Sunday, November 23, 2014

The Tale of Tenacious and Sigma-Tau

I skipped a post on a prior case from the Court of International Trade called United States v. Tenacious Holdings, Inc., on the grounds that it seemed to be a one-off without a lot of general applicability. I appear to have been wrong. There is already a new case along similar line. That case is Sigma-Tau Health Science, Inc. v. United States.

Both cases involve a motion to have a case referred to Mediation. In Tenacious, the Court of International Trade granted the motion. In Sigma-Tau, the Court denied the motion.

As background, you need to understand that the Court of International has a process called Court Annexed Mediation under Rule 16.1. The idea is that before a case moves to a trial or motion for summary judgment, the judge assigned the case can ask a different judge to take a look at the case as a judge-mediator. The goal is to promote the settlement of cases. But, the process does not happen particularly often at the CIT. There may be lots of reasons for that, but in classification cases, it is hard to mediate between two opposing tariff classifications. The imported item is usually X or Y and there is no middle on which to settle. But, in penalty cases, mediation may be more useful. Also, the United States can settle cases involving the collection of lawfully owed duties. So, maybe there should be more mediation.

Tenacious was a penalty case brought by the United States to collect duties and penalties on improperly classified work gloves. The amount in controversy was relatively small and the 2009 tariff classification was no longer in use. Thus, any decision in the case would be non-precedential. Also, in a penalty case, it is largely up to the Court to decide whether the defendant acted negligently and to determine an appropriate penalty. Thus, the Court decided that the potential benefit of settlement outweighed any risks associated with mediation and the Court ordered mediation.

Sigmau-Tau is different. For starters, it is not a penalty case. Second, the amount in controversy is unknown and the decision will have precedential value. Given these facts, the Court found mediation to be more risky than its possible rewards and denied the motion.

I don't know enough about Sigma-Tau, to have a view on whether that is the right decision. This is entirely up to the discretion of the judge, so there really in no right decision. Nevertheless, it seems to be me that mediation may be a useful tool to move cases along by having a knowledgeable third party shine a little reality into the case.

Tuesday, November 18, 2014

NAFTA CO Clarification

I often run into questions about whether a NAFTA CO is acceptable backup for a NAFTA claim or to support another NAFTA CO. Here is what Customs and Border Protection has to say on the issue:

CSMS #14-000598

This posting seeks to clarify the meaning of the terms “valid NAFTA Certificate of Origin,”  “invalid NAFTA Certificate of Origin” and “defective NAFTA Certificate of Origin”.  Additionally, CBP reminds importers that preference will be denied when possession of a valid NAFTA Certificate of Origin at the time of the claim cannot be substantiated.

A NAFTA Certificate of Origin is valid if it:

1. Lists the good in question
2. Covers the period in question
3. Includes the exporter’s or his agent’s signature in block 11a “Authorized Signature”
4. Was in the importer’s possession at the time of the claim, as demonstrated by 1) a block 11e “Authorized Signature” date prior to the date of the preference claim, and 2) submission upon request of a CBP official

A NAFTA Certificate of Origin is invalid if it does not meet the aforementioned requirements.

A NAFTA Certificate of Origin is defective—and thus may be remedied in accordance with 19 CFR 181.22(c)—if, while meeting the conditions of a “Valid NAFTA Certificate of Origin,” above, contains other errors or omissions. These include, but are not limited to the following: illegibility, misclassification, incorrect or missing preference criteria, signature by an individual who cannot legally bind the company, typed or stamped signature, 3rd-country goods (in addition to NAFTA goods), Net Cost field error, single entry Certificate without an invoice or other unique reference numbers, or other similar errors or omissions.

In addition to defining the aforementioned terms, this CSMS posting serves as a reminder that NAFTA preference will be denied if the importer does not possess a valid NAFTA Certificate of Origin at the time of the preference claim.

Welcome to the Blogosphere

Jean-Marc Clement, a Canadian customs and trade expert with BCF in Montreal has started blogging from a Canadian perspective. Read his first entry here. It involves the tariff classification of swivel chairs and is an entertaining and interesting piece.

Sunday, November 16, 2014

Ruling of the Week 15: A Honey of a Problem

There is an antidumping duty order covering honey from China. That means that exporters and importers will look for clever ways to stay outside the scope of the order. Some of those will be legal; finding a new supplier in Vietnam, for example. Others will be decidedly illegal; like labeling honey as rice syrup. One interesting possibility is diluting honey until it is no longer 50% honey by weight. At that point, it is outside the scope of the antidumping duty order.

