A Saucy Decision
Generally, if I fall behind in my effort to report on decisions of the Court of International Trade, it is because I am busy. Such is the case currently. I have been traveling about the country for various events and business meetings. At the present, I am in Detroit having just enjoyed a shwarma dinner and a brief interlude with an elliptical machine. Now, I will take advantage of free WiFi to catch up on a relatively interesting case that I have so far failed to cover.
That case is International Custom Products v. United States. If that sounds familiar to you it is because this case has been in the Court of International Trade and the Federal Circuit in one form or another since 2005. The basic underlying issue is whether a prepared food product is classifiable as a dairy product or as a sauce base. This matters a lot because if it is a food product and the entries at issue were made without proper quota, the rate of duty owed increases 2400%. That is the very definition of a classification case worth litigating.
The issue in this specific case is whether the Notice of Action Customs issued to rate advance the entries conflicted with a ruling Customs and Border Protection had issued on the merchandise. If the Notice of Action was effectively a modification or revocation of the ruling, then Customs was statutorily required to go through a public notice and comment process to change the ruling. Customs argued that the ruling actually did not cover the products in the entry because the ruling request did not describe the same merchandise as was imported. This was based on an alleged difference in the amount of milk fat in the product and the possible absence of some thickening agents.
There is a lot of language in the decision (which is part of the reason I have waited so long to read it). The upshot is that the Court found that the ruling request did describe the same merchandise as was imported. Further, the ruling request properly described range of uses for the product. Thus, the Court found that the ruling was binding on Customs and could not be modified or revoked except by the notice and comment process (see 19 USC 1625).
The next step is critical. In the face of a binding ruling, is a conflicting Notice of Action the same thing as a modification or revocation of the ruling? According to the Court of International Trade, it is. As a result, Customs could not simply rate advance the entries without notice and comment. That means that the goods should be liquidated as entered and, therefore, this is a potentially big win for the plaintiff.
On the long road to this decision, there is some interesting side reading. First, there is an unusually long discussion of the credibility and scope of knowledge of the government's expert witness. The Court gave little weight to much of the expert's testimony because the Court believed that the expert was too personally invested in the outcome.
The second side issue is equally interesting. the government subpoenaed a former employee of the importer. While the Court also did not give much weight to this witness, her testimony gives a lot of insight into why the government has been pursuing this case so hard for so long. Keep in mind, I am just reporting here. I am not vouching for the content. What this witness said was that the principal of the company told her that the production of "white sauce" with high levels of milk fat "was just another way to bring in butter." In other words, this is a scheme to avoid the dairy quota.
My take on this is that the importer might have been engaging in a perfectly legitimate exercise of tariff engineering. There is nothing wrong with importing a high milk fat sauce and then processing it into butter once imported. But, that is going to be tricky to accomplish. If your plan is to do that and you get a ruling from Customs to ensure that you are doing it properly, be sure you explain ALL of it to Customs. Otherwise, you are likely to end up at the crossroads of Heartland By-Products and this case.
That case is International Custom Products v. United States. If that sounds familiar to you it is because this case has been in the Court of International Trade and the Federal Circuit in one form or another since 2005. The basic underlying issue is whether a prepared food product is classifiable as a dairy product or as a sauce base. This matters a lot because if it is a food product and the entries at issue were made without proper quota, the rate of duty owed increases 2400%. That is the very definition of a classification case worth litigating.
The issue in this specific case is whether the Notice of Action Customs issued to rate advance the entries conflicted with a ruling Customs and Border Protection had issued on the merchandise. If the Notice of Action was effectively a modification or revocation of the ruling, then Customs was statutorily required to go through a public notice and comment process to change the ruling. Customs argued that the ruling actually did not cover the products in the entry because the ruling request did not describe the same merchandise as was imported. This was based on an alleged difference in the amount of milk fat in the product and the possible absence of some thickening agents.
There is a lot of language in the decision (which is part of the reason I have waited so long to read it). The upshot is that the Court found that the ruling request did describe the same merchandise as was imported. Further, the ruling request properly described range of uses for the product. Thus, the Court found that the ruling was binding on Customs and could not be modified or revoked except by the notice and comment process (see 19 USC 1625).
The next step is critical. In the face of a binding ruling, is a conflicting Notice of Action the same thing as a modification or revocation of the ruling? According to the Court of International Trade, it is. As a result, Customs could not simply rate advance the entries without notice and comment. That means that the goods should be liquidated as entered and, therefore, this is a potentially big win for the plaintiff.
On the long road to this decision, there is some interesting side reading. First, there is an unusually long discussion of the credibility and scope of knowledge of the government's expert witness. The Court gave little weight to much of the expert's testimony because the Court believed that the expert was too personally invested in the outcome.
The second side issue is equally interesting. the government subpoenaed a former employee of the importer. While the Court also did not give much weight to this witness, her testimony gives a lot of insight into why the government has been pursuing this case so hard for so long. Keep in mind, I am just reporting here. I am not vouching for the content. What this witness said was that the principal of the company told her that the production of "white sauce" with high levels of milk fat "was just another way to bring in butter." In other words, this is a scheme to avoid the dairy quota.
My take on this is that the importer might have been engaging in a perfectly legitimate exercise of tariff engineering. There is nothing wrong with importing a high milk fat sauce and then processing it into butter once imported. But, that is going to be tricky to accomplish. If your plan is to do that and you get a ruling from Customs to ensure that you are doing it properly, be sure you explain ALL of it to Customs. Otherwise, you are likely to end up at the crossroads of Heartland By-Products and this case.
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