiguity or gap in the law, the Court will defer to Customs' reasonable interpretation of the statute. This is the threatened <a href="https://sgp.fas.org/crs/misc/R44954.pdf">Chevron doctrine</a>. </p><p>These cases are much more like antidumping and countervailing duty cases than like traditional <i>de novo</i> customs litigation. The limited scope of review and deferential standard of review make this pretty perilous for the importer.</p><p>Evasion should not be confused with circumvention, though both are tools to enforce AD/CVD orders. <a href="https://www.law.cornell.edu/uscode/text/19/1677j" target="_blank">Circumvention </a>is a diabolical rule that allows the Commerce Department to find that merchandise that is otherwise outside the scope of the order or from a country not subject to the order is nevertheless subject to the order. Commerce can do this when, for example, it finds that although made in a non-subject country, the product was made from materials from the subject country and was made with comparatively minimal processing. Circumvention can also apply where the product did not exist at the time of the order or is a minor variation of the product covered by the scope of the order.</p><p>Unlike circumvention, EAPA is aimed at merchandise that is (arguably) within the scope of the order but is entered without the deposit of the AD/CV duties.</p><p><a href="https://www.cit.uscourts.gov/sites/cit/files/23-88.pdf" target="_blank">Ikadan Systems USA v. United States</a> is a recent example of judicial review of EAPA enforcement actions. Rather than get into the specifics of <i>Ikadan</i>, I am going to use it as a jumping off point to illustrate how EAPA cases work and why importers should be concerned about them. </p><p>First, in a "normal" customs penalty case, a violation does not exist unless the someone made a material false statement or omission <b>as a result of negligence, gross negligence, or fraud.</b> Ikadan argued that "evasion" of duties should also require some level of culpability and not just a false statement or omission (which might be a good faith error). The Court held that the EAPA does not contain a discussion of culpability and, therefore, the Court deferred to what it considered to be Customs' reasonable interpretation of the statute as imposing strict liability, without regard to whether the importer acted negligently or knowingly. The only exception in the statute is for true clerical errors, which indicates that Congress intended this to be a strict liability mechanism.</p><p>Next, in a "normal" antidumping or countervailing duty case, Customs' role in interpreting the scope of the order is pretty limited. Commerce is the agency with primary authority to interpret and, as needed, clarify the scope of an order. And yet, for entries to happen, Customs routinely makes scope determinations. These should be the easy calls where merchandise is either in or out of the scope. All of the "gray area" should be resolved by Commerce. </p><p>In an EAPA case, Customs is specifically required to make a decision on whether the merchandise is within the scope of the order. If that is unclear, Customs <i>can</i> refer the question to Commerce for guidance. </p><p>The tricky part is that there is a disconnect in terms of judicial review. The question before the Court in an EAPA case is whether Customs' decision was arbitrary and capricious. That means determining whether Customs made a reasoned decision that is in accordance with law even if the Court might not agree with that decision. Customs is likely to rely on published Commerce Department scope rulings. But the question before the Court will not be whether those underlying ruling are correct. The question will only be whether Customs' application of those rulings was reasonable. At least in the EAPA context, that seems to give Commerce a pass when Customs does not seek scope guidance and relies on prior scope rulings.</p><p>Ikadan also challenged Customs' decision to suspend the liquidation of entries of merchandise that Ikadan believes to be outside the scope of the order. The Court declined to take up that issue because of its limited role in reviewing only Customs' determination of whether evasion has occurred, not the administrative steps Customs takes to implement that decision. The application of the EAPA finding to particular entries is, according to this decision, subject to the protest and <i>de novo</i> review process.</p><p>Let's end this here. I will come back with a second post on the constitutional challenges to EAPA.</p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-8152010232489867032023-06-19T17:22:00.004-05:002023-06-20T08:10:10.448-05:00Update on the Vaquita<p>On June 14, 2023, the U.S. Court of International Trade approved the voluntary dismissal of a case brought by a group of environmental organizations to force the U.S. government to take action to force Mexico to better implement steps to protect the grievously endangered vaquita. Prior posts on related legal efforts in this matter are <a href="https://customslaw.blogspot.com/2020/04/a-victory-for-vaquita-that-is-hopefully.html" target="_blank">here </a>and <a href="https://customslaw.blogspot.com/2018/08/extinction-biodiverisity-and-court-of.html" target="_blank">here</a>. The <a href="https://www.fisheries.noaa.gov/species/vaquita" target="_blank">vaquita is a small porpoise</a> that is endemic to Mexican waters in the Gulf of California. Unfortunately, its range overlaps with totoaba, which is subject to illegal fishing because the totoaba's swim bladder is prized in China for its apocryphal effectiveness in traditional medicine. As a result of illegal totoaba gill net fishing, there are 10 to 13 vaquitas remaining in the world. Unless there are dramatic changes in the bycatch of vaquita, the vaquita is will likely become extinct.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP7w9FBmxpf05VVMTf8eNvgiC3_YyzRS_LbzriFk8jeiyU3P-rAkwqprnme7p4awgEd4Q1Y987uMRuDhugLm8jDtINa9j9qXv2GRZ9nnDEeO6sv7YXMoNVvJ5gIqmEMvuPhUV8LVUVCWYiHF5YqZs4f7Dh2jV9sPPgAF_tvTCBBKI4TEpXHPFGSQ/s640/640x427-vaquita.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="427" data-original-width="640" height="428" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP7w9FBmxpf05VVMTf8eNvgiC3_YyzRS_LbzriFk8jeiyU3P-rAkwqprnme7p4awgEd4Q1Y987uMRuDhugLm8jDtINa9j9qXv2GRZ9nnDEeO6sv7YXMoNVvJ5gIqmEMvuPhUV8LVUVCWYiHF5YqZs4f7Dh2jV9sPPgAF_tvTCBBKI4TEpXHPFGSQ/w640-h428/640x427-vaquita.png" width="640" /></a></div><br /><p><br /></p><p>The decision is not legally very important because the parties reached a settlement and there was no need for the Court to make important findings of facts or law. The decision is, however, an important report on the perilous status of the vaquitas and on American efforts to pressure Mexico to act. </p><p>This case involved the Pelly Amendment to the Fishermen's Protective Act of 1967 and the Convention on International Trade in Endangered Species of Wild Fauna and Flora ("CITES") as legal levelers the plaintiffs asked the United States employ to protect the vaquita. Under CITES, the vaquita (<i>Phocoena sinus</i>) is an <a href="https://cites.org/eng/app/appendices.php" target="_blank">Appendix I</a> animal, meaning it is among the most threatened of species. The Pelly Amendment requires that the Secretary of the Interior certify to the President that a foreign country is engaging in trade in a manner that diminishes the effectiveness of any "international program for endangered or threatened species. CITES is clearly such a program.</p><p>In 2014, the Center for Biological Diversity sent a letter to the Secretary of the Interior asking that the Secretary make that certification with respect to the vaquita. The Secretary never responded and the plaintiffs filed suit in the Court of International Trade.</p><p>Subsequently, the United States took some actions to pressure Mexico on this issue. For example, the United States raised the issue to the CITES Standing Committee, which then asked Mexico to strengthen its protections. That step and follow-up from the CITES organization prompted Mexico to take additional concrete steps. </p><p>Then, in April of this year, the parties reached an understanding that the Secretary of Interior to complete its review under the Pelly Amendment. The Court stayed the case pending that decision from the Interior Department. On May 18, 2023, the Secretary certified to the President that nationals of Mexico were engaging in taking of or trade in totoaba and the bycatch of the vaquita diminishing the effectiveness of CITES. The President must notify Congress of any action he takes to encourage conservation of the vaquita and the totoaba. So far, no such statement has been made. </p><p>The Court held a short conference on this matter, which was recorded and <a href="https://www.cit.uscourts.gov/sites/cit/files/060723-22-00339-GSK.mp3">available to the public</a>. Counsel for the plaintiffs explained that the settlement should not be understood to indicate that the vaquita is safe. Rather, it means only that this one avenue of legal recourse has been completed. The prior case involving the Marine Mammals Protection Act resulted in an injunction prohibiting the importation of certain products of Mexico. The third legal avenue yet to be completed is under <a href="https://ustr.gov/sites/default/files/files/agreements/usmca/24_Environment.pdf">Chapter 24</a> of the USMCA. The <a href="http://www.cec.org/search/vaquita" target="_blank">Commission for Environmental Cooperation</a> is the tri-lateral bureaucracy that investigates complaints concerning ineffective enforcement of environmental laws in North America. In April 2022, the CEC <a href="http://www.cec.org/media/media-releases/cec-secretariat-recommends-a-factual-record-on-the-vaquita-porpoise-under-usmca-cusma-chapter-24/">recommended </a>the development of a factual record, which should have been submitted to the CEC Council by July 5, 2022. The <a href="http://www.cec.org/submissions/registry-of-submissions/vaquita-porpoise/" target="_blank">public record</a> ends there, and it is unclear whether the factual record was submitted. </p><p>Closing its decision, the Court reiterated its prior statement that "every death [of the vaquita] brings it perilously close to disappearing from the planet forever . . . [T]he need for vigorous international enforcement against its continuing threat is a compelling one. . . The panda of the sea, the little cow, is irreplaceable." </p><p>The NRDC has a good <a href="https://www.nrdc.org/court-battles/vaquita-lawsuits" target="_blank">summary of the litigation</a> over vaquita conservation here. You can also contribute to the NRDC from that page to support its work. </p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-83732378708404237692023-06-15T20:02:00.000-05:002023-06-15T20:02:06.304-05:00A Bowl of “Other”<p>Tariff classification can sometimes produce surprising
results. Such is the case with <a href="https://www.cit.uscourts.gov/sites/cit/files/23-82.pdf">Nature’s Touch Frozen Foods v. United States</a>, a
recent decision of the U.S. Court of International Trade. The seemingly simple
issue was the correct classification in the Harmonized Tariff Schedule of the
United States of mixtures of frozen fruit and of frozen fruit with vegetables.
The competing headings are, in relevant part, 0811 “Fruit and nuts . . .
