The Mysterious Domestic Party Petition
We sometimes hear from a domestic party that someone is allegedly importing merchandise using an incorrect tariff classification or understating value in a way that both violates the law and creates an unfair commercial advantage for the importer. Often, the domestic party has spent considerable time and effort securing an order imposing antidumping or countervailing duties and has reason to believe someone is improperly avoiding the payment of those duties. The question is what tools exist to allow that domestic producer to ensure the law is being properly enforced and also to offset the unfair advantage.
One thought that often comes up is the Domestic Interested Party Petition under 19 USC § 1516, which is a little used but potentially useful tool. But, as we will see, it has limitations.
This section of the customs law allows an "interested party" to submit a written request for Customs to furnish to it the classification and rate of duty imposed on "designated imported merchandise." The merchandise must be of a "class or kind" that the petitioner manufactures, produces, or sells at wholesale. The interested party can be the manufacturer, producer or wholesaler in the United States or it can be a union or group of workers or trade association whose members are engaged in manufacturing, producing, or wholesaling the merchandise in the United States. Note that means this option is not available to competing importers unless they are also wholesalers in the U.S.
If Customs determines that the classification, value, or rate of duty is not correct, it must notify the petitioner and determine the proper classification, value or rate of duty. Customs must classify, appraise, and apply duty consistent with that determination to any merchandise entered more than 30 days after the date of notice to the petitioner. This seems like a practical way for an interested party to ensure that importers are complying with the law.
If Customs determines that everything is just fine, it still has to notify the petition who then has the right to contest that determination. The challenge procedure is somewhat convoluted. First, the petitioner gives notice of the disagreement. Then, Customs has to publish the challenged determination and give the petitioner "such information as to the entries and consignees of such merchandise, entered after the publication of the determination of the Secretary, at such ports of entry designated by the petitioner in his notice of desire to contest, as will enable the petitioner to contest the appraised value, classification, or rate of duty imposed upon such merchandise in the liquidation of one such entry at such port." The ports are then required to notify the petitioner by mail when an entry is liquidated.
At that point, the unhappy petitioner can file a suit in the U.S. Court of International Trade. This is not a traditional case challenging the denial of a protest. The challenge to a denied domestic interested party petition is brought under 28 U.S.C. §§ 1581(b) and 2631(b). If the CIT or Court of Appeals for the Federal Circuit rules that Customs' determination was incorrect, Customs must publish a notice of the decision and must liquidate subsequent entries in accordance with the Court decision.
That seems like a useful tool. But, apparently, that is not always the case, which is what the plaintiff in Wheatland Tube Company v. United States found.
Wheatland Tube is a domestic producer of electrical conduit tubing which, if imported from Mexico is subject an import monitoring program under Section 232. Wheatland suspected that conduit from Mexico was being misclassified as lined with an insulating material (8547.90) rather than as unlined (Heading 7306) and, thereby, evading the disciplines imposed by Section 232.
In an effort to see exactly what the importers of this product were reporting to Customs, Wheatland submitted a Domestic Interested Party Petition asking CBP to furnish it with the classification and rate of duty applicable to imports of steel conduit pipe from Mexico. Wheatland followed that up with a "ruling request" regarding the correct classification of certain steel conduit. In a third, and more specific request to Customs, Wheatland identified the two importers of concern and asked CBP to disclose the classifications declared by Shamrock and by RYMCO USA.
Customs responded to Wheatland's initial request by stating that it had classified imports by Shamrock in 7306.30.10 and 7306.30.50 and that Shamrock is challenging that classification in the Court of International Trade. Note that this means CBP agreed with Wheatland as to the applicable classification.
That prompted Wheatland to follow up with a request for information relating to to entries after August 31, 2020. To that, CBP responded that it the specifics of entry documents constitute business proprietary information precluded from disclosure under the Trade Secrets Act. But, CBP did confirm that with respect to the merchandise designated in the request, steel conduit pipe with or without interior coatings and where any such coating is not insulating, Customs position is that the merchandise is classifiable in Heading 7306. That makes sense given the Shamrock litigation.
Wheatland challenged that response as not sufficiently specific to fulfill the objectives of a § 1516 petition. The Court disagreed.
The statute requires that Customs furnish the classification and rate of duty imposed upon the designated merchandise. "Imposed upon" is not the same as the classification reported by the importer at the time of entry; it is the classification applied by Customs to the merchandise. A classification is not imposed until liquidation when it is "fixed" by Customs. Thus, the Court found that CBP's response in which it identified the classification it imposed on the merchandise designated by Wheatland to be sufficient.
With respect to its follow up request, which Wheatland styled as a ruling request, CBP refused to provide a classification on the grounds that litigation is pending before the CIT. As the Court said, Customs' decision is in accordance with 19 CFR § 177.7(b) which states (my emphasis):
No ruling letter will be issued with respect to any issue which is pending before the United States Court of International Trade, the United States Court of Appeals for the Federal Circuit, or any court of appeal therefrom. Litigation before any other court will not preclude the issuance of a ruling letter, provided neither the Customs Service nor any of its officers or agents is named as a defendant.
Wheatland argued that this regulation should not be interpreted to frustrate the domestic party seeking to remedy the misclassification by an importer. The Court simply responded that the regulation relates to "any issue," regardless who is asking for the ruling.
I know from experience that this is a very frustrating response. The litigation may take a couple years (or more) to finalize; in the meantime, importers (and domestic interested parties) need to know what constitutes a compliant entry. The answer is that the importer needs to exercise reasonable care while the litigation is pending and understand that the result in that case may change things going forward. It would be far more useful if CBP would issue a ruling or even an information letter with everyone understanding that the Court's decision might change the result later. Without some feedback from CBP, it can be very difficult for importers to manage their supply chain. But, there is a regulation and here we are.
The Court also held that the ruling request was not a proper § 1516 petition in that Customs had already informed Wheatland of the classification it applied to the merchandise and the ruling request does not contain a specific statement that Wheatland disagrees with the result. The problem here is that what Wheatland apparently challenges remains the classification assigned by the importers at the time of entry and not the classification imposed by Customs. That is not the information Customs is required to disclose under § 1516.
So where does this leave domestic interested parties who think merchandise is entering the U.S. with an incorrect classification, rate of duty, or appraised value? They can still use the § 1516 process to ask Customs to disclose how it is treating the category of merchandise. If the petition disagrees with that result, it can notify Customs and, if needed, file a challenge in the Court of International. What the domestics will not get is to look at entries or entry-specific information, that is business confidential information. There are other tools available including simple tips, more complex Enforce and Protect Act allegations, and even more complex False Claims Act cases. It is more than fair to say that domestic producers, for whom many trade remedies including the antidumping laws were created, are not without remedies.