In this game of cat and mouse, Customs and Border Protection needs to continually find ways to identify the presence of honey and its origin. HQ H187175 (May 14, 2012) illustrates part of that problem.

The imported merchandise was reported as "honey and rice syrup mixture" from China. If the mixture is 50% by weight or honey, it is subject to antidumping duties. As entered, the goods were classified in HTSUS item 1702.40.40 as glucose and glucose syrup, containing in the dry state at least 20 percent but less than 50% by weight of fructose, excluding invert sugar: Blended syrups described in additional U.S. note 4 to chapter 17: other . . . other.

Custom sent a sample to its lab to determine the honey content of the mixture. The lab tested for the presence of C-4 plant sugar, which is derived from corn. Apparently, this makes sense as corn syrup is commonly used to dilute honey. Customs also applied Isotope Ration Mass Spectrometry. The report showed the presence of C-3 sugars. Honey is a C-3 sugar. The test also showed that the sample was not "adulterated" with C-4 (i.e., "corn based") sugars. Due to the absence of corn syrup, the lab concluded that the sample was more than 50% honey.

The problem for Customs is that rice sugar is a C-3 sugar, just like honey. That means that tests showing an absence of C-4 corn syrup does not automatically lead to the conclusion that the sample was mostly honey. Furthermore, the tests for C-3 sugar do not differentiate between rice syrup and honey. In fact, the importer claimed that the merchandise was more than 50% by weight rice syrup and, therefore, outside the scope of the antidumping duty order.

Customs took a second look at the sample. This time, Customs looked at it under a microscope to determine the amount of pollen and bee parts in the sample. Finding that the sample contained more pollen and bee parts than a reference sample of only 50% honey, Customs again found the merchandise to be within the scope of the antidumping duty order. The importer protested the conclusion.

In the ruling, Customs had to determine whether the lab tests were sufficiently reliable to support applying the antidumping duty order. The starting point for that analysis is that Customs is presumed to be correct. The importer has the burden of showing either that the results are wrong or that the methodology is unreliable. Here, the importer had an independent lab confirm that the chemical test does not distinguish between honey and rice syrup. Customs agreed to reject that methodology, leaving the question of the microscopy analysis.

Subsequent to Customs' laboratory analysis, a federal court in Florida addressed the same question under the Supreme Court's direction from a case called Daubert. Generally, Daubert requires district court judges to vet scientific testimony to ensure that it is based on the generally accepted scientific consensus. To do that, the judge is to look at criteria such as whether the methodology has been subject to peer review and is based on a falsifiable premise. In other words, is it scientifically rigorous?

In the Florida case, the district court determined that CBP's methodology did not satisfy the Daubert requirement for reliability. Furthermore, the Commerce Department had also previously recognized that it could not distinguish between honey and rice syrup, making the 50% by weight test "without meaning."

Consequently, Customs was left with no real choice other than to admit that it could not properly determine the amount of honey in the sample. Consequently, the protest was granted.

Friday, November 07, 2014

Quick Update

Having now read the second opinion in Puerto Rico Towing & Barge, I'll just say that I am not going to do a full recap. This is an effort to have the Court of International Trade change its original judgment in favor of the United States. The company raised a few points about alleged errors in the Court's prior analysis, but the Court did not see anything substantive there. So, the original decision stands.

My second quick update is to Rockwell Automation v. U.S., which is the case about the functioning of the Court of International Trade's Reserve Calendar. For background, read the original post here.

You will recall that an issue in the case is whether several motions for extensions of time to remain on the Reserve Calendar were timely. The relevant rule is Rule 83(d), which says:

(d) Extension of Time. The court may grant an extension of time for the case to remain on the Reserve Calendar for good cause. A motion for an extension of time must be made at least 30 days prior to the expiration of the 18-month period.  

In the last post, I posited that the 30-day prior notice provision might apply only to the first 18-month period in which the case is on the Reserve Calendar. If that is correct, then subsequent motions to extend are timely when made before the end of the Reserve Calendar even if within the 30-day window.

Now, the Court of International Trade has taken up the question. In this effort styled as an "Application for Clarification," counsel for Rockwell asked the Court resolve the matter. The Court noted the sparse history of the language in the rule and that members of the bar have expressed their view that the 30-day notice is limited to the first 18-month period. Consequently, the Court agreed that there is an issue. That issue is now before the Advisory Committee on Rules, "where the matter can be fully aired and any appropriate revisions to the Rules of the Court can be recommended in due course." So, that means wait and see what happens.

As is, the motion to extend was granted anyway, so this is a bit of sound and fury signifying the need for a useful clarification of the rules.

