Thursday, February 04, 2016

Ford Motors and the Missing $6.2 Million

One would think that if everyone involved agreed that the United States federal government owes a taxpayer a refund of over $6 million that the government would pay it. One would hope that would not be controversial. Unfortunately, it is and it points up a problem in litigation.

This thought is brought to you by Ford Motor Company v. United States, in which the Federal Circuit refused to order Customs and Border Protection to pay Ford the refund. Instead, the issue was sent back to the Court of International Trade for another round of litigation.

The background on this case is complicated and a bit of a mess. Ford imported some Jaguar cars and deposited estimated duties at the time of entry. It must have flagged the entries for ACS Reconciliation because it subsequently filed nine reconciling entries seeking a $6.2 million refund. The reconciliations were filed between June of 2005 and October of 2006. Normally, Customs has a year to liquidate the entry and can extend that time by up to three one-year extension periods. If not liquidated within the one-year period or within an extension period, the entry is deemed liquidated based on the information provided by the importer. In this case, that would be with the lower duty liability Ford asserted in the reconciliation. In April of 2009, Ford filed suit claiming the entries were deemed liquidated and seeking payment of the refund.

Part of the problem is how Ford had to file the case. Because there were no liquidations of the entries, Ford had nothing to protest. Consequently, it could not file a case under 28 USC 1581(a), as is the normal course of action. Instead, it filed under 28 USC 1581(i), which is subject to a two year statute of limitations but is only available to a plaintiff when challenging a denied protest is impossible, futile, or manifestly inadequate.

After Ford filed its case, Customs affirmatively liquidated five of the nine entries. At that point, the Court of International Trade dismissed the case with respect to those five entries on the grounds that (a) jurisdiction was available, meaning the case was not properly filed. The CIT refused to decide the issue with respect to the remaining four entries, saying that all nine could be protested and challenged under 1581(a). Customs then liquidated the remaining entries and denied all refunds.

Ford appealed. That is not this appeal, that was Ford I, also known as Ford Motors and the Cursed Reconciliation. In that decision the CAFC held that the liquidations by Customs subsequent to the filing of the (i) case did not defeat the subject matter jurisdiction the Court had under the properly filed (i) case.

Back in the CIT, it was determined that all but one of the claims was filed beyond the two-year statute of limitations for an (i) case. For the remaining case, the CIT declined to exercise its discretion to decide the case. According to the CIT, the most efficient approach is for all of the cases to decided together in an (a) case. Ford appealed, again, in what is now Ford II, Ford Motors and the Federal Circuit.

If this was not already an excessively lawyer post, it is about to get worse. The first issue has to do with whether the two-year statute of limitations is jurisdictional. If so, the Court of International Trade would lack the power to review and decide the cases that were filed beyond the two-year deadline. Frankly, it shocks me that this is a question, but it is. Recent Supreme Court cases, including United States v. Kwai Fun Wong have expressed the view that Courts should not find a jurisdictional bar without very clear direction from Congress. Congress need not use any "magic words," though I suggest "Colloportus" would be an appropriate way to lock the courthouse doors. Here, the Federal Circuit found no jurisdictional bar in a statute of limitations and, effectively shouted "Alohomora." Rather than a jurisdictional bar, the statute of limitations is a run-of-the-mill statement of the litigant's filing obligations. [We'll come back to that.]

That means the Court should look to the merits of the case. The first part of the merits was whether the CIT abused its discretion when it refused to issue a declaratory judgment on Ford's claims that were timely filed. Trial courts, including the Court of International Trade, hold "unique and substantial discretion" in deciding whether to issue declaratory relief. On the previous remand, the CIT declined to exercise that discretion, finding that it would be more efficient to adjudicate all the claims in a 1581(a) case after CBP denied the protests. There is merit to this as a 1581(a) case is a de novo case where all the issues are decided on the basis of the evidence presented to the Court. a 1581(i) case is more limited review of the administrative process. Based on all of this and the generally wide latitude given a trial court's discretionary decisions, the Federal Circuit affirmed the CIT's decision to withhold declaratory relief.

