Kent International Rides to Victory

 Kent International has been in a dispute with Customs over the classification of "Kangaroo Carrier" child safety seats for bicycles for so long that it has generated six judicial opinions. We last covered it here. In what imight be the last word, the Court of International Trade has handed a limited win to Kent.


Photo by James Wainscoat on Unsplash

This decision is not really about the classification. On the merits, the Court previously found that the seats are classifiable in Heading 8714 as accessories to bicycles. What was at issue in this decision is whether Kent was entitled to have some of the entries liquidated as "seats" in Heding 9401 because Customs and Border Protection's prior liquidations constitute a legal "treatment" of the merchandise as such.

A "treatment" is analogous to a ruling, except it just happens as a matter Customs' actions on entries. It is relevant here because once a "treatment" is established, like a ruling, it can only be modified going forward and only starting 60 days after notice and comment. 19 USC 1625(c)(2). The implementing regulations spell out when a treatment comes into existence:

(A) There was an actual determination by a Customs officer regarding the facts and issues involved in the claimed treatment;

(B) The Customs officer making the actual determination was responsible for the subject matter on which the determination was made; and

(C) Over a 2-year period immediately preceding the claim of treatment, Customs consistently applied that determination on a national basis as reflected in liquidations of entries or reconciliations or other Customs actions with respect to all or substantially all of that person's Customs transactions involving materially identical facts and issues;

The controversy in this case was over the third prong. First, how to define the 2-year period and, second, what it means for the prior determinations to have been on a "national basis."

The question of the 2-year period is one of those things that might seem clear, but it is not. The two years must be "immediately preceding the "claim of treatment." The claim occurs when there is an assertion of the right to claim the treatment. One way to define that is as the first enty for which Customs denied the claimed treatment. In other words, the first entry on which Customs told Kent it was changing the classification from seats to bike accessories. 

Measured from the earliest entry at issue, which occurred at Long Beach and was subject to a protest, Kent does not satisfy the 2-year requirement. Kent, on the other hand, looks to the protest approval dates to find a later date. The Court agreed with Kent finding the basis for the treatment arose from Customs' decision to approve Kent's protests, not the classification on the initial entries. That protest approval happened in August of 2008. Customs applied that classification to entries through November of 2010. Until February of 2015, Customs took no further action regarding this classification. Then, in 2015, CBP issued a ruling reclassifying the merchandise. That event is what the Court referred to as the "inflection point" for the 2-year requirement. Moreover, the Court found that the treatment extended from 2008 to the ruling in 2015. However, only those entries that were protested after November 2010 are entitled to benefit from the treatment.

Regarding whether CBP applied the treatment consistently and on a national basis, the problem was that the relevant entries were all at the Port of Newark. Pass through entries at Long Beach do not count. Arguably, treatment at a single port is not national treatment. But, because only the Newark entries matter and there was no inconsistent treatment, the Court found that the treatment there constituted national treatment.

As a result, Kent proved the existence of a legal "treatment" for its entries from its 2010 protest to the Customs' 2015 ruling changing the classification. That means the Customs was required to go through the notice and comment process before changing that treatment. Customs failed to do that. That means that Kent is entitled to a refund of the duties it paid on that merchandise, even though the correct classification has been determined to be as bicycle accessories. 





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

Counter-Counterclaim Decision

Image
This is a two-parter covering three decisions including  Second Nature Designs Ltd. v. United States . This part covers an interesting procedural question with implications for importers deciding whether to file a challenge to a customs decision in the Court of International Trade. In this case, that decision was the proper classification of decorative objects made from branches, wood, dried flowers, and other material. Customs classified these items in HTSUS item 0604.90.60 other foliage, branches and other parts of plants . . . dried . . . or otherwise prepared (7%). Plaintiff believes the merchandise is properly classifiable in 0604.90.30 covering the same merchandise except in "dried or bleached" form (free).  From Second Nature Designs This first decision does not resolve the classification. It goes to whether the United States properly asserted a counterclaim against the plaintiff. A counterclaim is a claim the defendant asserts against the plaintiff. Here, after Second
Read more

Ellwood City Blues

Despite being judicial review of agency action, principles of administrative law do not always apply to customs law. That is because most decisions by Customs and Border Protection affecting the importation of merchandise are subject to administrative review in the protest process and then judicial review on a de novo standard. That means the judge will make a decision based on the evidence presented to the court rather than the administrative record on which the agency based its decision.  For comparison, in a trade case, the court will uphold a Commerce Department dumping margin calculation as long as the decision is based on substantial evidence in the record  and is otherwise in accordance with law. That means the agency can prevail even if the court would have reached a contrary conclusion. That is the opposite of, for example, a tariff classification case in which the court is required to reach the correct result based on the evidence before it with little regard for Customs'
Read more