frozen” and 2106 “Food preparations not elsewhere specified or included.”</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">Nature’s
Touch argued for classification in 2106 on the grounds that the Heading 0811
does not encompass mixtures of fruits or of fruits and vegetables. <span style="text-indent: 0in;">Heading 0813, for example, covers "Fruit, dried, other than that of headings 0801 to 0806; </span><b style="text-indent: 0in;">mixtures </b><span style="text-indent: 0in;">of nuts or dried fruits of this chapter." There is no similar indication in 0811. Moreover, plaintiff noted that the subheadings in 0811 also do not mention mixtures; they identify only individual fruits including "Strawberries" and "Raspberries, blackberries, mulberries, loganberries, black, white or red currants and gooseberries (other than kiwi fruit)." </span></p><p class="MsoNormal" style="text-indent: 0in;"><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiR9JsGSbG8zaiOQerity1lXXnTZv_wQzji48wuJ6-GsmO61B6zQ2ux5FYFe5m_kvepO7uWhgeH6hI7cXPKEdzlIoEbuhdR3Ro5pvbgYmdUHyi8dtmeN4JCF1e0uEOttTKN64HDSe45XM2wbVHqVDehV2bpTki8P-n5MMeRLnd6sm8JMTSO-VU/s3499/adel-grober-LHLPeIGVUBw-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="3499" data-original-width="2333" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiR9JsGSbG8zaiOQerity1lXXnTZv_wQzji48wuJ6-GsmO61B6zQ2ux5FYFe5m_kvepO7uWhgeH6hI7cXPKEdzlIoEbuhdR3Ro5pvbgYmdUHyi8dtmeN4JCF1e0uEOttTKN64HDSe45XM2wbVHqVDehV2bpTki8P-n5MMeRLnd6sm8JMTSO-VU/w266-h400/adel-grober-LHLPeIGVUBw-unsplash.jpg" width="266" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@ninszi?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Adél Grőber</a> on <a href="https://unsplash.com/photos/LHLPeIGVUBw?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><span style="text-indent: 0in;"><br /></span></p><p class="MsoNormal" style="text-indent: 0in;">Because the fruits were cut, frozen, and combined into the mixtures prior to importation, there is a reasonable basis to conclude as a matter of normal English usage that the merchandise, which is clearly “food,” had been prepared and is, therefore, described by Heading 2016.</p>
<p class="MsoNormal" style="text-indent: 0in;">The
Government, after some wavering, settled on the argument that the fruit mixtures are classified in Heading 0811 and that the subheading should be determined from the classification of the included fruits with the correct classification being the individual tariff item that is last in numerical order. That is an application of General Rule of Interpretation 3(c). <o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">Comparing only the possible headings, as is proper, the Court recognized that if the fruit mixtures are classifiable in heading 0811, they cannot be classified in 2106, which applies only to food preparations "not elsewhere specified or included." <span style="text-indent: 0in;">Regarding
the merchandise that consists entirely of fruit (without any vegetables in
the mix), the Court held that “fruit” is a commonly understood to refer to
individual fruits (e.g., a bushel of apples is "fruit") as well as to combinations of
different fruits (e.g., “a bowl of fruit”). As a result, the language of Heading 0811 ("[f]ruit . . . frozen") does not excluded mixtures. </span></p><p class="MsoNormal" style="text-indent: 0in;"><span style="text-indent: 0in;">Turning to the mixtures of fruits and vegetables, the analysis was somewhat more complex because "fruit . . . frozen" does not fully describe the merchandise. Moreover, the Court concluded that the presence of vegetables in the mixtures was sufficient to change the commercial identity of the fruit. The Court noted that the vegetables were highlighted on the packaging. As a result, the Court concluded it could not classify the fruit and vegetable mixtures as fruit using only GRI 1 and it turned to Heading 2106.</span></p><p class="MsoNormal" style="text-indent: 0in;"><span style="text-indent: 0in;">To fit under Heading 2106, the mixtures need to be "food preparations." While there was no debating that the fruit and vegetable mixtures are "food," that was not true of "preparations." Looking at prior case law and the Explanatory Notes, the Court found that "preparation" requires that the material be processed in a way that makes it appropriate for a specific application. That means the fruit and vegetables must undergo processing beyond what is inherent in their nature as food and beyond mixing fresh ingredients. The Explanatory Notes exclude from "preparations" fruit and nut mixtures that can be consumed independently, which the Court deemed as similar to the frozen mixtures at issue. That was sufficient to exclude the merchandise from Heading 2106. </span></p><p class="MsoNormal" style="text-indent: 0in;"><span style="text-indent: 0in;">Because GRI 1 did not settle the question, the Court had to apply the next GRI, in order. Most relevant is GRI 3(b), which requires that:</span></p><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left; text-indent: 0in;"><b>Mixtures</b>, composite goods consisting of different materials or made up of different components, and goods put up in sets for
retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component
which gives them their essential character, insofar as this criterion is applicable.</p></blockquote><p class="MsoNormal" style="text-indent: 0in;">Heading 0811 was still in play. Heading 2106 had been eliminated because the mixtures are not "preparations." The Court, however, identified Heading 0710 as the next contender. That heading covers frozen vegetables. As between those two possibilities, the Court found the fruit to predominate in the mixtures and to impart the essential character. That means the correct heading is 0811.</p><p class="MsoNormal" style="text-indent: 0in;"><span style="text-indent: 0in;">Usually, getting to the heading level is the hard part and arriving at the subheading is a matter of being able to read down the page. Such is not the case here.</span></p><p class="MsoNormal" style="text-indent: 0in;"><span style="text-indent: 0in;">The problem for everyone is that "mixtures" do not appear in any of the subheadings of 0811. Instead, the heading contains a series of individual fruits (and nuts), followed by the residual item "other" at 0811.90.80. The plaintiff and the government argued that the structure of the heading indicates that it is not intended to include mixtures in any subheading. As a result, the subheading should be determined by applying GRI 3(c) which states: </span></p><blockquote style="border: none; margin: 0 0 0 40px; padding: 0px;"><p class="MsoNormal" style="text-align: left; text-indent: 0in;">When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in
numerical order among those which equally merit consideration. </p></blockquote><p>Under this approach, the components of each mixture would be classified and the combination classified based on the component that appears last in numerical order. Thus, a mixture of strawberries of 0811.10 (11.2%) and bananas of 0811.90.10 (3.4%), would be classified as bananas. This theory presents an opportunity for tariff engineering your imported fruit salads, which should always include duty-free blueberries.</p><p class="MsoNormal" style="text-indent: 0in;">The Court disagreed. First, it noted that many of the tariff items in 0811 cover more than one fruit. For example, 0811.20.20 covers "Raspberries, loganberries, black currants <b>and </b>gooseberries (other than kiwi fruit)." It seems to have been non-controversial that a mixture of all of these fruits would be classified in 0811.20.20. That implies that the tariff items are sufficiently broad to cover mixtures of different fruits. </p><p class="MsoNormal" style="text-indent: 0in;">Personally, that seems to be putting a lot of weight on the "and" in the list. To me, without the benefit of either research or a client in this fight, it seems that i<span style="text-indent: 0in;">f it is true that 0811.20.20 covers combinations of the fruits listed there, the consistent reading of the "and" would be that the item covers <b>only </b>combinations of all those fruits and not a subset of the listed fruits. But we know that is not how the HTSUS works. As a counter example, the subheading under Heading 4202 covers "Trunks, suitcases, vanity cases, attaché cases, briefcases, school satchels </span><b style="text-indent: 0in;">and </b><span style="text-indent: 0in;">similar containers." That subheading covers the individual items without regard to combinations. There is, I guess, no reason subheadings in 0811 might not cover both for mixtures and the individual listed items.</span></p><p class="MsoNormal" style="text-indent: 0in;">Once it is determined that the tariff items in Heading 0811 encompass mixtures, the question remains what to do with the particular mixtures at issue. On this issue, the Court found that the residual "other" at the end of the heading was sufficiently broad to cover mixtures of multiple fruits or fruits and vegetables. This means that while strawberries are classified in 0811.10.00 and raspberries in 0811.20.20, mixtures of the two are classified in 0811.90.80. The Court held that result followed from GRI 1 (per GRI 6, as applied at the subheading level). As a result, it did not need to find the essential character of the mixture for purposes of GRI 3(b) nor did it have to rely on the last HTSUS item in numerical order under GRI 3(c).</p><p class="MsoNormal" style="text-indent: 0in;">A couple things are worth noting, though neither observation is technically relevant for classification purposes. <b>Never classify by rates</b>. But this result means that mixtures of fruits that are not all classifiable in a single subheading of 0811 are going to bear the highest rate of duty (14.5%) applicable to goods of that heading. There is, in effect, a tariff penalty for importing mixtures. That is likely to be a surprise to the industry, which now needs to figure out how to go forward. Assuming this decision becomes final, it might pay to shift mixing and packaging to the U.S. or file protests to mount a new challenge. Interestingly, this is not the position the government advocated.</p><p class="MsoNormal" style="text-indent: 0in;"><span style="text-indent: 0in;">Finally, I know that we should only compare tariff provisions of the same level and that the statistical suffixes are not legal text for classification purposes (as the Court noted at footnote 11). Nevertheless, it is curious that the International Trade Commission felt comfortable placing "</span>Frozen mixes only of combinations of strawberries, blueberries, red raspberries or blackberries" as a breakout under 0811.90.8085. That seems to indicate that 0811.90.80 is where mixtures go, even though it is not appropriate to consider that.</p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-51398382990638231172023-05-24T09:04:00.007-05:002023-05-24T14:56:31.578-05:00Broker Exam Challenge<p>Judicial challenges to the grading of the customs brokers license exam are not very common, but they happen. Usually, I have not been super supportive of the plaintiffs. See my maybe too <a href="https://customslaw.blogspot.com/2006/08/broker-exam-tips.html" target="_blank">mean-spirited post </a>from 2006. On the other hand, I have gained a lot of respect for Mr. Byungmin Chae, who has been fighting with Customs over his score since taking the April 2018 exam.</p><p>As background, broker license applicants who fail to pass the 80-question CBLE with a score of 75% or more may ask Customs to reconsider the grading on questions for which applicants believe they should have received credit. <a href="https://www.ecfr.gov/current/title-19/chapter-I/part-111/subpart-B/section-111.13" target="_blank">19 CFR § 111.13(f)</a>. If Customs does not change the grade, applicant may seek further review by the Executive Director of the Office of Trade. Any applicant that is not satisfied with the results of that review may sue the United States and ask the Court of International Trade to review the exam scoring. </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhS6CGhGSXR6Yjnnfneh4qaJ28ablxD2cZMnireh4JOChDWoewbKTF-A3aXX10Q72omGVUDeUqHgap2Pc-HVl5t52RO-okopj2rNEP9wQKvv0qcFMh2h1asf0i80wUQgnyQwCKri8cWHiTGlDSOZ9ZGXzh7fEc_IRBr0KTqlBsQv5i-cI3xoXo/s12000/museums-victoria-n1LIveUPls4-unsplash.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="8888" data-original-width="12000" height="296" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhS6CGhGSXR6Yjnnfneh4qaJ28ablxD2cZMnireh4JOChDWoewbKTF-A3aXX10Q72omGVUDeUqHgap2Pc-HVl5t52RO-okopj2rNEP9wQKvv0qcFMh2h1asf0i80wUQgnyQwCKri8cWHiTGlDSOZ9ZGXzh7fEc_IRBr0KTqlBsQv5i-cI3xoXo/w400-h296/museums-victoria-n1LIveUPls4-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/es/@museumsvictoria?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Museums Victoria</a> on <a href="https://unsplash.com/photos/n1LIveUPls4?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p>Mr. Chae missed passing the exam by eight questions, which is not bad given that the pass rate on this exam is suspiciously low. The un-appealed <a href="https://www.cbp.gov/trade/programs-administration/customs-brokers" target="_blank">results for the April 2023 exam </a>show a 5.5% pass rate. That, in and of itself, is problematic and calls into question the validity of the test design. </p><p>In his first-level administrative appeal, Mr. Chae earned credit for two additional correct answers. On further review, Customs awarded him three additional correct answers. Think about what that means. We have to assume Customs' thinks that its test questions are unambiguous and that there is one clearly most correct answer. Despite that, this applicant demonstrated to Customs satisfaction that five of its questions were ambiguous enough to allow there to be at least one additional "most correct" answer. After that process, he was still down two correct answers to pass.</p><p>In Court, he had to first get past a jurisdictional hurdle that I covered in <a href="https://customslaw.blogspot.com/2021/05/writ-of-rachmones.html" target="_blank">this 2021 post</a>. After the first round of judicial review, he received one additional correct answer.</p><p>That left Mr. Chae to appeal to the U.S. Court of Appeals for the Federal Circuit, in which he sought review of three questions. If he were to receive credit on two, he would earn his broker's license. <b>Mr. Chae was not represented by counsel in his appeal. </b></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><p><b>Question 5</b></p><p>Which of the following customs transactions is <u style="font-weight: bold;">NOT</u> required to be performed by a licensed customs broker?