Regarding the claims that were filed beyond the statute of limitations, the Federal Circuit noted that Customs liquidated these entries and the claims remain subject to litigation under 1581(a) in the CIT. Consequently, the Federal Circuit is certain (enough) that the CIT would not have exercised its discretion on these cases either. So, the Court of Appeals affirmed the decision.

What that means is that this is all headed to the Court of International Trade, again. There, the CIT will have to figure out what to do with a case that was filed late, but where the statute of limitations is not technically jurisdictional. Assuming the cases are decided on the merits, it appears that Ford should be able to collect the $6.2 million, perhaps in a Goblet of Fire.

This case is lousy with technicalities. It is actually the sort of technical decision that makes non-lawyers wonder why we can't just get to the correct result. I admit to having that feeling myself--often. Circuit Judge Newman, in a fine dissenting opinion, expressed just that frustration.

The litigation problem here is that as lawyers we all have clients and responsibilities. Once we are in Court, it is sometimes hard to see the heart of the issue through the technical legal arguments. The fact that there may be a good legal argument against refunding this money does not obviate the underlying fact that Ford has apparently overpaid customs duties by a whopping $6.2 million. It appears (though there is some ambiguity) that Customs agrees with this proposition. If that's true, it would be nice if Customs just did the right thing and refunded the money. Otherwise, the U.S. is enjoying what we lawyers call an unjust enrichment. But, the law and the rules are there to protect taxpayers as well. A company that overpays can't sit on its rights or improperly assert those rights. If it does, it risks being out of luck. That system creates an impasse the often can't be bridged without a trip or two to court.

Tuesday, February 02, 2016

Ruling of the Week 2016.4: Curtis Stone's Chop Chop

Here is something you may not know about me . . . I watch competitive cooking shows the way a normal guy watches baseball. As far as I am concerned, Alton Brown is the Kenesaw Mountain Landis of cooking and Ted Allen is its Howard Cosell. Consequently, when a ruling (HQ H266149 (Oct. 21, 2015)) from Customs and Border Protection invokes the name of Curtis Stone, I pay attention. In this case, the question was the tariff classification of "the Curtis Stone Chop Chop Deluxe Food Chopper."

Exhibit A:

I suspect someone at Customs is a fan because the sentence "Curtis Stone is a celebrity chef from Australia," is irrelevant to the issue. It is, however, a true statement.

As you can tell from the picture, this is a hand powered chopper with interchangeable blades. The top handle presses down, pushing the food item through the blade and into the receiving container. Simple.

The goods entered the United States classified in 8205.51.30 (3.7%) as handtools (including glass cutters) not elsewhere specified or included; household tools; other. The statistical level refers to "Kitchen and table implements," but that is not really relevant for classification purposes. The customs broker subsequently corrected the entry and asserted that the correct classification is 7323.93.0060 (2%), which covers "Table, kitchen or other household articles . . . of iron or steel, of stainless steel: Kitchen ware." Customs and Border Protection rejected both classifications and went with 8210.00.0000 (3.7%) covering "Hand-operated mechanical appliances, weighing 10 kg or less, used in the preparation . . . of food . . . ."

Problem one for Curtis, who was not actually the protestant, is that the Explanatory Notes to Heading 7323 state that the heading only covers items not more specifically provided for in another heading. Further, the Explanatory Notes exclude from Heading 7323 household articles having the character of tools including cheese graters, mincers, and vegetable mashers. On the other hand, the Explanatory Notes indicate that Chapter 82 covers "Articles of cutlery" and "certain mechanical domestic appliances." To make matters worse, the EN to 8205 states that it covers all hand tools not included in other Headings of Chapter 82. The Chop Chop sits on the countertop when in use and is, therefore, not hand held. That brings us to 8210.

The Explanatory Notes state that 8210 covers non-electric mechanical appliances, not exceeding 10 kg, used in the preparation of food. The Note goes on to say that something is "mechanical" "if it has such mechanisms as crank-handles, gearing, Archimedian screw-actions, pumps, etc.; a simple lever or plunger is not in itself, however, regarded as a mechanical feature  . . . unless the appliance is designed for fixing to a wall or other surface, or is fitted with base plates, etc. for standing on a table, on the floor, etc."

According to Customs, 8210 describes the Chop Chop, which is a sufficient basis on which to exclude it from 7323 and 8205.