Thursday, November 06, 2014

Stuff I need to Do

I'm working on work which is making working on things that are not work, a bit of a chore (which would be work). I know I have a Jones Act case and a second look at the Reserve Calendar to cover. I promise to work on getting to that particular piece of activity which is not work even though it may appear to be work. Mostly, I hope my non-work effort makes your work less of a chore (which would still be work).

Where Was I? Ruling of "A" Week 14: Circuit Scrap

Ever wonder what happens to scrap printed circuit assemblies? They get mined for valuable metals, primarily for copper.

I know that because I read HQ  H218910 (Dec. 17, 2013).

The issue in the ruling is the classification of the scrap PCA's. They might reasonably be classified as waste and scrap of plastic (which is the substrate) or of metal. They might also be classified as various electronic components such as resistors or as electronic assemblies such as control boards.

Waste and scrap is not defined in the tariff schedule, but there are cases that address the concept. The Courts have collectively arrived at a definition of waste as material with no original value or no value for the ordinary or main purpose of manufacture. That means that lower grade or inferior products that are otherwise functional and saleable are not waste, they are just inferior. Think factory seconds or day old bread.

In the metals context, Note 8(a) to Section XV defines "waste and scrap" as “[m]etal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons.” Similarly, Chapter 71, Additional Note 1(c) says that metal waste and scrap is fit only for the recovery of raw materials. According to the Explanatory Notes, that includes waste and scrap of electronic circuit boards containing precious metal. So you can see where this is going.

The problem in defining these goods as waste metal is that the boards are plastic along with multiple metals. Extremely learned (but no relation) counsel for the importer provided Customs documentation showing that copper is the predominant metal by weight and is the target of the recovery operation. Copper waste and scrap is classifiable in HTSUS item 7404.00.60, which is where Customs put this merchandise.

Monday, October 27, 2014

Victoria's Secret: Halloween Edition

In 1989, with torches and pitchforks, Congress chased the Tariff Schedule of the United States away from our black and white villages, never to be seen again. Where did it go? What happened to its arcane rules like "chief use" and the "more than doctrine?" Unfortunately, we now know. Dispatches from the Court of Appeals for the Federal Circuit show that its unmarked grave is empty. Shuffling marks in the dirt lead to the Courthouse where the Federal Circuit has taken up and decided Victoria's Secret Direct, LLC v. United States.

This may be the final edition of a horror tale subtitled, "Rise of the TSUS." I have two prior postings on this case here and here. Sadly, the photo of the fit model used as demonstrative evidence has been removed. You should go back and read those posts.

The terrifying issue here is the correct tariff classification of knit tops for women that provide both body coverage and bust support, eliminating the need for a brassier. In the trade, these are know as "shelf bra camisoles."

The innocent and unsuspecting star of this tale is the importer, who wants them classified in Heading 6212 as brassieres and similar articles. The government has given up it initial position that the articles are t-shirts or tank tops of Heading 6109. Rather, it is arguing that the Court of International Trade's decision classifying these garments in the residual provision if Heading 6114 is correct.

This is where things get scary. Through incantations and divination, the majority of the Federal Circuit found that the garments have two distinct functions: providing support as a bra and providing coverage as a top. The issue comes down to whether garments with those two functions, that can be worn in public without layering on top, are brassiers, girdles, corsets, braces, suspenders, gaters or similar articles.

When faced with this kind of question, courts traditionally unleash their minions (i.e., law clerks) to employ a rule of statutory constructions called ejusdem generis, which sounds best when said with the Hungarian-inflected voice of Bella Lugosi.  Under this rule, when a general term (here "similar articles") follows a list of specific examples, "similar articles" must share the unifying characteristic of the listed items. According to the Court of Appeals, this is a "common sense" assessment of the listed items. It is not intended to be an exercise of abstract logic or semantics.

Here, the Court found the unifying characteristic to be support of either the body (e.g., brassieres) or other garments (e.g., suspenders). Each, in their own way, help overcome the burden of gravity, if you know what I mean. And, that function is not diluted by the additional function of providing body coverage. Backless evening gowns, for example, apparently provide built-in support but are not considered to be support garments of Heading 6212.

Based on this, the Court found that the two garments at issue, while providing bust support, do not share the unifying characteristic of having support as the primary functionality. Rather, the garment is wearable in public without additional lawyers. That cannot be said about brassieres and suspenders, at least not in my neighborhood.

Consequently, the Court of Appeals rejected Victoria's Secret's and Lerner's challenge.