</p></blockquote><p>The answer Customs expected is "Transportation in bond." The answer Mr. Chae selected was "Foreign Trade Zone Entry."</p><p>Customs argued in support of its answer by citing <a href="https://www.ecfr.gov/current/title-19/chapter-I/part-111#111.2" target="_blank">19 CFR §111.2(a)(1)</a>, which states that a license is not required for listed transactions including "Transportation in bond." Note, however, that the same section exempts "Foreign trade zone activities." Mr. Chae argued that a reasonable reading of his selected answer would be that it refers to the admission of merchandise into a zone, which is activity apparently with in the zone activities exception. Customs position is that Mr. Chae's selected answer refers to the transaction of <b>entering </b>merchandise into the commerce of the United States <b>from </b>a foreign trade zone. The Court of Appeals agreed with Mr. Chae that the question was ambiguous as to whether it referred to entry into or entry from as zone. That earned him one additional point and made him just one point short.</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><b>Question 27</b></p></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">Which of the following mail articles are not subject to examination or inspection by Customs?</p></blockquote><p>The answer Customs designated as correct is "Diplomatic pouches bearing the official seal of France and certified as only containing documents." Mr. Chae selected the answer "Mail packages addressed to officials of the U.S. Government containing merchandise." The correct answer can be derived from <a href="https://www.law.cornell.edu/cfr/text/19/145.37" target="_blank">19 CFR §§ 145.37</a> and <a href="https://www.law.cornell.edu/cfr/text/19/145.38" target="_blank">145.38</a>. The firsts section specifies the treatment of articles imported for the U.S. government. Subsection (c) of that regulation states:</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">(c) Official Government documents. Other mail articles addressed to offices or officials of the U.S. Government, believed to contain only official documents, shall be passed free of duty without issuing an entry. Such mail articles, when believed to contain merchandise, shall be treated in the same manner as other mail articles of merchandise so addressed.</p></blockquote><p>On its face, the last sentence in the regulation seems to require that mail addressed to the U.S. Government be subject to normal entry procedures, including examination or inspection, when believed to contain merchandise. Mr. Chae pointed out, however, that nothing in the question indicates that the origin of the shipment is outside the United States. Because Customs has no authority to inspect domestic mail, he reasoned, this is an equally correct answer. </p><p>Given the context that this was a CBLE, although the Court did not explicitly say so, it appears to have accepted that it was unreasonable to presume the fact that the mail may be of domestic origin. Second, the regulation requires that government mail containing merchandise is subject to inspection. Thus, the Court did not award additional credit.</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;"><b>Question 33</b></p></blockquote><p>Mr. Chae's final hope is a classification question involving "current-production wall art" mechanically printed on paper. Mr. Chae's answer was in Heading 9702, covering "Original engravings, prints and lithographs." The remaining answers are all in Heading 4911, which covers "Other printed matter, including printed pictures and photographs." The problem with classifying this merchandise in Chapter 97 is Chapter Note 3, which reads:</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">For the purposes of heading 9702, the expression "original engravings, prints and lithographs" means impressions produced directly, in black and white or in color, of one or of several plates wholly executed by hand by the artist, irrespective of the process or of the material employed by him, but not including any mechanical or photomechanical process.</p></blockquote><p>This explicitly removes mechanically-printed lithographs. That leaves some debate about the correct subheading to choose among the remaining options, but Mr. Chae was out of luck on this one.</p><p>Although he did not receive sufficient credit to earn a passing grade, Mr. Chae, who (again) had no lawyer for his appeal, did an admirable job of making his case.</p><p>Here's hoping he has taken or will take the exam again. Good luck to him.</p><p><br /></p><p><br /></p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-6904795002861584592023-05-04T09:44:00.001-05:002023-05-04T09:44:23.320-05:00Limitations Periods for Penalties<p>In <a href="https://www.cit.uscourts.gov/sites/cit/files/23-44.pdf" target="_blank">United States v. Zhe "John" Liu</a>, the defendant was accused of a running a scheme to avoid antidumping duties on wire hangers from China by transshipping them through other countries and incorrectly stating the country of origin. The government is seeking to impose a penalty of just under $1 million, which is the domestic value of the merchandise. The defendant moved to dismiss the complaint arguing that it is barred by the statute of limitation and that Mr. Liu is not a proper defendant because he did not import the goods.</p><p>Let's pause for a moment. First, the fact that this penalty is the domestic value of the merchandise may seem odd. It is not. The complaint asserts that the violation occurred as a result of negligence. Under <a href="https://www.law.cornell.edu/uscode/text/19/1592" target="_blank">19 USC 1592</a>, the penalty for negligence is usually up to twice the loss of revenue, which will usually be much less than the entered value of the merchandise. However, the statute says that when the violation results from negligence, the penalty can be the lesser of the <b>domestic value</b> or two times the loss of revenue. In this case, the antidumping duty rate was approximately 186%. According to the Court, the loss of revenue was $556,808. Two times that would exceed the value of the merchandise, which is why the penalty is based on the domestic value rather than the loss of revenue. </p><p>It is also a warning to importers of goods subject to antidumping duties. If things go bad, they can go seriously bad, but not worse than the domestic value of the goods (assuming a civil matter and negligence).</p><p>Second, note that the penalty is not based on the entered value; it is domestic value. There is a difference. Importers mays assume CBP has made an error when the penalty claim exceeds the entered value. "Domestic value" is not defined in the statute. <a href="https://www.cit.uscourts.gov/sites/cit/files/12-15.pdf" target="_blank">Court cases</a> have determined that it means the retail value of the merchandise or "the price at which the merchandise or similar merchandise was freely offered for sale in the ordinary course of trade." That is very likely to be the entered value plus duties, taxes, and fees, plus costs incurred in the U.S., plus a profit. </p><p>Back to the actual issue in this case.</p><p>The statute of limitations in a negligence case is five-years from the date of the alleged violation. <a href="https://www.law.cornell.edu/uscode/text/19/1621" target="_blank">19 USC 1621</a>. The complaint asserts that the violations occurred on entry. In an effort to show that the United States was too late to assert the claim, defendant argued that the negligence occurred before the first entry, when it "allegedly" cause or caused to be formed the company that imported the goods. The Court shut this down. According to the Court, the violation occurs when the merchandise enters the customs territory of the United States. That makes sense in that one might set up all of the legal entities necessary to negligently import merchandise and never get around to making an entry. To hold the government to a statute of limitation that starts to run before the entry or other document containing the material false statement or omission does not make sense. It is like holding someone liable for "prenegligence" in a civil version of <a href="https://www.imdb.com/title/tt0181689/">Minority Report</a>. </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitNwhJOLq4VEvb4zfDqQyWQHdbf0XCXX0hEiv_0HduoThoGbyDCQv0dHVoAlgxv16ipCAAaHzC37QWML42Dwox3G4XXfoYQxV-lc_Dsh8RSLzSldtPKql0O0QKhqg499OofnVXdvPU-G0Q5B2nqE6LGtIwXEePkQsraGjHZaJA-5FCAakULHM/s4032/hadija-9cgMKmZyhH0-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="2268" data-original-width="4032" height="225" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitNwhJOLq4VEvb4zfDqQyWQHdbf0XCXX0hEiv_0HduoThoGbyDCQv0dHVoAlgxv16ipCAAaHzC37QWML42Dwox3G4XXfoYQxV-lc_Dsh8RSLzSldtPKql0O0QKhqg499OofnVXdvPU-G0Q5B2nqE6LGtIwXEePkQsraGjHZaJA-5FCAakULHM/w400-h225/hadija-9cgMKmZyhH0-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@hadijasaidi?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Hadija</a> on <a href="https://unsplash.com/photos/9cgMKmZyhH0?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><p><br /></p><p>The complaint also asserts a penalty based on Mr. Liu aiding and abetting a violation by others. Raising a similar argument, Liu claims that any behavior that constitutes aiding or abetting would have occurred prior to entry. The problem for this argument is that to be liable, one must "aid or abet" a violation and the violation does not occur until the entry. "Ergo, the statute of limitations for aiding and abetting violations of § 1592(a)(1)(B) due to negligence begins to run on the date of entry."</p><p>Finally, Liu argued that he should not be subject to a penalty because he was not the importer. This is a non-starter in the world after <a href="https://scholar.google.com/scholar?scidkt=889409424968139320&as_sdt=2&hl=en" target="_blank">Trek Leather</a>. On its face, section 1592 applies to any person who violates the statute. That applies to corporate officers of the importer and other individuals who were somehow involved in the importation that relied on a material false statement or omission. In this case, the complaint alleged facts indicating that Liu controlled and directed the operations the importer. That is sufficient to allow the claim to go forward. </p><p>The Court denied Liu's motion to dismiss. </p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-51549294799178866322023-04-10T09:37:00.004-05:002023-04-10T09:37:44.746-05:00Interest and Disclosures<p>The Court of International Trade decision in <a href="https://www.cit.uscourts.gov/sites/cit/files/23-43.pdf" target="_blank">Otter Products, LLC</a> addresses a novel question about how loss of revenue is calculated in the context of a prior disclosure. Grab a snack, this is complicated. </p><p>First, for anyone who needs a reminder: An importer that makes a material false statement or omission in connection with the entry of merchandise as a result of negligence, gross negligence, or fraud has violated <a href="https://www.law.cornell.edu/uscode/text/19/1592" target="_blank">19 U.S.C. 1592</a> and is, therefore, susceptible to penalties. Penalties can be severe, up to two times any unpaid duties when the violation results from negligence and four times the unpaid duties when the violation results from gross negligence. Plus, the importer must pay the duties. In the case of fraud, the penalty is up to the domestic value of the merchandise, which is the entered value plus duties and other adjustments to try to get an approximate retail value in the United States. Given that the statute of limitations is five years, this can add up very quickly. Oddly, the penalties for negligence and gross negligence can be even higher if the violation did not result in a loss of revenue, but that is a quirk of the math that is best considered a technical possibility. </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd1rxpq8Dr-MYKB3-EBzPoEOwQZ9gGOxOuDYFdj6RB0oJImIo4wHeY6w_BJedOveQjwh_zYLzN0q8rC5d-JV2zGveXLdvDh0N3DUW7kQ1IXZs9xZeohDU9G627QmQwpyBdRzKkOCZXkgFppXmxFf22RTwjirjAp9KlxRRrVVB3ueLUXVNJj1E/s6000/lilian-dibbern-dqhRSGrFq-o-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4000" data-original-width="6000" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhd1rxpq8Dr-MYKB3-EBzPoEOwQZ9gGOxOuDYFdj6RB0oJImIo4wHeY6w_BJedOveQjwh_zYLzN0q8rC5d-JV2zGveXLdvDh0N3DUW7kQ1IXZs9xZeohDU9G627QmQwpyBdRzKkOCZXkgFppXmxFf22RTwjirjAp9KlxRRrVVB3ueLUXVNJj1E/w400-h266/lilian-dibbern-dqhRSGrFq-o-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/pt-br/@lilianovich?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Lilian Dibbern</a> on <a href="https://unsplash.com/photos/dqhRSGrFq-o?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p>An importer (or other person) that discovers a violation has the option to limit its potential liability by filing a "prior disclosure" with Customs and Border Protection. When there is a successful prior disclosure, the importer must tender any unpaid duties and the maximum the interest owed on the duties. This can be a very significant reduction in risk. Consequently, disclosures are fairly routine. And yet, they can be messy. </p><p>Otter had two overlapping customs issues to address in the 2010's. First, it discovered that it had failed to declare <a href="https://customslaw.blogspot.com/2005/05/valuation-part-1-transaction-value.html">assists</a> as part of the value of certain imports. That omission affected the value Otter reported and the collection of duty, making it a material omission. There was also an issue regarding the classification of the merchandise products. The duty difference in the classification was from 5.3% as entered to 20% as far as CBP was concerned. That is also material. The classification dispute also sparked litigation. Eventually, the <a href="https://customslaw.blogspot.com/2016/08/breaking-news-otter-products-is-still.html" target="_blank">Federal Circuit resolved the matter</a> in favor of Otter. That means Otter actually overpaid duties when it disclosed what was initially believed to an underpayment due to the classification when, in reality, Otter had been correct, and the disclosure resulted in an overpayment. </p><p>After the Court decision confirmed the correct classification, Customs closed out the disclosures. As part of that process, Customs refunded the overpayments to Otter. The refund did not include interest, which is the issue before the Court in this case.