But, there is the mandolin issue. Exhibit B.

Mandolins have been classified in 7323, so what gives? According to Customs, the hand operated push and pull action of the mandolin is not mechanical in the same sense as is the plunger on the Chop Chop. With all due respect to Customs, I would worry about that. It strikes me that neither device provides much in the way of mechanical advantage. The plunger has a bit of a gravity assist, but that's it, and the note says a plunger is not enough. As far as I can tell, there is no gear, pulley, spring or other mechanical element that amplifies the action of the user. That strikes me as a weakness in the decision.

But, that is just me. What do you think. Is the Chop Chop mechanical? Should Curtis Stone file a case? If so, can we call him as an expert witness and have him make French fries in the courtroom as demonstrative evidence and as a snack? If so, I'm totally in.

Thursday, January 28, 2016

Ruling of the Week 2016.3: Deductive Value

I tend to get focused on classification here on the Customs Law Blog. But, this is not the Tariff Classification Law Blog. Our scope if broader. With that in mind, we should also look at the other side of the duty calculation: value. Most importers understand that value is usually "transaction value" plus statutory additions including assists, royalties, and commissions. Look at 19 USC § 1401a. Most of the time, that will get you through the day. But, it does not work when you don't have a sale for export to the United States or when the price is affected by the relationship between the parties. In those cases, we need to turn to an alternative method of valuation.

When transaction value fails, the statute requires that the goods be appraised based on a hierarchy of methods. The first alternative is the transaction value of identical or similar merchandise. For purposes of today, I am skipping that and going to deductive value. Why? Because its my blog.

The ruling for today is HQ H007667 (May 25, 2007). The merchandise is melons imported from Panama. At the time of entry, the melons were not sold to the importer. Rather, they were entered on consignment. After delivery, the importer took possession of the melons and advanced the grower $2 per box, but did not buy them. Rather, it sold them unrelated third parties, usually within a week of arrival. After the sale (which is the first time a sale in the U.S. occurs) the importer payed the grower the proceeds of the sale, less adjustments for delivered quantity, marketing and distribution expenses, customs duties, and an overhead charge. Essentially, the importer was acting as an agent for the grower by selling goods in the U.S. and being compensated for expenses plus a commission.

Under these facts, there is no sale for export to the United States. Consequently, there is no price paid or payable at the time of entry and no basis on which to apply transaction value. The ruling does not give a particularly cogent reason for skipping from identical or similar merchandise to deductive value. The issue seems to have been price volatility, but that is not important. We are looking at the deductive value analysis.

Deductive value starts with the sale price in the U.S. and deducts out expenses to try and arrive at an FOB foreign port price. The relevant sale price is the unit price at which the merchandise concerned is sold in the greatest aggregate quantity at or about the date of import. If the merchandise is not sold at or about the time of importation, the relevant price is the price at which the merchandise was sold in the greatest aggregate quantity after the date of importation but before the close of the 90th day after importation. That puts a stake in the ground setting the outermost limit for when a deductive value can be found. Here, the melons were to be sold within a week, which is at or about the time of importation.

Now, we have to back expenses out of that price to get to the entered value. According to 19 CFR § 152.105(d), the expenses to be deducted include:
1. Any commission usually paid or agreed to be paid, or the addition usually made for profit and general expenses, in connection with sales in the United States of imported merchandise that is of the same class or kind, regardless of the country of exportation, as the merchandise concerned;
2. The actual costs and associated costs of transportation and insurance incurred with respect to international shipments of the merchandise concerned from the country of exportation to the United States;
3. The usual costs and associated costs of transportation and insurance incurred with respect to shipments of the merchandise concerned from the place of importation to the place of delivery in the United States, if those costs are not included as a general expense under paragraph (d)(1) of this section;
4. The customs duties and other Federal taxes currently payable on the merchandise concerned by reason of its importation, and any Federal excise tax on, or measured by the value of, the merchandise for which vendors in the United States ordinarily are liable; and
5. But only in the case of price determined under paragraph (c)(3) of this section, the value added by the processing of the merchandise after importation to the extent that the value is based on sufficient information relating to the cost of that processing.
In the melon ruling, counsel for the importer proposed several deductions including:

1. Profit and general expenses related to the sale in the U.S. (including the commission)
2. International shipment from Panama to the U.S.
3. Customs duties, MPF and HMT and the cost of phytosanitary certificates
Customs allowed the deduction for marketing and distribution costs as well as the profit. Profit, in this case, was expressed as an "overhead charge." Customs also allowed the deduction for ocean freight. Because the transportation from Panama to the inland point of unloading in the U.S. was shown on a single through bill of lading, Customs permitted the domestic transportation to be deducted. Finally, the customs duties, taxes and fees could be deducted.

