A Lesson on AGOA

Getting Customs and Border Protection to accept a claim for duty-free entry under the African Growth and Opportunity Act is becoming a tough task for your local customs lawyer. That is easily seen in Polly U.S.A. v. United States, a recent decision of the Court of International Trade.

The background story is pretty common. The importer claimed an AGOA preference on merchandise it imported from Swaziland, which is a designated Sub-Saharan beneficiary country. Customs and Border Protection requested documents that verify the origin. Polly produced some documents, but CBP rejected claim. This left Polly no choice but to protest and, when the protest was denied, to file a case at the Court of International Trade.

In the CIT, things did not go well for Polly, which raised two arguments. First, Polly claimed that Customs had authority to seek additional backup documents only when the country of origin was not plain from the entry documents. This is not correct. The AGOA regulations allow the Port Director to engage in whatever verification he or she deems necessary. That includes seeking production documents.

Polly's second argument was simply that the documents it submitted were good enough to reasonably establish Swaziland as the country of origin. Polly sought to bolster the argument by pointing out that the economic conditions in Swaziland are poor and that AGOA is intended to ameliorate that situation. Consequently, Customs should have found what appear to have been spotty records sufficient to establish AGAO qualification. The Court was sympathetic but ultimately disagreed.

What can future importers learn from this? First, an AGOA claim is going to be subject to lots of scrutiny. Have your ducks in a row before seeking duty-free entry. The importer is going to need to be able to show that at the time of entry it had reviewed records sufficient to give it reasonable assurances as to the origin of the merchandise.

The importer is also going to need records of the manufacturing or processing operations confirming the claimed origin. Customs is going to review these records carefully. Polly ran into problems because the records showed manufacturing operations had been done by people who had not clocked in to work on the relevant days. Other records showed that sewing had occurred prior to cutting, which is virtually impossible. So, it seems Customs position is that importers and their customs lawyers, need to review the documents carefully and be prepared to show a clear and consistent timeline of production steps undertaken by identifiable workers.

Lastly, the importer needs to implement internal protocols to periodically review the accuracy of the documents on which it is relying. Some companies include on-site reviews by company employees or third-party agents in this process.

Just under the surface of Polly is a potentially more interesting issue. Polly apparently made a due process claim, which the court rejected in a footnote. I have no idea what the specific claim involved. However, another case has been brought raising what appear to be similar issues. At base, the issue is what happens when CBP denies admissibility or a duty preference on the vaguest of rationales? Does it prevent the importer from making reasonable efforts to cure the defect? Assume the importer presented a 12-inch stack of records to support a claim, which Customs denied saying only that the records are insufficient or fraudulent. What is the importer supposed to do? Should it go through every document to prove its validity and sufficiency? That hardly seems like a reasonable approach. It's kind of like getting a traffic ticket and having the officer say, "Sir, I am citing you for having done something wrong back there." How would the driver defend himself or herself? In Western Power Sports, the Court approved Customs handling of the protest denial, but it seems like this issue is not going away.

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