</p><p>Before we get to the decision, we should look at the refunds themselves. Historically, a prior disclosure had been seen as a voluntary act by the disclosing party and, therefore, not subject to protests as a "charge or exaction" or a decision of Customs. In a case called <a href="https://scholar.google.com/scholar?scidkt=3628408013969815419&as_sdt=2&hl=en" target="_blank">Carlingswitch</a>, the importer made a voluntary disclosure and tendered duties to Customs. Later, it was determined that the importer owed much more money. After that, the whole thing fell apart when someone noticed that the statute of limitations had passed, and Customs had no means to force the importer to pay. At that point, Carlingswitch sued to get its tender back. The Court of International Trade and the Court of Appeals both held that the voluntary tender of duties and potential penalties (presumably the interest), was not a charge or exaction giving rise to a right to a protestable decision. That appeared to make getting a refund of truly voluntary tenders impossible. If Customs makes a demand for payment, the situation is different and there may be a protestable event (see <a href="https://scholar.google.com/scholar_case?case=2494053225552966737&q=brother+charge+exaction&hl=en&as_sdt=4,131,190" target="_blank">Brother Int'l Corp</a>.)</p><p>After that, lawyers and importers adopted two strategies. Sometimes, they refuse to tender any money until the disclosure is complete and Customs confirms the amount due in writing to the disclosing party. This is permitted under the regulations. The downside to this approach is that interest keeps running and if the disclosure takes a long time (as they can do), it adds up. It also does not include a mechanism for contesting the amount owed.</p><p>The second approach is to make the tender early and request that it be deposited into a "suspense account," meaning it was held in accounting limbo until the disclosure was complete. That mechanism also allows Customs to refund the money. But it was not a regulatory process and, therefore, potentially subject to CBP discretion. That process also lacks a means of contesting the loss of revenue calculation (which sets the penalty caps).</p><p>Then in 1993, Congress passed The North American Free Trade Agreement Implementation Act, which included The Customs Modernization Act. The "Mod Act" made changes to the penalty statute that required amendments to the corresponding regulations. On September 26, 1996, Customs <a href="https://www.govinfo.gov/content/pkg/FR-1996-09-26/pdf/96-24657.pdf" target="_blank">proposed amending</a> the regulations relating to prior disclosures. As proposed, the section on tender read as follows:</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">(c) Tender of Actual Loss of Revenue. A person who discloses the circumstances of the violation shall tender any actual loss of revenue either at the time of disclosure or within 30 days after a Customs officer notifies the person in writing of the calculation of the actual loss of revenue. The Fines, Penalties & Forfeitures Officer may extend the 30 day period if it is determined there is good cause to do so. Failure to tender the actual loss of revenue finally calculated by Customs shall result in denial of the prior disclosure benefits.</p></blockquote><p>Note that there is no reference in that proposed regulation to challenging the loss of revenue calculation. In the <a href="https://www.federalregister.gov/documents/1998/05/28/98-14154/prior-disclosure" target="_blank">Notice and Comment</a> phase, someone suggested that the proposal be amended to include a requirement that Customs refund any portion of the tender found to be in excess of the actual loss of revenue. Other comments suggested that the proposal be amended to provide a means of challenging or protesting Customs' calculation of the loss of revenue. </p><p>Customs agreed that there should be a mechanism to resolve a "legitimate dispute" between Customs and the disclosing party regarding the loss of revenue. As a result, Customs amended the proposal and published the current <a href="https://www.law.cornell.edu/cfr/text/19/162.74" target="_blank">19 CFR 162.74(c)</a>. Under that regulation, Headquarters review of the loss of revenue is allowed in limited circumstances and with significant strings attached. The disclosing party can seek HQ review of the loss of revenue where:</p><p></p><ol style="text-align: left;"><li>The claimed loss exceeds $100,000</li><li>The disclosing party tenders the claimed loss of revenue</li><li>Greater than one year remains on the statute of limitations</li><li>HQ review is limited to the basis for the loss of revenue calculation </li></ol><div>If those circumstances apply, Customs Headquarters may review the calculation. If it finds there was an overpayment, Customs will refund the excess paid. However, the regulation also states that "Such Headquarters review decisions are final <b>and not subject to appeal</b>. Further, disclosing parties requesting and obtaining such a review <b>waive their right to contest either administratively or judicially the actual loss of duties</b>, taxes and fees or actual loss of revenue finally calculated by CBP under this procedure."</div><div><br /></div><div>This raises a lot of question about whether it ever makes sense to contest the amount of the calculation administratively. If the importer does and Customs does not reduce the calculation, Customs may say that the importer has exhausted its rights to appeal; essentially, setting the loss of revenue calculation in stone (as far as Customs is concerned). Under <i>Carlingswitch</i>, the tendered amount might still be considered voluntary and not protestable. On the other hand, if the importer tendered as a means of qualifying for administrative review or following a demand from Customs, it might be protestable. Either way, it seems reasonable to assume Customs might cite the regulation in an effort to foreclose protests as an administrative challenge to the calculation. </div><div><br /></div><div>Any effort to seek judicial review would also run counter to this regulation. But it looks to me to be a stretch for a customs regulation to foreclose judicial review. On its face, it seems to violate the principle of separation of powers. An administrative agency cannot tell a federal court what it can and cannot decide. More specifically, no agency regulation can change the statutory jurisdiction of the Court of International Trade. Thus, this regulation seems to be there to discourage judicial because it creates an apparent obstacle that disclosing parties might want to avoid. As a result, the better practice may still be to withhold payment until the amount is resolved or to request that the tender be deposited into a suspense account to facilitate refunds of overpayments. </div><p></p><p>With that background, what is happening in the Otter decision?</p><p>While the classification litigation was happening, CBP held Otter's disclosures in abeyance. After the litigation was complete, Customs closed out the disclosures and refunded the overpayments. That refund caused the extended background discussion above. I assume the refund was granted because CBP had not acted on the disclosures so there was no final determination of the amount owed to be challenged and, therefore, no alleged waiver of and rights to judicial review. </p><p>All of that explains, I hope, how Otter got a refund of its voluntary tender. What Otter did not get was interest on the refund and that is what this case is about.</p><p>Since this case does not concern a denied valid protest, the plaintiff brought the case to the Court on its residual jurisdiction under <a href="https://www.law.cornell.edu/uscode/text/28/1581" target="_blank">28 USC 1581(i)</a>. While subsection (i) gives the CIT exclusive jurisdiction over final agency actions relating to customs duties, taxes, and fees collected on imports (and other matters), it does not create a cause of action. To successfully bring a case, the plaintiff has to assert a cause of action for which the United States has agreed to be sued, that is, a waiver of sovereign immunity. In (i) cases, the waiver is usually the Administrative Procedure Act, which waives sovereign immunity where a final agency action has adversely affected or aggrieved the plaintiff. </p><p>On the other hand, there is a "no-interest rule," which precludes suits for interest against government agencies in the absence of a specific waiver of sovereign immunity. The Court noted that a waiver with respect to interest exists, for example, with respect to reliquidation to refund overpaid duties. <a href="https://www.law.cornell.edu/uscode/text/19/1505" target="_blank">19 USC 1505(c).</a> The Court then examined the law relating to prior disclosures and found that a disclosure does not result in a reliquidation. Given the lack of reliquidation and the failure of Congress to include a mechanism for including interest in the judgment in the context of an APA challenge to the calculation of the loss of revenue in a disclosure, the Court could find no waiver of sovereign immunity. As a result, it dismissed the case for lack of subject matter jurisdiction. </p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-74953340243938812152023-04-01T16:01:00.005-05:002023-04-03T10:06:00.684-05:00Value Allowances for Defects<p> If you are bothering to read this blog, you likely know that most goods entering the United States are appraised on the basis of transaction value, which is the total price paid or payable for the merchandise when sold for export to the United States. For most transactions, that means the invoice price. But, the invoice price is usually based on some underlying assumptions about the nature of the goods. For example, if I order 1000 buckets for $250, I am doing so with the expectation that the buckets will actually hold water without leaking. When I enter the buckets, I will declare $250 as transaction value because, at that point, I still think the buckets will not leak. Customs will assess duty on the buckets using $250 as the value. In the ordinary course, that is how things should work.</p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmObeWbrdAsq8dj0PmDbNNWwWpD0MB182R7HnQzISHqnicVUfKgym1DgQb8QX5QxqQzu6aMw7u3C7ONAX6PJnsUZTsx1sv_m9qVmgmjKkTyVSopedd_eAl08A9TcGGvy5sKw7k7ZN2kVako2UyUa6oDv6Cr7pCsFMwgIppc7NuRUXU0LgiywU/s942/1_Bzn5z1KiCY2av4VWADJ9Lg.webp" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="498" data-original-width="942" height="211" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhmObeWbrdAsq8dj0PmDbNNWwWpD0MB182R7HnQzISHqnicVUfKgym1DgQb8QX5QxqQzu6aMw7u3C7ONAX6PJnsUZTsx1sv_m9qVmgmjKkTyVSopedd_eAl08A9TcGGvy5sKw7k7ZN2kVako2UyUa6oDv6Cr7pCsFMwgIppc7NuRUXU0LgiywU/w400-h211/1_Bzn5z1KiCY2av4VWADJ9Lg.webp" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Creative Commons License</td></tr></tbody></table><br /><p>Every now and then, things go haywire; and the buckets leak. Now what?</p><p>The customs regulations provide an opportunity to secure a refund of the excess duties paid on the full value as compared to the duties that would be owed on the leaky buckets. That opportunity is set out in <a href="https://www.ecfr.gov/current/title-19/chapter-I/part-158/subpart-B/section-158.12" target="_blank">19 CFR 158.12(a)</a> as an "Allowance in Value." The Court of International Trade is dealing with a claimed allowance in <a href="https://www.cit.uscourts.gov/sites/cit/files/23-36.pdf" target="_blank">BRAL Corporation v. United States</a>, in which the Court has recently denied a motion for summary judgment.</p><p>The issue in the case is the value of plywood from China. After importation and after it was used to make rolling doors and doors panels for delivery vehicles, the plywood started to delaminate. It was determined that the delamination occurred as a result of a subcontractor substituting inferior glue in the manufacturing process. This caused the U.S. door seller to get complaints and warranty claims from customers. As a result, BRAL, the importer, protested the liquidations and sought a value allowance and a corresponding refund of excess duties. Customs denied protest, leading to the litigation. </p><p>In court, as is often the case, both parties moved for summary judgment. That means the parties believe there are no material facts in dispute and that the judge has the information necessary to apply the law and make a decision. The facts, however, were not that clear.</p><p>An importer seeking a value allowance has to prove three things. </p><p></p><ol style="text-align: left;"><li>The existence of a contract for defect-free merchandise;</li><li>That the defect existed in the subject entries; and</li><li>The difference in value as a result of the defect.</li></ol><div>On the first point, there was no written contract between the buyer and seller that specified the merchandise should be free of defects. There was, however, a period of time in which the buyer evaluated a number of samples to determine whether the plywood was appropriate for the intended use. BRAL argued that the testing and evaluation of samples shows its desire for defect-free plywood that was suitable for its intended use. The Court did not agree. Rather, it found that the lack of a written contract creates a question of fact as to the terms of the agreement between the parties. </div><div><br /></div><div>This is a really good example of why commercial agreements sometimes contain a crazy level of detail for things that seem obvious. Lawyers who draft and review international purcahse agreements should right now be checking that all of their agreements contain language stating that "Merchandise shall be delivered free of defects, including latent defects, and suitable to its intended use." Or something similar. I took Contracts a very long time ago and that is not my area of expertise.</div><div><br /></div><div>On the second point, plaintiff did not provide evidence showing that the defects were present in the protested entries. Plaintiff's position was that all of the merchandise after the date of the changed glue was defective and, therefore, could be linked to the subject entries. There is support for that in a prior case called <a href="https://www.leagle.com/decision/20011572237f3d133511423" target="_blank">Fabil</a> in which the Court of Appeals held it was not necessary to show that the defect was present in specific entries where it was established that the defect as present in all entries. In this case, the parties did not agree that all of the plywood was defective. The United States pointed to entries that were not the subject of claims for allowances as evidence that perhaps not all entries contained defective merchandise. That created another material fact in dispute.