After all of those deductions, what remains is the deductive value. Calling it "deductive value" should kind of make sense now.

The interesting thing about deductive value is that it inverts the recordkeeping requirements. The importer is still required to retain documents to support valuation, but the nature of those documents will change. Under deductive value, the there is no price paid or payable to the exporter and there will not be an invoice from the exporter or payment to the exporter that corresponds to the deductive value. Rather, the key documents are evidence of the post-importation sale in the U.S. and, very critically, evidence supporting any deductions from that sale price. An importer relying on deductive value needs records proving the cost of international shipment; the duties, taxes, and fees paid; marketing and distribution expenses; the profit it earned; etc.

This is sometimes a hard concept for compliance personnel who are used to matching a commercial invoice to a 7501 and payment record. It is, however, the way it works.

Some of you are screaming that I skipped over the issue of finding the price at the greatest aggregate quantity. That is an important issue and also impacts recordkeeping. What it means is that your starting price cannot be arbitrarily selected as the lowest price ever attained in the U.S. That would be inappropriate and not representative of true value.

Instead, the price to use as the starting point for your deductions is the single most common price at which the units are sold to an unrelated party. Assume you import 100 melons and make four sales: 15 units for $2 each, 10 units for $1.50 each, 40 units for $1 each, and 35 units for $1.50. Although the single largest sale was of 40 units for $1 each, that is not the price to be used. Rather, the price of the greatest aggregate quantity is $1.50, which was applied to the sale of 45 units (10 + 35). Yes, that is a recordkeeping issue as well.

Friday, January 15, 2016

Ruling of the Week 2016.2: Parts of Clarinets

I realize we are hard on the end of the second week of 2016, so I need to post another ROTW to avoid falling behind so early. So, here goes. Consider this a follow on to the prior ROTW, in which I walked through the classification of a complete ice cream maker. Today, we will discuss the classification of parts.

The ruling in question is NY J85598 (Jun. 19, 2003). In the ruling, Customs and Border Protection was asked to classify three "parts" used in the production of clarinets. The parts are needle springs, flat springs, and hinge screws. All were made of stainless steel.

The most obvious place to classify all three items is in 9209.99.40 as parts of musical instruments, in this case woodwinds. That is a good result, if correct, because the duty rate is zero. But, is it correct?

How else might the parts be described? Two are obviously springs. The hinge screw seems to be a metal pin with a threaded end. It might be a screw or a pin or part of a hinge.

Springs of iron or steel are specifically called out in HTSUS Heading 7320. Looking at the notes to Section XV and to Chapter 73, there is nothing that excludes the springs from classification in Heading 7320. But they are still also properly described as parts of musical instruments. Consequently, we need to look at the legal notes for Heading 9209.

Chapter 92 is in Section XVII of the HTSUS. That Section has no notes limiting its scope. But, Note 1(a) to Chapter 92 makes it clear that "Parts of general use, as defined in note 2 to section XV, of base metal (section XV), or similar goods of plastics (chapter 39)" are excluded from classification in Chapter 92. Note 2 to Section XV reads in part as follows:

Throughout the tariff schedule, the expression "parts of general use" means: 

(a) Articles of heading 7307, 7312, 7315, 7317 or 7318 and similar articles of other base metals;

(b) Springs and leaves for springs, of base metal, other than clock or watch springs (heading 9114); and

(c) Articles of heading 8301, 8302, 8308 or 8310 and frames and mirrors, of base metal, of heading 8306.
This means that if the springs are of base metal, they are "parts of general use" and not parts of clarinets for purposes of tariff classification. Note 3 to Section XV tells us that base metal includes steel, from which these springs are composed. Thus, the springs are precluded from classification in Chapter 92 and are properly classified in Heading 7320. The exact tariff item depends on the nature of the spring. Customs classified these springs in 7320.90.50 as "other" springs with a 2.9% rate of duty.

