Administratve Law and Super Bowl XXXVIII

Is 9/16th of a second enough to offend anyone?

We'll come back to that.

Whenever I talk to students (either as an adjunct professor or in so-called "informational interviews"), I talk up the value of a class in administrative law. Customs and trade law is administrative law. Despite the name and the often undue emphasis on WTO disputes, this practice is generally about the federal government regulation of business. That makes it administrative law. It is only tangentially international law.

The only way to be fully able to advise clients on what Customs and Border Protection can and cannot due is to understand the more general limitations imposed upon the agency by administrative law. Agencies are bound by law. Agencies must follow their own regulations. Courts should defer to the agency only when the law is unclear. Stuff like that. As I tell students, the most important trade law case is Chevron and that case involves environmental regulations.

So, what are we to do with this decision of the Third Circuit? The case involves the review of the FCC's fine for the 9/16 of a second broadcast of Janet Jackson's breast during the Superbowl halftime show. The applicable standard of review is "arbitrary and capricious" under the Administrative Procedure Act (5 USC 706(2)(A)). Arbitrary and capricious is the standard applied to reviews of negative preliminary injury determinations in trade cases and by the Court of International Trade in cases brought under 28 USC 1581(i). Clearly, this case is relevant to us.
Here is a nice articulation of the standard of review based on SEC v. Chenery:

We generally find agency action arbitrary and capricious where:

the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court should not attempt itself to make up for such deficiencies; we may not supply a reasoned basis for the agency’s action that the agency itself has not given.

Here is another useful quote for the proposition that agencies can change their policies provided they do it in a reasoned way:

The question is whether the FCC’s departure from its prior policy is valid and enforceable as applied to CBS. As noted, agencies are free to change their rules and policies without judicial second-guessing. See, e.g., Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 863 (1984). But an agency cannot ignore a substantial diversion from its prior policies. See Ramaprakash v. FAA, 346 F.3d 1121, 1124 (D.C. Cir. 2003) (agency must “provide a reasoned analysis indicating that prior policies and standards are being deliberately changed, not casually ignored”). As the Supreme Court explained in State Farm, an agency must be afforded great latitude to change its policies, but it must justify its actions by articulating a reasoned analysis behind the change . . . .

Does first sale valuation come to mind?

I am now speaking directly to the judges (and their clerks) at the CIT: Please inject some appropriately judicial spice into your opinions. Find in-context ways in which to mention Janet Jackson's breast in your decisions. It can only improve the traffic to the CIT's web site.

For those who care, the FCC fine was, in fact, deemed arbitrary and capricious but since it is a 102 page opinion and I have work to do, that's all you will get from me.

9th Circuits Still Says CBP Can Search Your Laptop

In an expected result, the U.S. Court of Appeals for the 9th Circuit has denied a petition for rehearing in the case of U.S. v. Arnold. This case involved the issue of whether Customs and Border Protection can search laptops (or other digital devices) that passengers carry with them across the border. We've covered this issue before (here, here and here). I also recently contributed an article on it to the June 2008 issue of CCS Contact.

So, it seems there is not much to add except that nothing has changed. Should this go up to the Supreme Court, which is doubtful, I predict not much will change there either. It seems that Congress is going to need to step in if there is to be any limitation in the authority given Customs to conduct border searches. As previously noted, some Senators have raised the issue.

More from the Courts

The Courts have been busy. On Wednesday, the Federal Circuit decided Volkswagen, in which another case was dismissed under Court of International Trade Rule 12(b)(5) for failure to state a claim.

Volkswagen follows from Saab and similar cases involving efforts by importers to secure a value adjustment under 19 CFR 158.12 for latent defects in automobiles. Because Customs and Border Protection calculates duties as a percentage of value, if the vehicle was actually worth less than reported at the time of entry, the importer paid too much in duties. The problem in this case is that the defects were not discovered until after liquidation was final, meaning that a protest was no longer available. VW attempted to claim the adjustment directly under 158.21, which has no time limit associated with it.

The result here is that the CAFC held that even though there is no deadline stated in 158.12, it relates to appraisal. Appraisal decision can only be challenged via a protest. Thus, there was no relief available.

The decision has an interesting concurrence by Senior Judge Friedman (no relation, BTW) who finds the result to be harsh but correct. He suggests that Congress is the appropriate body to fix the problem.

Speaking of Courts, the Supreme Court might take the opportunity to look at some customs-related issues. Two petitions for certiorari have been filed.