</div><div><br /></div><div>On the third point, the plaintiff introduced evidence to show that the plywood as improted should be valued as salvage at 18% of its original value. This value seems to be based on a statement from a domestic lumber supplier to BRAL's U.S. customer, who made the roll up doors and door panels. But, the relevant deposition testimony contained potentially conflicting information. As a result, there is an additional question of fact to be resolved.</div><div><br /></div><div>Given the presence of questions of fact, the Court found this is not ripe for resolution via summary judgment. The Court denied both motions and ordered the partiers to prepare for trial. </div><div><br /></div><div>The upshot of this is that claims for allowances are going to be subject to scrutiny before Customs cuts a refund check. The three elements are critical and it is important to have a detailed set of documents showing that all three elements can be proven. Despite it seeming obvious, Customs need not assume that the importer expected to receive defect-free merchandise. The burden to prove that falls on the importer. </div><p></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-82222315537710905432023-03-31T09:52:00.003-05:002023-03-31T09:53:22.002-05:00Kent International Rides to Victory<p> Kent International has been in a dispute with Customs over the classification of "Kangaroo Carrier" child safety seats for bicycles for so long that it has generated six judicial opinions. <a href="https://customslaw.blogspot.com/2021/11/the-treatment-of-bicycle-seats.html" target="_blank">We last covered it here</a>. In what imight be the last word, the Court of International Trade has handed <a href="https://www.cit.uscourts.gov/sites/cit/files/23-42.pdf" target="_blank">a limited win to Kent</a>.</p><p><br /></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXTneIsvyh0l_sDDVilYshvLNm_w9sIP7IciloOOI4tc0Rp-IgCLZt7a2oxQwktDWgXZ7wc8iyXLakaElQBkpmU8zyI-bzmeXZME2Y5GQu9xCwqKlPcBZxnJTs3fYmrZSF4dzzumH4t3bYEMkOetL1yT16VvBhRcdAyXvu-INOaEOk8XP0drg/s4478/james-wainscoat-A-uSzJPWJ04-unsplash.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4478" data-original-width="2985" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXTneIsvyh0l_sDDVilYshvLNm_w9sIP7IciloOOI4tc0Rp-IgCLZt7a2oxQwktDWgXZ7wc8iyXLakaElQBkpmU8zyI-bzmeXZME2Y5GQu9xCwqKlPcBZxnJTs3fYmrZSF4dzzumH4t3bYEMkOetL1yT16VvBhRcdAyXvu-INOaEOk8XP0drg/w266-h400/james-wainscoat-A-uSzJPWJ04-unsplash.jpg" width="266" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@tumbao1949?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">James Wainscoat</a> on <a href="https://unsplash.com/photos/A-uSzJPWJ04?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p>This decision is not really about the classification. On the merits, the Court <a href="https://www.cit.uscourts.gov/sites/cit/files/19-85.pdf" target="_blank">previously found</a> that the seats are classifiable in Heading 8714 as accessories to bicycles. What was at issue in this decision is whether Kent was entitled to have some of the entries liquidated as "seats" in Heding 9401 because Customs and Border Protection's prior liquidations constitute a legal "treatment" of the merchandise as such.</p><p>A "treatment" is analogous to a ruling, except it just happens as a matter Customs' actions on entries. It is relevant here because once a "treatment" is established, like a ruling, it can only be modified going forward and only starting 60 days after notice and comment. 19 USC 1625(c)(2). The implementing regulations spell out when a treatment comes into existence:</p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">(A) There was an actual determination by a Customs officer regarding the facts and issues involved in the claimed treatment;</p></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">(B) The Customs officer making the actual determination was responsible for the subject matter on which the determination was made; and</p></blockquote><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px;"><p style="text-align: left;">(C) Over a 2-year period immediately preceding the claim of treatment, Customs consistently applied that determination on a national basis as reflected in liquidations of entries or reconciliations or other Customs actions with respect to all or substantially all of that person's Customs transactions involving materially identical facts and issues;</p></blockquote><p>The controversy in this case was over the third prong. First, how to define the 2-year period and, second, what it means for the prior determinations to have been on a "national basis."</p><p>The question of the 2-year period is one of those things that might seem clear, but it is not. The two years must be "immediately preceding the "claim of treatment." The claim occurs when there is an assertion of the right to claim the treatment. One way to define that is as the first enty for which Customs denied the claimed treatment. In other words, the first entry on which Customs told Kent it was changing the classification from seats to bike accessories. </p><p>Measured from the earliest entry at issue, which occurred at Long Beach and was subject to a protest, Kent does not satisfy the 2-year requirement. Kent, on the other hand, looks to the protest approval dates to find a later date. The Court agreed with Kent finding the basis for the treatment arose from Customs' decision to approve Kent's protests, not the classification on the initial entries. That protest approval happened in August of 2008. Customs applied that classification to entries through November of 2010. Until February of 2015, Customs took no further action regarding this classification. Then, in 2015, CBP issued a ruling reclassifying the merchandise. That event is what the Court referred to as the "inflection point" for the 2-year requirement. Moreover, the Court found that the treatment extended from 2008 to the ruling in 2015. However, only those entries that were protested after November 2010 are entitled to benefit from the treatment.</p><p>Regarding whether CBP applied the treatment consistently and on a national basis, the problem was that the relevant entries were all at the Port of Newark. Pass through entries at Long Beach do not count. Arguably, treatment at a single port is not national treatment. But, because only the Newark entries matter and there was no inconsistent treatment, the Court found that the treatment there constituted national treatment.</p><p>As a result, Kent proved the existence of a legal "treatment" for its entries from its 2010 protest to the Customs' 2015 ruling changing the classification. That means the Customs was required to go through the notice and comment process before changing that treatment. Customs failed to do that. That means that Kent is entitled to a refund of the duties it paid on that merchandise, even though the correct classification has been determined to be as bicycle accessories. </p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-42891825305287568602023-03-20T18:16:00.004-05:002023-03-21T03:31:59.776-05:00Decision on Section 301 List 3 and 4A<p>The Court of International Trade has issued a decision in the <a href="https://www.cit.uscourts.gov/sites/cit/files/23-35.pdf">lead case</a> challenging the Section 301 duties on products of China covered by List 3 and 4A. </p><p>This case is almost unique in the number of plaintiffs and law firms involved. The most similar prior circumstance involving as much of the customs and trade bar was the litigation involving Harbor Maintenance Tax, which went all the way to the U.S. Supreme Court in 1998 resulting in a decision called <a href="https://scholar.google.com/scholar?scidkt=14980182043001685405&as_sdt=2&hl=en" target="_blank">United States v. U.S. Shoe Corp</a>. </p><p>For purposes of this blog, this raises an issue. My firm, like dozens of other firms, has plaintiffs asserting the same claims. The matter is ongoing and, therefore, I don't want to say much about anything.</p><p>So here is the short version. The Court previously remanded the matter to the USTR to provide a better explanation of how the record demonstrates that the agency properly engaged with public comments in opposition to the List 3 and 4A tariffs including the size of the remedy and whether there were alternatives that might be available and effective. USTR did that and the Court found the explanation sufficient to overcome the plaintiffs' arguments. The Court, therefore, found that the USTR had acted within the requirements of administrative law when it made its decision.</p><p>Read the decision; it is interesting.</p><p>There is, undoubtedly, more to come in this dispute. Stay tuned.</p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-51870196657066426102023-03-16T09:46:00.005-05:002023-04-04T22:25:31.838-05:00Revenge of the Hobgoblin<p><span style="text-indent: 0in;">UPDATE: A kind reader let me know I misattributed the quote. It is not from Thoreau as originally reported. Thanks for the feedback. </span></p><p><span style="text-indent: 0in;"><br /></span></p><p><span style="text-indent: 0in;">There is a saying, attributed to Ralph Waldo Emerson that “Foolish consistency is the hobgoblin of little minds.” The point of that
seems to be that doing something the same way solely for the reason of
maintaining consistency is a poor strategy.</span></p><p class="MsoNormal" style="text-indent: 0in;"><o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">For trade compliance that is often
true. The fact that a manager who retired from accounting in 1995 once said
that none of your company’s tooling expenses are dutiable is not a solid reason
for failing to report dutiable assists in 2023. Maybe in 1995 all the tooling
was in the U.S., and it is now all over the globe. Consistency for the sake of
consistency is not a good enough reason to maintain a compliance process. There
should be some underlying reason to believe the process is legally correct.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">On the other hand, inexplicable
inconsistency can be evidence of fraud. An ongoing penalty case in the Court of
International Trade is a good example. The case is <a href="https://www.cit.uscourts.gov/sites/cit/files/23-25.pdf">United States v.
Crown Cork & Seal USA, Inc</a>.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">The case contains a good overview of
the penalty statute (<a href="https://www.law.cornell.edu/uscode/text/19/1592">19
USC 1592</a>) and the levels of culpability it defines. Relevant here is a
complaint asserting that “Crown” engaged in fraud or gross negligence when it
entered some metal can lids from Europe as other articles of iron or steel in
HTSUS item 7326.90.10 (free). The government asserts that the correct
classification is in 8309.90.00 (2.6%) as stoppers, caps, and lids of metal. As
a result of this misclassification, Crown allegedly underpaid $1.3 million in
duties.<o:p></o:p></p>
<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfMZJkjOjsWInsi0OXYChaVNRkiF6Ntt-u199j1WbMKxUqPDjWnR64xnbEEnt4Vr8UJbDd5lNjOgZWafzsqdvIVDn1c9ehmt7mfjVpMMp2_bPSTTGJKUdsf392OwSARHlWU2ei5Sk6uBrCA_Qe8tpJDpdj3Ic3dkv7nCknrrA7bzQIIUFx548/s7360/pamela-callaway-aBYhjZVfNfU-unsplash.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4912" data-original-width="7360" height="268" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfMZJkjOjsWInsi0OXYChaVNRkiF6Ntt-u199j1WbMKxUqPDjWnR64xnbEEnt4Vr8UJbDd5lNjOgZWafzsqdvIVDn1c9ehmt7mfjVpMMp2_bPSTTGJKUdsf392OwSARHlWU2ei5Sk6uBrCA_Qe8tpJDpdj3Ic3dkv7nCknrrA7bzQIIUFx548/w400-h268/pamela-callaway-aBYhjZVfNfU-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@pamelamariephoto?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Pamela Callaway</a> on <a href="https://unsplash.com/photos/aBYhjZVfNfU?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><p class="MsoNormal" style="text-indent: 0in;"><br /></p><p class="MsoNormal" style="text-indent: 0in;">The issue in this preliminary ruling
is whether the complaint contains sufficient detail to plausibly show that the
defendant committed fraud or gross negligence. As a general matter, a complaint
must be sufficiently detailed to allow a reasonable inference that the
defendant is liable for the misconduct alleged. It is not enough to merely
state facts that, if true, are consistent with finding the defendant liable.
The possibility of liability is not enough; the complaint must show that
liability is plausible. One way to move from mere possibility to plausibility
is to allege facts excluding the possibility of the defendant’s alternative
theory. This all comes from two Supreme Court cases called <a href="https://scholar.google.com/scholar_case?case=16725752296468120395&hl=en&as_sdt=400006">Iqbal</a>
and <a href="https://scholar.google.com/scholar_case?case=913703117340005992&q=iqbal&hl=en&as_sdt=4,60">Twombly</a>.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">The parties in this case agree that
the classification Crown used at entry was incorrect. Crown contends that the
complaint does not plead a plausible set of facts indicating either fraud or
gross negligence. As a result, the defendant moved the Court to dismiss those
two counts of the amended complaint. This is where the hobgoblin of consistency
comes into play.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">It turns out that Crown had also
been importing metal can lids from Canada. These lids were duty free under
NAFTA. The unfortunate fact for Crown is that it inconsistently classified its
metal can lids. It classified the European lids in the duty-free provision in
Heading 7326 while classifying similar lids from Canada in Heading 8309, which
would be dutiable but for the NAFTA. Moreover, the complaint asserts that Crown
did not rely on its customs broker (or presumably anyone else) for
classification advice, making it impossible that it was following outside
advice.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">This inconsistent classification was
beneficial to the importer, visible to the importer, and enough to elevate the
complaint into the realm of plausibility. Thus, the Court denied the motion to
dismiss for both negligence and gross negligence.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">Crown also argued that the amended complaint
fails to satisfy the special pleading rule applicable to fraud and mistakes.