Note that we did not ask any questions about relative specificity or essential character. Really, all we did was read the HTSUS.

That leaves us with the hinge pin. Although it is threaded, it is does not appear to be a screw because it is not a fastener. That keeps it out of Heading 7318. Similarly, it is not a cotter pin, which is also a kind of fastener. (See NY K88732 (Aug. 25, 2004)). It is also not really part of a hinge, which generally is a two part assembly connected by a pin, although our clarinet pin performs a similar function by providing a pivot point. (See NY N099304 (Apr. 1, 2010). Nevertheless, when in place, the pin does not firm a hinge, it forms the mechanism of a clarinet key.

Nothing in the legal text excludes the pins from Chapter 92. And, there does not appear to be a better, more specific, classification. Consequently, the pins are classifiable in 9209.99.40 as parts of woodwind instruments.

Again, no need to go beyond General Rule of Interpretation 1.

This ruling is a good example for corporate compliance folks to use as an example of why it is not correct to classify all parts as "parts thereof." The rules on classifying parts are some of the most complex in the HTSUS. No matter how expensive, special, or unique your particular nut, bolt, screw, valve, gasket, or other item might be, if it can be classified as something other than a part, it probably should be. In fact, if you want to engage in some internal compliance activity, start by looking at what you have classified as parts. You will likely find errors in that sample.

Wednesday, January 13, 2016

Ruling of the Week 2016.1: Ice Cream Makers

I am a man of few hobbies. One of the ways I entertain myself is by making ice cream. Since I make it, I must eat it as well. That is probably not the best outcome, but there it is.

It occurred to me that I do not know how to classify an ice cream  maker under the Harmonized Tariff Schedule of the United States. Luckily, I could find the answer.

In NY N269539 (Nov. 6, 2015), Conair, the parent to the Cuisinart brand of ice cream makers, asked U.S. Customs and Border Protection to classify a machine. I have not been able to find a picture of the specific machine, which is described as model number WCIC20, a two-quart machine with a compressor. That makes it a self-cooling unit and is a big advance over the Cuisinart unit I use, which requires that the tub be frozen prior to starting the process. This machine operates in three modes to mix, freeze, and keep the ice cream cool.

Since this is the first  Ruling of the Week for 2016, let's walk through it carefully.

First, ask yourself where this device might be classified. We know it contains a motor and a compressor, either of those is a possible description. It is also a freezer or at least "freezing equipment." In cooling mode, it seems to act more as a refrigerator than a freezer (though I would never leave my ice cream in a refrigerator for long).

A motor would be classified in Heading 8501 and a compressor in Heading 8414. A freezer is in Heading 8418. How do we arrive at the right classification?

First, always start with the heading language, do not go below the headings until you have eliminated the incorrect alternatives. The way to eliminate headings is to apply the General Rules of Interpretation, in order, until a correct classification emerges.

General Rule of Interpretation 1 tells us that "classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ." Before we go any further, we need to check those section and chapter notes.

The notes to Section XVI (which includes Chapters 84 and 85) tell us what is not included in that Section, how to classify parts, and other information that is not particularly helpful. Until, that is, we get to Section XVI, Note 4, which states that:

Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function.

That tells us something important. Our ice cream machine consists of multiple components, including a motor and a compressor, plus various electronics and other parts. The components are intended to do a clearly defined function: make delicious and fattening ice cream. Consequently, if there is a machine describing that function in Chapter 84 or Chapter 85, it should be classified as that machine.

Next, we scan the Notes to Chapter 84 and find nothing that excludes our ice cream machine. Looking down the headings (and looking ONLY at the headings), we quickly see that it is not a nuclear reactor, not a steam boiler, not an internal combustion engine, etc. It could be a gas compressor of 8414, but we have already excluded that by virtue of Note 4 to Section XVI. Finally, we arrive at 8418, which covers "Refrigerators, freezers and other refrigerating or freezing equipment, electric or other . . . ." Although the tariff does not say "Ice Cream Machines," this is a pretty good description of the product.

