Bold Moves by Ford

I am not picking on Ford. It just happens that it has been the subject of a lot of activity lately and since I am not involved, I can talk about it. Plus, it has been interesting. Note to past Commenter Paul: Feel free to fill in gaps or disagree.

The first of the recent Ford cases does not come from the Court of International Trade. Rather it is from the U.S. District Court in Michigan. The case comes out of an action for declaratory judgment Ford filed ahead of Customs suing it in El Paso for recordkeeping violations relating to NAFTA entries. The plaintiff in a declaratory judgment case essentially asks the court to declare its rights relative to the defendant. When allowed, declaratory judgment often takes the wind out of a potential suit and result in settlement.

Ford assumes it is going to get sued for failing to produce backup documents supporting NAFTA certificates of origin for goods from a related party in Mexico. It assumes this based on the fact that it has received a mitigated recordkeeping penalty demand for $21,642,481, which it has not paid. Quite reasonably, Ford insists that it has no obligation to keep or produce documents that the supplier is required to produce in the course of a properly conducted NAFTA verification. Rather, according to Ford and everyone but the U.S. Bureau of Customs and Border Protection, importers are entitled to rely on a facially valid NAFTA C.O. and required to maintain it with its entry records for five years.

Not necessarily wanting to wait to become a defendant, it sued for a declaratory judgment in Michigan. Customs moved to dismiss the case on a number of grounds. A couple of the arguments are worth mention.

1. Does NAFTA Bare the Complaint?

The NAFTA has language in it designed to prevent anyone from going to any court claiming the U.S. is in violation of the text of the agreement. Here, the U.S. argued that the declaratory judgment act is a challenge to U.S. actions under the NAFTA and, therefore, barred. The court disagreed saying, basically, that the case is about the implementing regulations and the recordkeeping statute, not the NAFTA. So, the case is not barred.

2. Is Declaratory Judgment Proper?

Declaratory judgment is somewhat discretionary. The court does not have to entertain the case if the court thinks the action is best resolved in the pending action by Customs against Ford. On that front, the court looked at a number of factors.

A. Declaratory judgment will not lead to settlement. The court held that even if it declared that Customs could not assess a penalty as proposed, it could assess a penalty under the normal 1509 procedures. Frankly, I found this confusing and hope someone can explain it. It appeared that Customs was trying to apply the recordkeeping penalty process, so saying it could use that as an alternative left me scratching my head. Was the penalty issued under sec. 1592 for unsupported NAFTA claims?

B. Declaratory judgment will not clarify the law. If the court refuses to grant the declaratory judgment, what happens? Ford has to defend the penalty case. And, in the course of doing so, it gets to raise the same arguments as defenses to the penalty. So, declaratory judgment does not provide any additional clarity over waiting for the affirmative case to be decided. Plus, Ford faces no additional harm in waiting to defend the action in Texas.

C. Is this forum shopping? If the only reason the declaratory action was filed in Michigan is to gain "home court advantage," the court will not play along. Ford apparently did not have a particularly good explanation for why Michigan is the better location for the decision. The port of entry was El Paso and the investigation has been conducted there. Hence, the court found El Paso to be an appropriate forum and said this was an important factor in the final decision.

And that final decision was to dismiss the case in Michigan. That means the merits will be heard in El Paso and we are all going to have to wait for that decision. But, let's think ahead a bit.

Customs says Ford needs to produce backup records, including bills of material, for NAFTA imports from Mexico despite having produced NAFTA certificates. Let's ignore for the moment the fact that the NAFTA certificates were produced in response to an administrative summons and after the date of the claim. Let's also ignore the fact that we are talking about a related supplier, so Ford does have some say with respect to the records. Let's focus on the basic question: Who has to produce the backup documents?

Customs appears to be thinking that an importer exercising reasonable care would make an independent analysis of the C.O. to determine whether it is correct and valid. Failure to do so, would, therefore, violate sec. 1592 if the entry documents made based on the C.O. were materially false or had material omissions.

That's all well and good, but how does that fit with the regulations? The regulations provide for verifications. Barring a failed verification, the NAFTA claim is presumed to be valid. Verifications are focused entirely on the supplier or exporter who provided the certificate. There are four methods for conducting a verification:

  1. A letter requesting information from the Mexican or Canadian producer or exporter.
  2. A written questionnaire to the exporter or producer in Canada or Mexico.
  3. Visits to the producer or exporter in Canada or Mexico.
  4. Any other method which results in information from a Canadian or Mexican exporter or producer, including a Canadian or Mexican producer of a material, that is relevant to the origin determination.

Notice a theme? The information comes from the producer or exporter that completed the C.O.; not from the importer. Want more proof? Read the darn C.O., which says, in Field 11:

THE INFORMATION ON THIS DOCUMENT IS TRUE AND ACCURATE AND I ASSUME THE RESPONSIBILITY FOR PROVING SUCH REPRESENTATIONS. I UNDERSTAND THAT I AM LIABLE FOR ANY FALSE STATEMENTS OR MATERIAL OMISSIONS MADE ON OR IN CONNECTION WITH THIS DOCUMENT.

I AGREE TO MAINTAIN AND PRESENT UPON REQUEST, DOCUMENTATION NECESSARY TO SUPPORT THIS CERTIFICATE, AND TO INFORM, IN WRITING, ALL PERSONS TO WHOM THE CERTIFICATE WAS GIVEN OF ANY CHANGES THAT COULD AFFECT THE ACCURACY OR VALIDITY OF THIS CERTIFICATE.

The "I" in those two sentences is the producer or exporter, not the importer. Have we all been lulled into trusting these documents? Maybe. The Court in Texas will tell us. It is possible to stretch option 4 to include strong arming the U.S. importer into getting documents from the supplier.

It is worth noting that the newer free trade agreements like Australia and Chile flip this around and center the verification process on the importer. But, that is because the language of the agreements and the regulations is different. That should tell the Texas court something about what the U.S. expected to happen in these cases. Also, rumor has it that the Canadian authorities disagree with CBP on this point.

The folks at Ford have the curse of living in interesting times.

The other Ford cases are from the Federal Circuit. I'll get to those next.

Comments

Post a Comment

Popular posts from this blog

CAFC Decision in Double Invoicing Case

The Federal Circuit has issued a decision on the merits in United States v. Inn Foods, Inc.  There had been a previous decision on jurisdiction, which was followed by a trial at the Court of International Trade and then this appeal on the substance. The initial issue is whether Inn Foods' invoicing practice amounts to fraud.  Inn Foods had been receiving an invoice from growers in Mexico that had a relatively low sales prices on it.  Subsequent to entry, Inn Foods created a second invoice at something more similar to market value, retaining the original invoice number, and paid at that higher amount.   Superficially, this looks like a standard-issue double-invoicing scheme.  But, in the age of reconciliation, is it really more like a provisional pricing mechanism?  It might have been possible to make that argument had Inn Foods adjusted its entries accordingly.  It didn't and the loss of revenue was approximately $624,000.  Based on testimony and evidence indicating both knowl
Read more

Target on Finality

Image
In the last post , 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 Target Corp. v. United States 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. Understanding this case requires a lot
Read more

CAFC: EAPA Process Really Does Violate Due Process

Image
Hot on the heels of my complaining about how the EAPA law 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: Part 1 , Part 2. Royal Brush Manufacturing, Inc. v. United States , 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 capacit
Read more