Under <a href="https://www.cit.uscourts.gov/sites/cit/files/Rule%2009.pdf">U.S.
CIT Rule 9(b),</a> which is similar to the Federal Rule of Civil Procedure, the
facts constituting fraud or mistake must be stated with particularity showing
the circumstances of the fraud or mistake. The defendant pointed out that the
complaint does not identify any of its employees or employees of the broker who
were responsible for the alleged fraud. Instead, according to the Crown, the
complaint was “speculative and unsubstantiated.” <o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">The Court did not agree. According
to the Court, the Rule requires that the complaint state the “who, what, where,
when and how” of the fraud. The amended complaint identified the two Crown Cork
& Seal companies that were the importers. The amended complaint also
identified 543 entries of metal lids with incorrect classifications. The Court
held that was sufficient for purposes of Rule 9(b) and refused to dismiss the
fraud count.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">The defendant made the same Rule
9(b) argument about the gross negligence count. The Court addressed this
quickly by noting that the rule applies only to “fraud or mistake” and not to
“gross negligence.” <span style="mso-spacerun: yes;"> </span>The Court cited a
case from the Southern District of New York for this. It is true that “gross
negligence” is not stated in the rule. <o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">Personally, I wonder about the scope
of “mistake” as used in the Rule and whether it might include a negligent or
grossly negligent misclassification. I do not recall this having come up. In
customs penalty cases, a “mistake” is not enough to constitute a violation of
section 1592. Negligence requires the lack of the degree of care expected of a
reasonably prudent importer. But if a mistake is not a violation, Rule 9 seems
to require more specific pleading for a case involving no violation and less
specific pleading for a negligent violation. That seems anomalous.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">A side point in this case is that it
took a long time to get to this point. Customs appears to have been aware of
the alleged violation for a decade and to have investigated for six years.
Crown, likely wanting to cooperate in the process, provided a waiver of the
statute of limitations. Very often, this is the correct thing to do. It allows
both sides to fully investigate the matter and permits settlement discussions.
Sometimes, it just delays the inevitable. Whether and when to waive the SOL is
a difficult question that should not be taken lightly. Be sure to consult with
counsel on that.<o:p></o:p></p>
<p class="MsoNormal" style="text-indent: 0in;">The key lesson from this is that
Customs and Border Protection has import data and knows how to mine it for
enforcement. Importers should do the same internally for compliance. If two
parts have similar descriptions, functions, and composition, but are assigned
different tariff classifications, that should be investigated. The different
classifications should either be explained (and documented) or resolved. That
may prompt a prior disclosure to CBP or, if there is no violation, just a
correction for unliquidated and future entries. Again, that is a conversation
to have with counsel.<o:p></o:p></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-38545596795155808792023-02-27T20:45:00.001-06:002023-02-27T20:47:18.490-06:00Cyber Power Decision Keeps the Lights On Origin<p>The Court of International Trade has issued the much anticipated (at least by me) decision on the merits in <a href="https://www.cit.uscourts.gov/sites/cit/files/23-24.pdf" target="_blank">Cyber Power Systems (USA) Inc. v. United States</a>. It's a bit of a roller coaster ride. The plaintiff clearly hits some bumps along the way, but there is a thrilling conclusion. So, buckle up.</p><p>The case is about the country of origin of five models of uninterruptible power suppliers ("UPS") and one surge protector. The UPS is essentially a glorified backup battery for computers and other devices. In the event of a power failure, the UPS kicks in to power the device and may assist in a "graceful shutdown." Modern UPS include printed circuit board assemblies that monitor the battery to ensure it is fully charged, monitor the available supply of electricity, switch to the battery when needed, provide status reports and other functions. All of that takes some firmware stored in chips on the boards. The surge protector is a simpler, but still electronic device, that smooths out spikes in powerline voltage that might damage electronics.</p><p>Cyber Power imported the UPS and surge protectors from the Philippines and declared the that to be the country of origin. Customs determined the country of origin to be China and excluded the merchandise. Cyber Power protested the exclusion. This decision, following a trial to establish the facts, is the review of the denied protest.</p><p>The trade bar has been watching this case very closely. Since the Trump Administration imposed Section 301 duties on products from China, there has been a renewed interest in country-of-origin determinations. Companies have been moving final production out of China while continuing to source components from China, leading to the question of whether the final assembly is enough to produce a product of the new country rather than a product of China that was assembled in, say, Mexico.</p><p>The traditional statement of the substantial transformation test in an assembly context that the assembly operation must be complex and produce a new and different article of commerce with a new name, character or use. This rule can be traced back to <a href="https://scholar.google.com/scholar_case?case=6960042209852493228&q=anheuser+busch+inc+1908&hl=en&as_sdt=4,60" target="_blank">1908</a>. Over time, the Courts and Customs have added a "gloss" to the test that increases complexity and reduces certainty for companies trying to make origin decisions. This includes decisions that focus on the origin of those components that embody the "essence" of the finished article and whether the parts had a pre-determined end-use prior to the assembly (as opposed to being generic parts with multiple potential uses). </p><p>In my mind, the fundamental flaw with the current approach is that it compares the condition of the parts before and after assembly rather than comparing the parts to the finished article. A zipper from Japan, for example, will only be used as a zipper and will still be a zipper after sewn into a coat in Mexico. The zipper would seem to not be substantially transformed. On the other hand, the zipper is no longer a separate commercial entity. It is wholly integrated into the coat and should not prevent the coat from originating in Mexico. </p><p>Normally, I would jump right to the good stuff, but there is an important bit of background: in court, someone has a burden of proof. Typically, the burden of proof falls on the plaintiff. There are two parts to the burden of proof. The first is the burden to produce, which means the plaintiff has to give the court something to go on. The second is the burden of persuasion. In this case, the burden of persuasion is to establish the facts "by a preponderance of the evidence." If the plaintiff fails to meet the burden, it will lose. </p><p>This case involves six items. For five of them, plaintiff ran into proof problems that were sufficiently severe that it lost on those claims. It is important to understand what happened because this decision shows how Customs and possibly the Department of Justice might comb through records to identify gaps and anomalies that might form the basis of an argument that an importer has failed to prove origin. Let's look at how that happened here.</p><p>In an effort to prove its case, plaintiffs presented witness testimony and documents. Apparently, the job of the principal witness was to corroborate the documents. The plaintiff submitted the documents one would expect including spec sheets describing the imported merchandise, bills of material showing the components and their countries of origin, bills of material for printed circuit board assemblies (PCBAs), the production process timeline, a manufacturing process flowchart, and standard operating procedures for the assembly workers. There was also evidence showing that firmware coded in Taiwan had been "burned" into the PCBAs. There was some evidence showing the firmware upload occurred in China for PCBAs made there or in the Philippines for other boards. </p><p>Plaintiff was presumably using this evidence to show what happens in the Philippines and to establish that it is a complex process producing a new and different article of commerce with a new name, character, and use. In other words, to show that a substantial transformation occurred. </p><p>The Justice Department raised questions about the documents and the testimony. In particular, the government pointed out that the witness' signature was not consistent across the documents, raising questions of whether he actually signed them. The witness was also unclear on the corporate structure as it relates to a supplier that is related to the producer. Finally, the witness made errors in his explanation of a video introduced to illustrate the production process. None of that was good, but it does not seem to have been fatal. </p><p>The real problem seems to have been that the documents submitted in evidence were not clearly connected to the production of the imported goods. The spec sheets, for example, contained no information about the manufacturing process. The bills of material provided lists of the components used to assemble the finished product but did not explain how the parts came together or in what quantity each part was present. The bigger problem may be that the bills of material were undated. The production timeline and manufacturing process flowchart were also undated. There is more to this, but I will leave it with the fact that the witness testified that he was "familiar" with the process but had not observed it personally.</p><p>The Court reviewed the evidence in detail and, ultimately, could not connect it to the imported merchandise. As a result, the Court concluded:</p><blockquote><p>that Plaintiff has failed to carry its burden of producing evidence to show that five of the six models of subject merchandise . . . were substantially transformed in the Philippines. Plaintiff’s evidence does not establish what operations occurred in the Philippines to produce these subject devices to permit the court to conduct a substantial transformation analysis.</p></blockquote><p>The fact that the plaintiff lost on these claims cannot be interpreted as saying anything about the correct analysis of substantial transformation beyond the threshold question of what evidence the Court considered important.</p><p>But, the Court did give us something on that front as well. For the item for which the plaintiff met the burden of proof, the Court has some good things to say. First, the Court agreed with prior decisions that substantial transformation is reviewed on a case-by-case basis. Next, the Court reiterated its <a href="https://customslaw.blogspot.com/2022/02/is-this-end-of-predetermined-end-use.html">prior decision</a> rejecting an approach that asks whether only essential or critical components have been substantially transformed. The Court also rejected an approach that performed a component-by-component analysis. Finally, while not mentioning predetermined end-use, the Court reiterated that "the intended use of components may provide some insight as to whether the assembly of those components into the finished merchandise accomplishes a change in use that indicates a ‘substantial transformation,’ such a consideration is but one of many for the court to consider as part of the ‘totality of the evidence." </p><p>Instead, the Court looked to evidence of "the potentially transformative processing" in relation to the nature of the product. That means whether the finished product has a different name, character, and use than the parts from which it was made. The decisive paragraph is this:</p><blockquote><p>Because the court finds that the entirety of the [manufacturing] occurred in the Philippines, the court need not make a determination as to whether [the] UPS assembly process alone constituted a substantial transformation. The CP600LCDa began its manufacturing journey in the Philippines as a set of components not yet functional as a power source of any kind. . .. After several stages of manufacturing, each involving numerous steps directed toward changing the electronic properties of the device as a whole, the CP600LCDa left the Philippines as a fully functioning UPS. It is undisputed that that the CP600LCDa is capable of providing “battery backup (using simulated sine wave output) and surge protection for desktop computers, workstations, networking devices, and home entertainment systems,” and that, thanks to its programming, “is able to provide real time status and alerts of potential problems. ... Even without detailed evidence describing the assembly stage of UPS production, <b>the change from all of its components to its ultimate finished product as a UPS device is a change so marked as to shift the burden of proof in Plaintiff’s favor.</b></p></blockquote><p>The Court concluded:</p><blockquote><p>Indeed, the CP600LCDa’s Philippine
manufacture satisfies all three prongs of the substantial transformation test: a change in
name (from a set of PCBA and UPS component parts to the finished, functioning UPS
Model No. CP600LCDa), a change in character (from component parts not yet capable
of being electronically programmed to a device capable of performing a number of
intelligent functions), and a change in use (from component parts to a device geared