We are still not done. Is there a better place to put this device? Scanning through Chapters 84, we run into Heading 8419, which covers:

Machinery, plant or laboratory equipment, whether or not electrically heated (excluding furnaces, ovens and other equipment of heading 8514), for the treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, distilling, rectifying, sterilizing, pasteurizing, steaming, drying, evaporating, vaporizing, condensing or cooling, other than machinery or plant of a kind used for domestic purposes . . . .

What about that? This machine certainly treats materials by cooling. But, our machine is for household use and this heading excludes machinery "of a kind used for domestic purposes." That means it cannot apply to our device. I don't see anything else in the tariff that is a good candidate. Therefore, we can conclude that 8418 is the correct heading. It is very important to understand that we did this entirely through GRI 1, without jumping to essential character, relative specificity, or other classification rules. Generally speaking, if you are beyond Rule 1, you should assume you are wrong until proven otherwise.

We are not done. We must now determine the six-digit subheading. Here, we start another process of elimination. This is not a combined refrigerator-freezer with separate doors. It is not just a refrigerator because it also freezes. Eventually, we end up at 8418.69 as an "other" device and at 8418.69.0180 as the correct tariff classification.

We can confirm that it is correct, or at least that Customs and Border Protection agrees, by reading the ruling.

Now, to prove that I make ice cream, I give you sweet corn ice cream with blackberry sauce and pound cake. You're welcome.

Thursday, January 07, 2016

Reconciliation and NAFTA Post-Entry Claims

No one likes it when a pet theory dies. It is even worse when the theory was smart and creative. Unfortunately, this one seems to have finally been put out of its misery.

I am talking about the notion pursued with vigor and righteousness by Ford Motor Company concerning post-entry NAFTA claims. There is useful background here and here. I'm not going to go into detail again, so take the time to read those previous posts. It's OK, I am not going anywhere.

The single salient fact here is that Ford made a timely post-entry NAFTA claim but failed to provide Customs with the NAFTA certificate of origin until after the running of the one-year period for a claim. Customs denied the claim on that basis, not on the merits. Ford smartly pointed out that while a post-entry NAFTA claim under 19 USC 1520(d) requires a certificate of origin, an equally post-entry claim made via the ACS Reconciliation Prototype does not. Customs specifically and affirmatively waived the requirement for the presentation of a NAFTA CO for claims made under Reconciliation. I know because Customs said so in this Federal Register notice (scroll down to page 6259, top right).

Ford argued that Customs' waiver of the CO in the Reconciliation context and refusal to waive or accept a late CO in the "normal" § 1520(d) process was arbitrary and capricious, and, therefore, unenforceable. The Federal Circuit previously remanded this issue to Customs for a better explanation of why the disparate treatment is reasonable. Now, the issue is back at the Federal Circuit with a shiny new explanation.

First, the Court notes that § 1520(d) is not the sole authority on which a post-entry NAFTA claim may be based. To start, that section requires Customs and Border Protection to promulgate regulations to implement the statute. The regulations, therefore, are relevant. In addition, 19 USC § 1484 governs entry and Reconciliation. That means that a single law is not being given two different interpretations.

Next, the Court agreed with Customs that Reconciliation includes additional safeguards that warrant waiving the CO as part of the claim. In particular, the Court points to the continuous bond required for Reconciliation.

Thus, with an apparently reasonable explanation in hand, the Federal Circuit accepted the remand explanation for the different filing requirements. That means Ford will not be getting its refunds. It also means we can't as easily argue that Reconciliation is a blanket waiver of the requirement for a NAFTA CO in the post-entry claim context.

But, there is a vigorous dissent. I love a good dissent. This one, by Circuit Judge Reyna, starts:

I find no principled explanation for Customs’ decision in this case to treat duty refund claims under NAFTA differently depending on whether those claims were filed traditionally or through an electronic process known as “reconciliation.”  I dissent. 
Judge Reyna sees several issue. The first is very administrative law-wonky. It has to do with whether Customs' explanation that the authority for the waiver does not come exclusively from § 1520 is entitle to deference from the Court. The majority of the panel found deference appropriate because Congress had not addressed the issue, leaving it to the judgment of Customs. But, Judge Reyna sees the explanation as having been "crafted for the purpose of this litigation." That would make it a post-hoc rationalization that is not entitled to deference.