The first is in Sakar International. That case involves a jurisdictional question relating to whether the seizure of merchandise bearing allegedly counterfeit Microsoft Windows logos is an embargo for purposes of the exclusive jurisdiction of the Court of International Trade under 28 U.S.C. § 1581(i)(4). The CAFC said no on the basis of the Supreme Court decision in K-Mart.

The second cert petition was filed in NuFarm, which argues that the NAFTA drawback rules (in this case relating to in-bond rather than drawback per se) are unconstitutional as a tax on exports. The rules require that when merchandise is imported to the U.S. under bond for export, within 60 days after export to a NAFTA country the importer has to pay duties to the U.S. that would have been due but for the bond. To Nu Farm, this sounds like a duty triggered by the exportation, which would violate the export clause. To the CAFC, it is just the deferred payment of the import duty.

Although it is unlikely that either of these cases will get further review, stay tuned for future developments.

Lastly, I promised I would go back and expound further on Totes-Isotoner. I have re-read the opinion a couple times and don't really think I have much to add that is at the right level of detail for this blog. On the question of whether the issue is really that inanimate objects have no equal protection rights, I think that is somewhat different than the court's analysis of the complaint. I see the problem as being one of asserting that people were injured as a result of the discriminatory tariff. This is why the court discussed the fact that the tariff items in question are not actual use provisions. There will need to be a showing, I think, that men buy men's gloves and, therefore, are injured. If the issue were whether gloves have rights, I think the case would have been dismissed on standing or justiciability.

But, as with all my musings, I am just a member of the blogosphere's chattering class. Feel free to disagree.

Dispatches from Laredo

Here are a couple good articles on enforcement activity in Laredo. Both involve the use of in-bond procedures to defraud either the U.S. or Mexico. In one case, Chinese fabric moving in-bond to Mexico was improperly manipulated to change its origin labeling to indicate that it was of U.S.-origin. False NAFTA certificates were also issued. In the other case, in-bond merchandise destined for Mexico was diverted to the U.S. and false pedimentos were used to show export.

Thanks to the reader who tipped me to these stories.

False Certificates

Shamed Broker

The CIT and the Endangered Species Act

Federal Circuit has issued a decision in Salmon Spawning & Recovery Alliance.

The issue here is whether the CIT can hear a claim that Customs and Border Protection and Fish & Wildlife have failed to enforce the Endangered Species Act with respect to certain salmon imports from Canada. The CIT previously dismissed for lack of subject matter jurisdiction because the enforcement of the embargo lies within the discretion of the agencies and is not subject to review.

On this point, the CAFC affirmed the CIT finding the claim to be non-justiciable.

The plaintiff's second claim is that the agencies failed to conduct a required consultation on the enforcement of the embargo. The CIT dismissed this claim for lack of standing.

On this point, the CAFC reversed. The Court held that the plaintiff's members have an interest (even if only aesthetic) in observing the salmon in their natural habitat. Also, the right invoked is procedural (i.e., the requirement for consultation) and the standing requirement is, therefore, relaxed.

With respect to this claim under section 7 of the Endangered Species Act, there was a remaining issue as to subject matter jurisdiction. The CAFC characterized this as a "novel" issue of first impression. Thus, although it acknowledged that it could have decided the issue, the CAFC remanded the case to the CIT to decide the jurisdictional issue. If the CIT finds a lack of jurisdiction, the case goes back to the Western District pf Washington, where it originated.

Also, welcome to Mr. Micawber who is blogging on a number of issues, which may well include customs and trade law. I'll let you link over to figure out the identity behind the Dickensian pseudonym.

Breaking: Gender Discrimination Case Dismissed

On July 3, the CIT dismissed Totes-Isotoner, but not on the grounds many people expected. It is a very interesting read (link). This is the case asserting that tariff rates that distinguish between products for men and women or between adults and children are unconstitutionally discriminatory. For example, men's gloves of HTSUS item 4203.29.30 are subject to a rate of 14% while gloves for other people (presumably women and children) of HTSUS item 4203.29.40 are dutied at 12.6% ad valorem.

I'm going to read the case more carefully and will provide a fuller analysis, but here are the highlights I have gleaned this morning:

1. Because the tariff differential is implemented in a statute, review of its constitutionality is not precluded by the political question doctrine. In other words, this is not purely a questions of policy or negotiations, it is a tariff law that can be reviewed.
2. Totes, as the importer, has standing to pursue the case even though it is only indirectly affected because it is being used to implement the allegedly discriminatory measure.
3. Totes' claimed injury is a direct result of alleged express discrimination and, therefore, it falls within the zone of interest protected by the constitution.