towards a specifically identified purpose: protecting against power outages).</p></blockquote><p>If this decision holds after the inevitable appeal, this may be a meaningful reset of the law of substantial transformation. </p><p>There are, of course, limits that remain in place. Simple assembly operations should raise concern. Manufacturers should continue to be prepared to show that the assembly process requires a number of steps, time, tools, and some degree of skill. Adding components to an otherwise largely complete product will not suffice. A radio without knobs has the same name, character, and use as a radio with knobs. [Yes, I know many of you have never seen a radio with knobs. <a href="https://swling.com/db/2010/12/grundig-gs350dl/">Exhibit A</a>.] Drawing the exact line is hard, which is why these are always done on a case-by-case basis. On the other hand, the Court seems to have rejected the essence or critical components tests, including the notion that the location where the main PCBAs are assembled will generally be the country of origin. It also seems clear that the proper point of comparison is between the parts and the finished products rather than the parts before and after assembly.</p><p>That is good for importers trying to manage their supply chain. Clarity, consistency, and predictability are always helpful for compliance. It is too soon to make major decisions based on this opinion, but this is a positive step.</p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-69487207033333415532023-02-15T10:12:00.002-06:002023-02-15T17:17:22.967-06:00CIT to Meyer: Still No First Sale for Value<p>Remember <a href="https://www.cit.uscourts.gov/sites/cit/files/21-26.pdf" target="_blank">Meyer Corp. v. United States</a>? We discussed the original CIT decision in <a href="https://customslaw.blogspot.com/2021/03/unpacking-meyer-corp-v-us.html" target="_blank">this post</a> from 2021. That decision caused many quizzical discussions among trade nerds about whether the fact that a multi-tiered sale starts in China, a non-market economy, undermines an importer's ability to claim valuation for duty on the basis of the first sale. The Court of International Trade suggested that the Court of Appeals for the Federal Circuit might have to clarify. If none of this seems familiar to you, go back and read the earlier post.</p><p>In August of 2022, the Federal Circuit provided <a href="https://cafc.uscourts.gov/opinions-orders/21-1932.OPINION.8-11-2022_1990690.pdf" target="_blank">that clarification</a>. That must have happened while I was in the "Blog Black Hole" of 2021-2022, which I am trying to dig out of now (you may have noticed). The decisive part of that decision states:</p><blockquote><p>The trial court misinterpreted our decision in <i>Nissho Iwai</i> to require any party to show the absence of all “distortive nonmarket influences.” There is no basis in the statute for Customs or the court to consider the effects of a non-market economy on the transaction value. The statute requires only that “the relationship between [the] buyer and seller did not influence the price actually paid or payable.” 19 U.S.C. § 1401a(b)(2)(B). This provision concerns effects of the relationship between the buyer and seller, not effects of government intervention, and especially not with government intervention that affects the industry as a whole. Neither <i>Nissho Iwai</i> nor the government’s briefing identifies other statutes or regulations that could require Customs or the Court of International Trade to consider whether the goods were sold in a nonmarket economy or were otherwise affected by a nonmarket economy. </p></blockquote><p>That clears that up.</p><p>But, what about Meyer's claim for first sale treatment?</p><p>The Court of International Trade has now reached <a href="https://www.cit.uscourts.gov/sites/cit/files/23-13.pdf">a decision on that</a> and it is not good news for Meyer. The Court "doubled down" on its previously expressed concern that the financial data Meyer provided to show the bona fides of the first sale were insufficient. Specifically, the Court said that the information provided was not sufficient to "discern whether or not the parent of the plaintiff provided any form of assistance to reduce costs." The Court of International Trade found that "plaintiff's failure to provide the financial information requested by it [<i>sic</i> "of it"?] during discovery provided an independent reason as to why Meyer could not demonstrate a true first-sale value absent of influence . . . from the relationships of the related parties." </p><p>The Court, therefore, on reconsideration following remand found first sale-valuation inapplicable.</p><p>This, like most first-sale cases, is a cautionary tale. First-sale for value is the law and importers have a right to use it as a legal means of duty avoidance. But, CBP seems deeply skeptical of it. In cases such as <i>Meyer</i>, where the parties are related, Customs is going to take a very detailed look into the whole series of transactions. The importer should expect to have to show that each tier is a bona fide sale for export to the United States at an acceptable transaction value. Where the parties are unrelated, proving that should be easier as the manufacturer wants to be fully compensated for its wares and should normally be considered free to set its price. That is, after all, an arms-length transaction. But, Customs will look at those transactions as well, even examining the second or third sales to ensure they are bona fide. That, to me, is way off the mark as the whole point here is to determine whether the first sale (or any sale) is an acceptable transaction value. If the any one sale meets that test, the importer can elect to use it as the transaction value. What happens in subsequent sales should be largely irrelevant.</p><p><br /></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVbbohjgdTtV0L3OuxFghUmJdrMKRWowqKCzwiLE-CluXGe0uXOAtf0B9CrFocQH6DtZ0RKc4qMIrUBSKHHbyBpnrZoERXwFP38dvnfJGkmgKVAgM-SEFpMlzXnwPRznXC_dUi4-KrkF7aezccJYvDwMDojwYIHZ2HLNDGpSyZ1gA5zsoeCMo/s6000/jonathan-kemper-1nGxy0Mh8eA-unsplash.jpg" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4000" data-original-width="6000" height="266" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVbbohjgdTtV0L3OuxFghUmJdrMKRWowqKCzwiLE-CluXGe0uXOAtf0B9CrFocQH6DtZ0RKc4qMIrUBSKHHbyBpnrZoERXwFP38dvnfJGkmgKVAgM-SEFpMlzXnwPRznXC_dUi4-KrkF7aezccJYvDwMDojwYIHZ2HLNDGpSyZ1gA5zsoeCMo/w400-h266/jonathan-kemper-1nGxy0Mh8eA-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@jupp?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Jonathan Kemper</a> on <a href="https://unsplash.com/photos/1nGxy0Mh8eA?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p>[Disclaimer: what follows is not legal advice, is not complete, and is not based on any specific facts.] If you are contemplating first sale for value, get your ducks in a row. Ensure that your documents show evidence of a sale for export to the United States including the transfer of both title and risk of loss to the buyer. Ideally, this happens as more than a momentary legal fact (i.e., a "flash transfer") and you can point to a location where and period in which the buyer held title and risk of loss. Also, remember that the INCOTERMS do not identify when or where title transfers. That needs to be specified. Risk and title do not need to transfer at the same time, but the buyer should end up with both at some identifiable point in time. Honestly, I would argue that risk is irrelevant if the buyer gets title, but I am neither in charge of Customs nor a judge.</p><p><br /></p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-63467334079757671292023-02-14T17:03:00.000-06:002023-02-14T17:03:49.914-06:00PrimeSource Overturned at Federal Circuit<p><a href="https://www.law.cornell.edu/uscode/text/19/1862" target="_blank">Section 232 of the Trade Expansion Act of 1962</a> allows the President, following an investigation by the Department of Commerce, to adopt a plan of remedial action to protect the national security from harm caused by imports. The statute has several procedural requirements including that the Commerce Department complete its investigation within 270 days and that the President decide within 90 days of receiving the report whether the President concurs in Commerce's finding. If so, the President must come up with a plan of action, including the steps that "must be taken to adjust the imports of the article <i>and its derivatives</i> so that such imports will not threaten to impair the national security." For this discussion, the key point is that the President must implement the plan within 105 days of the findings in Commerce's report.</p><p>On March 8, 2018, President Trump imposed 25% duties on listed steel products in an effort to ensure that U.S. steel production was operating at 80% of its capacity, which is what the Department of Commerce deemed necessary to ensure the national security. That was done in <a href="https://www.federalregister.gov/documents/2018/03/15/2018-05478/adjusting-imports-of-steel-into-the-united-states" target="_blank">Presidential Proclamation 9705</a> (there was a companion proclamation <a href="https://www.federalregister.gov/documents/2018/03/15/2018-05477/adjusting-imports-of-aluminum-into-the-united-states" target="_blank">9704</a> imposing 10% duties on aluminum products). The steel proclamation stated that the President retained the right to "remove or modify" the tariffs as a result of negotiated agreements with other countries. Moreover, the proclamation recognized the need for monitoring and possible "further action."</p><p>In January of 2020, apparently unsatisfied with the level of progress made by the steel industry in reaching 80% capacity utilization, the President issued <a href="https://www.federalregister.gov/documents/2020/01/29/2020-01806/adjusting-imports-of-derivative-aluminum-articles-and-derivative-steel-articles-into-the-united" target="_blank">Proclamation 9980</a> extending the steel tariff to derivative products (e.g., nails, wire, and staples). In addition, the Commerce Department characterized increased shipments of these articles as evidence of efforts to circumvent the tariff imposed on other steel items. This extension of the Section 232 tariff was beyond the 105-day period in which the President is required to announce and implement a plan of action.</p><p>PrimeSource and other companies challenged this late extension to derivatives in the U.S. Court of International Trade. That Court held that the 105-day time limit prohibits subsequent modifications of the announced plan of action. As a result, the extension of 232 duties to steel derivates was, according to the CIT, untimely and unlawful. This led, as a Monty Python character might say, to "much rejoining" among steel importers and consumers.</p><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/yciX2meIkXI" title="YouTube video player" width="560"></iframe><div><br /></div><div>That rejoicing has now been thwarted by the Court of Appeals for the Federal Circuit in <a href="https://cafc.uscourts.gov/opinions-orders/21-2066.OPINION.2-7-2023_2076649.pdf" target="_blank">PrimeSource Building Products, Inc. v. United States</a> (President Bident and a bunch of other named officials are also defendants).</div><div><br /></div><div>The gist of the decision is simple enough. It follows from a prior case called <a href="https://cafc.uscourts.gov/opinions-orders/20-2157.opinion.7-13-2021_1803293.pdf" target="_blank">Transpacific</a>. In that earlier case, the plaintiff challenged an increase to the rate of duty applied to steel products. The Court of Appeals determined that the statute authorizes the President to adopt and carry out a plan of action that includes adjustments to the announced measure. </div><div><br /></div><div>In <i>PrimeSource</i>, the Court found the same rule applies. According to the Court, the initial Proclamation 9705 announced a "continuing plan of action aimed at achieving" the stated goal of 80% capacity utilization. Later, after Commerce found an increase in the imports of steel derivatives and opined that the increase was indicative of circumvention, the President had the authority to adjust the remedy to address that circumstance. Hence, the extension to derivatives was allowed. According to the Court of Appeals, this action closed a "loophole." </div><div><br /></div><div>This is another way to look at that alleged loophole. Plaintiffs argued that the Commerce Department had the opportunity to investigate steel derivative products and did not do so. Or, I would assert, Commerce might have looked at derivatives and found that they do not constitute a threat to national security. Rather than constitute a loophole, limiting the President's authority to act to items Commerce found to be a threat to national security is consistent with the limited delegation of authority Commerce gave the President to regulate trade (a power the Constitution gave to Congress, not the President). </div><div><br /></div><div>The Federal Circuit rejected that argument, primarily on the basis of the pesky language of Section 232. The statute specifically addresses derivatives at § 1862(c)(1)(A)(ii), where it grants the President the authority to adjust both imports of the article "and its derivatives." </div><div><br /></div><div>As a result, the Federal Circuit reversed and remanded the decision of the Court of International Trade, resulting in rejoicing by steel producers and, presumably, the United States government. </div><div><br /></div><div><br /></div><div><br /></div><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-48785579383218898862023-02-09T17:21:00.000-06:002023-02-09T17:21:05.920-06:00Acquisition 362 and Protests of Countervailing Duties<p>Welcome back to what I hope is a more consistent flow of updates. I have a couple in the hopper, so come back soon.