But, there was one more voice to be heard: Judge Reyna with another strong dissent. He sets the tone with the following opening:

The majority reaches its decision by rewriting the fundamental principles of a long established doctrine of statutory construction and by invoking an approach for classification of articles that this court soundly overruled. The majority’s analysis invokes a "sounds right to me" approach that is decidedly at odds with established rules of tariff classification interpretation established by law and followed by this court. For this and other reasons set forth below, I respectfully dissent.

Essentially, he is pointing the hubris of someone tinkering with forces they may not fully understand or be able to control. Lighting must have flashed about the Courthouse while the majority raised a multivolume document cobbled together of parts of various editions of the dead and discarded TSUS to the rooftop in an effort to cheat Congress.

According to the killjoy dissent, everyone agrees that the unifying characteristic of the items in Heading 6212 is that they provide support to a body part (or two) or to some other garment. The Court of International Trade found that the essential feature of the imported garments is to provide support. Judge Reyna would have found that conclusion of law (i.e., the unifying characteristic) and finding of fact (i.e., that the garments provide support) sufficient to find them classifiable as similar articles in Heading 6212, despite additional coverage and warmth functions.

Shouting "It's alive," the dissent accuses the majority of re-animating the discarded "more than doctrine" under which an article was excluded from a heading if it included non-subordinate features beyond those encompassed by the heading. [I noted this as an issue as far back as 2011 in this post.] In this case, the Court used the non-subordinate feature of serving as a top to overcome the similarity to bras. This is despite the "more than doctrine" supposed to have died with the TSUS in 1989.

Moreover, the Court--again according to the dissent--muddied the dark and turbulent waters further by inserting into the ejusdem generis analysis the notion of "paramount function" instead of "essential characteristic." By doing this, the Court requires that various characteristics be weighed in an effort to determine which is paramount. By doing so, the Court's analysis is inconsistent with prior case law on ejusdem generis.

You may be wondering, What about the evening gown? No problem for the dissent. To classify the evening gown as similar to a brassier or girdle, the Court would have to find that support is a core and indispensable element of the gown and that it does not have a more specific primary purpose. Apparently, he would find that coverage and adornment were the more specific primary purpose.

All of that, left the judge in the dissent roaming the halls with a rhetorical pitchfork and wooden stake (to mix my literary allusions).

Personally, I am not sure the evening gown issue is so easily dismissed. The analysis would be that the hypothetical dress performs a support function as an indispensable element of its design and use. That means it is prima facie classifiable in 6212 as a support garment. OK, but that does not take it out of whatever heading applies to evening gowns. That's probably Heading 6104. But that only gets you so far. Assuming both Headings are prima facie applicable, the next question is whether one provides a more specific description than the other. An argument can be made that a garment that provides support has specific requirements that are more difficult to satisfy than the reasonably generic designation of dress or top. In that case, the more specific description might be Heading 6212, which would be a win for Victoria.

But, I have done zero research on that analysis. There may be legal notes or other reasons it is wrong. It's not like a mistake in analysis can have a bad result, is it  . . . .

The end . . . ?


Monday, October 20, 2014

Ruling of the Week 13: Keeping Up With The Jones Act

The Jones Act is an aspect of customs law we don't often cover. It is, however, disproportionately represented in the rulings Customs and Border Protection issues. It is, therefore, worth a brief look.

The part of the Jones Act with which we are concerned regulates coastwise transport and is 46 U.S.C. § 55103. Under the law, to be a coastwise-qualified vessel, the ship must have been made at a U.S. shipyard, documented in the U.S., and owned by a citizen of the U.S. Only coastwise-qualified vessel can carry passengers or cargo from one U.S. port to another. A non-coastwise-qualified vessel may not transport passengers or cargo from one U.S. port to another U.S. port without risking a $300 penalty. Many ships are documented in Panama, the Bahamas, and other countries where the fees and regulations are favorable. This is why cruises departing the U.S. return to the port of departure.

Customs is often asked whether a person who happens to be on a ship is considered a passenger for purposes of the Jones Act. That is what happened in HQ H258132 (Oct. 15, 2014). A passenger is anyone on board who is not connected to the operation of the vessel.

In this case, someone was on board the M/V Seabourn Quest to install a new satellite antenna. Customs has held repeatedly that workmen [sic] and technicians are not passengers if their activities on board the vessel contribute to the operation, navigation, or business of the vessel. Installing a satellite antenna is directly connected to the operation of the vessel and, therefore, the technician is not a passenger.

Done and done.

Now for you ship nerd, the M/V Seabourn Quest was built in Italy and is documented in the Bahamas. It is a cruise ship capable of carrying 450 passengers with a crew of 335. Here is a nice shot from "The Cruise People."

If you are interested in the economics of the Jones Act, check out this episode of NPR's Planet Money.