However, Totes has a problem. In its complaint, Totes did not assert any facts showing a right to relief. Flipping this around, it seems to be a requirement for pleading real, as opposed to possible injury. What Totes apparently failed to do is assert that what appears to be express gender discrimination is not based upon some legally sufficient governmental justification. Having failed to allege a purpose or intent to disfavor one protected class (e.g., men), the Totes complaint is insufficient to state a claim on which relief can be granted. Another aspect of this is that there is no clear link between these tariff designation of products and the actual use of them. Totes has not asserted in its complaint that men buy men's gloves and women by women's gloves.

As a result, the Court of International Trade dismissed the case. Importantly, the dismissal was without prejudice meaning that Totes may be able to adjust its pleading and re-file. Of course, even if this case cannot be fixed, there are a large number of cases pending before the Court. That means, it appears this issues will get hashed out on the substance.

Here's the link again if you are interested.

Let The Chips Fall

Here is a classification decision of another sort.

In the UK, most food items are exempt from the value added tax. However, there is an exception for what Americans would call "potato chips." Recently, the UK tax court had to decide whether Pringles, those tube-packed stacks of potato-ie goodness, are actually potato chips for purposes of the tax exemption.

Procter & Gamble, the maker of Pringles, argues that Pringles are actually made from a baked dough rather than a fried slice of potato. Further, Pringles do not shatter when eaten like a chip but melt in your mouth. This last bit strikes me as odd since in my experience Pringles shatter quite nicely when chewed and also seem to spontaneously shatter in the bottom of the can.

Here is an article from Bloomberg on the controversy.

Thanks to numerous readers for the tip.

Touch My Survey Monkey

I've created a survey of to get some visitor feedback. It is not at all scientific; just humor me.

Click here to take survey

I view this as kind of an experiment. If it works, I'll do future surveys on important issues like whether companies should join Customs and Border Protection's Importer Self Assessment program and what is the best harbor on Lake Michigan?

Costa Rica Inches Closer to CAFTA

To meet the U.S.-imposed October 1 deadline for implementing CAFTA, Costa Rica has dismantled its telecom monopoly and now its insurance monopoly. See the story here from the International Herald Tribune.

You may now break into "Do You Know the Way to San Jose?" and I don't mean California.

CBP on Laptop Searches

Customs and Border Protection has responded to the public and congressional attention it has attracted via searches of digital devices at the border. Customs' side of the issue is nicely presented here:

Leadership Journal: CBP Laptop Searches

Can Lou Dobbs Define Sovereignty?

Yesterday, I dropped an angry comment on the blog www.yourrightsblog.com in response to a Lou Dobbs video they posted there. That blog labels itself as "Exposing true rights for Americans and Canadians." The comment appears not to be making it past the moderator approval process, so I will reproduce it here. I admit that I was not clever enough to save a copy, so this will not be a verbatim recitation of that comment.

Lou Dobbs is an idiot. CNN should fire him for that report. The report focuses on whether there is in fact a road construction project known as the NAFTA superhighway. It appears to be true that there are road and rail infrastructure projects going on in Texas. There is also even a surface transport hub proposed for Kansas City. Assume that is all true. What's the problem?

Throughout the report, the title at the bottom of the screen reads, "NAFTA Superhighway: Threat to Our Sovereignty." But nothing in the report discusses sovereignty. What makes a road construction project or other infrastructure improvements a threat to sovereignty? American consumers and businesses buy merchandise produced in and imported through Mexico. The road will facilitate the freer flow of merchandise. And, it seems CNN has not noticed that the road goes in both directions. If this is a threat to sovereignty, then so is the expansion of O'Hare Airport and so is a new bridge between Windsor and Detroit. The road project does not mean that Mexican troops will be stationed in the U.S. or that Canada Post will suddenly be delivering our mail.

If your response is that I am missing the fact that the super secret SPP is behind this, I am not. The Security and Prosperity Partnership is a framework for policy discussions between North American governments. Why? Because neighboring countries talk to one another. All three governments have an interest in security and prosperity. Of course they will talk about that.

But, you say, I don't understand that this is all controlled by the evil northeastern elite at the Council on Foreign Relations. Yes it is true that the academic wonks at the CFR have written and spoken on the efficiencies and benefits of greater North American integration. Somewhere along the way, someone even came up with the notion of a unified currency: the Amero. None 0f that discussion means the U.S. is moving any closer to giving up its sovereignty.

I'm not worried. Wake me when they close the U.S. Mint.