</p><p>Importers of goods subject to antidumping and countervailing duties often find themselves dealing with unexpected compliance issues. <a href="https://cafc.uscourts.gov/opinions-orders/22-1161.OPINION.2-6-2023_2075625.pdf" target="_blank">Acquisition 362, LLC v. United States</a>, a recent decision from the Court of Appeals for the Federal Circuit, is a good example of how this can go sideways. </p><p>Aquisition is an importer of tires from China that are subject to a countervailing duty order. As a result, Acquisition deposited CV duties at the rate of 30.61%, which was the rate applicable to tires from "all-other" producers and exporters at the time of entry. When Commerce instituted a review of the deposit rate, it instructed Customs to continue to suspend the liquidation of entries from companies participating in the review, including a company known as Shandong Zhongyi, which was Aquisition's nominal suppler. Unfortunately for Aquisition, Shandong withdrew from the review, at which point Commerce instructed Customs to liquidate the entries. That follows from <a href="https://www.law.cornell.edu/cfr/text/19/351.212" target="_blank">19 CFR § 351.212(c)(1)-(2)</a>. Customs followed the instructions and liquidated the entries. </p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left; margin-right: 1em; text-align: left;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZPufM8yWWGg3HnSSxHu0j8w4MmV-3Cwdw-rJgHUpKFXXpLbkFTuIwd4hBTKf8obrOqTzT8M9mIT-FNhBy4xpqtc_qUyrMf9AVF9EFg9pJ-wNn7HRLis4Wiyjk1h8goBpV6S3pW-b3-aeWczgsdBmEaNVdTaDzpVP0oI-Tl1G0DSUVZNC7TDU/s5472/enis-yavuz-CsYaNzll_rA-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="5472" data-original-width="3648" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZPufM8yWWGg3HnSSxHu0j8w4MmV-3Cwdw-rJgHUpKFXXpLbkFTuIwd4hBTKf8obrOqTzT8M9mIT-FNhBy4xpqtc_qUyrMf9AVF9EFg9pJ-wNn7HRLis4Wiyjk1h8goBpV6S3pW-b3-aeWczgsdBmEaNVdTaDzpVP0oI-Tl1G0DSUVZNC7TDU/s320/enis-yavuz-CsYaNzll_rA-unsplash.jpg" width="213" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@enisyavuz?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Enis Yavuz</a> on <a href="https://unsplash.com/photos/CsYaNzll_rA?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><p>Commerce completed its review and amended the rates for "non-selected companies" to 15.56%. It then instructed Customs to liquidate the remaining suspended entries. At that point, Aquisition, noted that it had not benefited from the favorable adjusted rate. </p><p>It is not clear exactly what Aquisition understood or expected to happen to its entries. Aquisition may not have known that Shandong withdrew or the consequences of that happening. It had the ability to track the status of its entries and presumably knew Customs had liquidated them. But, giving it the best possible reading, Aquisition appears to have believed that Shandong is the same company as Dongying Zhongyi Rubber Co., which remained a party to the review. Entries of Dongying products, therefore, remained suspended. Aquisition might have believed that it could wait and would be entitled to whatever CVD rate was ultimately applied to its entries of Shandong/Dongying merchandise. Finally, it is possible no one thought about any of this, and this case is best argument counsel found to support an effort to get the lower rate applied to the liquidated entries.</p><p>What to do?</p><p>Within 180 days of Commerce publishing its Amended Final Results of the CVD review, Aquisition filed protests with Customs and Border Protection challenging the liquidations. The protests were filed more than 180 days after the challenged liquidations. Therein lies the rub that causes this to go sideways.</p><p>Without a timely and valid protest, liquidations are final and conclusive as to the importer and the United States. <a href="https://www.law.cornell.edu/uscode/text/19/1514" target="_blank">19 USC § 1514</a>. That is why liquidations are routinely suspended during antidumping and countervailing duty proceedings. Once liquidated, a corrected AD or CV duty cannot be assessed unless some exception applies.</p><p>The fact that Customs erroneously liquidated an entry that was supposed to be suspended is not an exception. Assuming this was an improper liquidation of entries that should have been suspended, that may be a mistake by Customs and is subject to the protest requirement. Consequenlty, the Federal Circuit held that Aquisitions had missed the 180-day from liquidation deadline to protest. The Court did not buy Aquisition's otherwise clever argument that the decision being protested was not the liquidation but Customs' subsequent denial of Aquisition's request for a refund of excess countervailing duties paid. </p><p>The Court of Appeals appears to see the reality of the situation as both starting and ending with Customs' liquidation. To give Aquisition credit, there is a question of what instructions Commerce gave to Customs with respect to the continued suspension or liquidation of entries by producer. In cases where Commerce issues incorrect instructions and Customs acts on those instructions, the Court has found that it can review Commerce Department instructions independent of a protest of a liquidation. This would happen at the Court of International Trade under its residual jurisdiction pursuant to <a href="https://www.law.cornell.edu/uscode/text/28/1581" target="_blank">28 USC § 1581(i)</a>. Here, the Federal Circuit found that a timely protest would have provided an adequate remedy, Aquisition was precluded from seeking relieve under subsection (i).</p><p><br /></p><p><br /></p><p><br /></p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-60439235253922684642022-10-16T11:27:00.003-05:002022-10-19T08:38:04.779-05:00Exporters To US Should Share Importers' Compliance Burdens<p>Over the years, I have seen many importers in trouble with the government because of inaccurate or possibly fraudulent information provided by a supplier. Many of those importers have performed layers of due diligence and sometimes still end up on the wrong side of a Customs penalty or seizure. While importers are and should be responsible for the goods they import and the representations they make to the government, it is frustrating for importers who tried to comply with the law at least in part relying on supplier representations. After ruminating on that, I wrote this musing on the burdens of international trade, which Law360 was kind enough to publish. You can access Law360 on a trial subscription. <a href="https://www.law360.com/articles/1539645/exporters-to-us-should-share-importers-compliance-burdens" target="_blank">Here is a link to the article</a>. Or (consistent with the Law360 agreement), there is a <a href="https://www.barnesrichardson.com/4E8FDC/assets/files/News/Law360%20-%20Exporters%20To%20US%20Should%20Share%20Importers'%20Compliance%20Burdens.pdf" target="_blank">PDF you can read here</a>. </p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0tag:blogger.com,1999:blog-12154253.post-8115314864641783922022-10-01T13:40:00.000-05:002022-10-01T13:40:29.342-05:00In the Weeds<p> Hello. Yes, it has been a while. All is good here. Hope you are doing well too. </p><p>The reality is that for the last 2 years, the thought of writing for my own pleasure (which is 80% of why this blog exists) has been swamped by actual client, firm, and other commitments. But, I am coming up for air (at least for the moment) and want to address an important decision from the Court of International Trade. The case is <a href="https://www.cit.uscourts.gov/sites/cit/files/22-111.pdf" target="_blank">Eteros Technologies USA, Inc. v. United States</a>, which addresses the interplay between federal drug paraphernalia laws and state laws permitting the commercial exploitation of cannabis. This is important partly because of the explosive growth of the cannabis industry and also as an illustration of the way in which the details matter in the application of laws.</p><p><br /></p><table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto;"><tbody><tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEintDTLWVomtPWDBd72boDAAHeyv8TQKj_UbRgDAtEOWK9x1UeNMSJ0G7924ZTziSS1XTGdLDpgoXPJUFqlVgZnlbsHZtOLknvNru8tXTHZFLQemuTHPLJjxS_WMiYkWBz0N1TNGALiHrFxKcdZb87LVm-z3rFg4dW4sTkcauQk21RMkbAZFis/s7360/avery-meeker-2rW8lq0NgPU-unsplash.jpg" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" data-original-height="4912" data-original-width="7360" height="268" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEintDTLWVomtPWDBd72boDAAHeyv8TQKj_UbRgDAtEOWK9x1UeNMSJ0G7924ZTziSS1XTGdLDpgoXPJUFqlVgZnlbsHZtOLknvNru8tXTHZFLQemuTHPLJjxS_WMiYkWBz0N1TNGALiHrFxKcdZb87LVm-z3rFg4dW4sTkcauQk21RMkbAZFis/w400-h268/avery-meeker-2rW8lq0NgPU-unsplash.jpg" width="400" /></a></td></tr><tr><td class="tr-caption" style="text-align: center;">Photo by <a href="https://unsplash.com/@averymeeker?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Avery Meeker</a> on <a href="https://unsplash.com/s/photos/weed?utm_source=unsplash&utm_medium=referral&utm_content=creditCopyText">Unsplash</a></td></tr></tbody></table><br /><p><br /></p><p>We have discussed CBP's role in interdicting drug paraphernalia before. See, for example, <a href="https://customslaw.blogspot.com/2017/01/ruling-of-week-20174-midwakh-from-uae.html">here</a> and <a href="https://customslaw.blogspot.com/2017/04/ruling-of-week-20179.html">here</a>. A lot has changed since I wrote those posts in 2017.</p><p>Under the federal Controlled Substances Act, it is unlawful for any person to import drug paraphernalia. <a href="https://www.law.cornell.edu/uscode/text/21/863" target="_blank">21 USC 863(a)(3)</a>. Merchandise imported in violation of the law is subject to seizure and forfeiture. There is, however, a carve out. Subsection (f) states that the section does not apply to "any person authorized by local, State, or Federal law to manufacture, possess, or distribute such items."</p><p>That brings us to the State of Washington, which legalized recreations marijuana use in 2012. The Washington law includes a few relevant provisions including one permitting the delivery, possession or manufacture of drug paraphernalia to process marijuana. It is also lawful to deliver drug paraphernalia knowing that it will be used to process weed. </p><p>Eteros attempted to import motor frame assemblies for it "<a href="https://mobiustrimmer.com/cannabis-automation/m108s-bud-trimmer/" target="_blank">Mobius M108S Trimmer</a>" machines, which separate cannabis leaf from flower. The buzzkills at the Port of Blaine, detained and eventually excluded the machinery. Eteros protested the exclusion and CBP denied the protest, setting the stage for a challenge in the Court of International Trade.</p><p>The main issue before the Court was whether the Washington State law counts as an "authorization" for purposes of the federal Controlled Substances Act carve out. The Court first parsed out the statute finding that authorization by state law alone is sufficient to trigger the exemption, which then applies to all the activities federally prohibited by § 863. That just leave the question of whether the Washington statute constitutes an authorization to import drug paraphernalia.</p><p>Interesting side note--The Court did not defer to Customs' interpretation of the federal or state laws. Deference often comes up in matters of administrative law where the Court reviews agency actions on the basis of the record considered by the agency and the agency's reasoning in stating its decision. In those cases, the Court must affirm the agency determination based on the relevant standard of review, which may be, for example "arbitrary and capricious" or "not in accordance with law." </p><p>That is not the case here. First, the parties seem to be in agreement that there is no agency interpretation to which the Court might defer. That seems to indicate that the protest was summarily denied without any detailed analysis. Moreover, this is a matter of statutory interpretation. As a general rule, Courts defer to the agency when the relevant statute is ambiguous or Congress has left a gap for agency rulemaking. When the statute is clear, Courts do not defer. That is the <a href="https://scholar.google.com/scholar?scidkt=16397752356092145943&as_sdt=2&hl=en" target="_blank">Chevron</a> doctrine. On top of that, this is a customs law case brought under 28 USC 1581(a) to challenge the denial of a protest. The relevant standard of review to these cases is de novo, <a href="https://www.law.cornell.edu/uscode/text/28/2640" target="_blank">28 USC 2640(a)(1)</a>. That means that the Court will decide the matter based upon the record developed before the Court. These cases are not subject to the <a href="https://www.archives.gov/federal-register/laws/administrative-procedure" target="_blank">Administrative Procedure Act</a>. The Supreme Court stated in <a href="https://scholar.google.com/scholar_case?case=6553117666921312576&hl=en&as_sdt=400006" target="_blank">United States v. Mead Corp.</a> that CBP classification rulings are not subject to <u>Chevron</u> deference because they are "far removed not only from notice-and-comment process, but from any other circumstances reasonably suggesting that Congress ever thought of classification rulings as deserving the deference claimed for them here." The decision to exclude this merchandise seems equally far from the sort of rulemaking that implicates <u>Chevron</u>, but that may be a matter for a later decision. In short, traditional customs cases arising out of denied protests are not what we usually think of as "administrative law" matters.</p><p>So, does the Washington law "authorize" the importation of these articles? The government's main argument was that the general language in the state law is not a specific authorization of Eteros by, for example, a license or permit. For its part, Eteros argued that the law authorized anyone (meaning "everyone") to engage in the previously prohibited and newly permitted activities. </p><p>The Court undertook a thorough analysis of Supreme Court precedent relating to a New Jersey effort to "authorize" sports betting as well as the common English-language meaning of the term. Although there was a surprising lack of legislative history, the Court was able to discern congressional intent from the statute itself. In sum, the Court found that the Washington law constitutes an "authorization" for Eteros to import drug paraphernalia and, therefore, the federal prohibition does not apply to it. </p><div class="blogger-post-footer">By Lawrence M. Friedman
Contact: customslawblog@gmail.com
Twitter: @customslawblog
(c) 2020 All Rights Reserved.</div>Larryhttp://www.blogger.com/profile/13659537105506728479noreply@blogger.com0