Looking at the original source material, Judge Reyna finds that the authority to waive a NAFTA CO stems from Article 503(c) of the Agreement itself. That provision apparently covers waivers for purposes of claims made at the time of entry and post-entry claims. When NAFTA was negotiated, Reconciliation was not a thing. Consequently, there is no reason to assume or conclude that the waiver requirement would be any different for a post-entry claim implemented under Reconciliation. Further, the law authorizing Reconciliation did not directly address NAFTA claims. Thus, it seems there is only one source for the waiver authority and one law should be interpreted in a consistent manner.

Regarding procedural protections inherent to Reconciliation, Judge Reyna finds the differences less than compelling. To the extent Reconciliation claims are subject to record keeping requirements and to audit, traditional post-entry claims have similar requirements. With respect to the bond required for Reconciliation, the dissent notes that in a traditional post-entry claim the importer has already paid the duties, making Customs pretty secure that it will not lose any money. If it does improperly pay a post-entry claim, it can seek to recover the duties and potentially penalties through other enforcement options.

Despite the interesting dissent, the majority carried the day (as it should). The upshot being that Customs' refusal to grant Ford a waiver of the requirement to present a NAFTA CO with its post-entry claims is not arbitrary and capricious and is, therefore, affirmed.

The truly sad part of this is that I only recently added the prior Ford case to my textbook. Now, I need to make a quick update before the second edition comes out.

Tuesday, January 05, 2016

Protest Problems

To close out 2015, the Court of International Trade revisited a perennial question: When is a protest the necessary prerequisite to challenging a Customs' decision in Court? This time, the case was The Jankovich Company v. United States.

Jankovich is a distributor of bunker fuel between the ports of Los Angeles and San Diego. The company made several requests to Customs to determine that its shipments were exempt from Harbor Maintenance Fees, which are assessed at 0.125% of the value of the cargo. Customs told Jankovich several times that it disagreed (see HQ H086062 and HQ H250175). So, like many reasonable companies unhappy with a decision of the United States, Jankovich filed a suit.

When it filed its summons, Jankovich asserted jurisdiction under 28 U.S.C. § 1581(i). That is the "residual" provision in the statute defining the exclusive jurisdiction of the Court of International Trade. It has to be read in context with the whole section which also gives the Court jurisdiction to review a denied protest. That is in § 1581(a). The United States moved to dismiss on the grounds that Jankovich should have filed a protest and filed a summons under (a) rather than (i). In the absence of a proper protest, the argument goes, the Court lacks jurisdiction.

As a general matter, the United States is right on the law. Many cases from the CIT and the Court of Appeals for the Federal Circuit have found that (i) jurisdiction may not be invoked when jurisdiction under (a) would have been available. This is based on the administrative law concept that requires individuals to exhaust the administrative process before going to Court. If the importer fails to give Customs and Border Protection the opportunity to correct the assessment of duties, taxes, and fees through a protest, it cannot then take that assessment to Court. An exception exists if the protest process would be futile or manifestly inadequate.

Here, the Court found that Jankovich could have requested HMF refunds via a protest and filed a summons seeking judicial review of the denied protest. Consequently, the protest would have been neither futile nor manifestly inadequate. Thus, there is no (i) jurisdiction.

Seeing the jurisdictional writing on the courthouse wall, Jankovich argued that its request for reconsideration of the ruling should be treated as a protest. This did not fly. Jankovich did not comply with the [newly(?)] strict regulatory requirements for filing a successful protest. Among other things, the request for reconsideration of the ruling was not labeled as a protest and did not specifically seek refunds of HMF paid on previous transactions. Thus, it was not a protest. Without a valid protest, there is no (a) jurisdiction.

The end result is that the case was dismissed for lack of jurisdiction.

That may not be the end of the matter, though. The Court helpfully pointed out that Jankovich still has the opportunity to file protests for past entries (within the 180-day statute of limitations) and that the expected denial of those protests will form a proper basis for jurisdiction. Unfortunately, without deciding the issue, the Court also noted that CBP's decisions are "not without some appeal."