Friday, July 25, 2014

Ruling of the Week: The Minkomatic

Maybe this will be a continuing feature, maybe not. Either way, it is not at all unusual for me to see rulings that I find amusing for one reason or another. And, in almost all cases, I know that it is not amusing to the people involved who consider the product involved to be their job. So, I issue a blanket apology to anyone I might offend.

Today, I was amused to see a ruling on the Minkomatic 660 and 670 feeder trucks. You can find out everything you ever wanted to know about self-propelled vehicles designed to deliver feed to livestock in pens here.

The issue presented to Customs and Border Protection was whether the Minkomatic truck is classifiable as a vehicle of Chapter 87 or as agricultural machinery of Chapter 84. Because it is equally equipped for mink feeding, Customs determined that it is not principally used for transport. That took it out of Chapter 87. Customs then also determined that mink husbandry is an agricultural exercise. That puts the Minkomatic is 8436, without leaving GRI 1.

Why is that amusing? "Minkomatic," that's why.

Tuesday, July 15, 2014

What's a Protest?

A protest is a very important document. When an importer lodges a protest with Customs and Border Protection, the importer is telling CBP that it disagrees with a decision Customs made when liquidating an entry. Absent a protest, the liquidation becomes final and is not subject to challenge. If the importer files a protest and CBP denied it, the importer can go to the Court of International Trade to challenge the denial. In many cases, if there is no valid protest, there is no way to get into court.

To be valid, a protest has to be timely. Today, that means 180 days from the date of liquidation. That was not always the case. The protest period used to be 90 days. The transition from 90 to 180 days was not smooth and that seems to be the underlying problem in Puerto Rico Towing & Barge Co. v. United States, a recent decision of the Court of International Trade.

The case involves an effort to protest the collection of duties on ship repairs performed on a U.S. flag vessel while it was in the Dominican Republic. The value of the repairs is subject to a duty of 50% , but can be reduced by the value added from beneficiary developing countries under the Caribbean Basin Economic Recovery Act.

In this case, the importer was apparently working with CBP personnel at the relevant port to prove up the amount of the CBERA offset. Customs denied the claim and the importer sent at least two letters in which it requested relief. One of those letters said it was trying to avoid filing a detailed protest within the 180 day limit.

It turns out that this entry was subject to the old 90-day protest period because it was made prior to December 18, 2004. So, the eventual protest was late.

That raises the question of whether the letters, which were within the 90-day period might be construed to be protests. On this, the Court of International Trade has traditionally been pretty generous. Many cases have said that any correspondence that informs the Port Director of the challenged decision is sufficient to constitute a protest. But, that is not always the case.

The Court will not find a protest simply because it can surmise from all of the surrounding circumstances that the importer intended to protest a liquidation. Further, there are detailed regulations specifying the content of a protest. While the Court did not expressly hang its proverbial judicial hat on the regulation, it is clear that the regulation must have some impact on judging whether a correspondence counts as a protest.

More important, in this particular case, the correspondence indicated that the importer working with Customs to avoid filing a protest. Taken literally, that means neither of the letters was intended as a protest. This is a logical conclusion. But, there is another hand in play: Customs knew the importer disagreed with the assessment and on what grounds. In prior years, that might have been enough to get into Court. But, that was not the case here.

Take that result as a learning moment. To co-opt a common aphorism in Chicago, "Protest early and often." And, when you do protest, use the official form or electronic equivalent. It will make your life easier. Remember that the 180-day period applies to current entries and cannot be extended. On the 181st day, you are stuck with the liquidation.

Thursday, July 10, 2014

Dependable Classifications

When we last left Dependable Packaging Solutions, Inc. v. U.S., the Court of International Trade agreed with U.S. Customs and Border Protection that certain inexpensive bud vases were properly classified as "glassware of a kind used for . . . indoor decoration or similar purposes" (Heading 7013) rather than as "carboys, bottles . . . and other containers, of glass, of a kind used for the conveyance or packing of goods" (Heading 7010). Dependable appealed to the Court of Appeals for the Federal Circuit, which has now rendered its judgment.

The interesting issue Dependable raised on appeal has to do with the Explanatory Notes. [Note from Larry: Dear Thomson Reuters and Boskage, you're welcome.] The Explanatory Notes are not binding on Customs or the Court. Nevertheless, because they represent the views of the folks who wrote the Harmonized Tariff, they are deemed to be relevant and persuasive authority on the meaning of a tariff term. In this case, the Explanatory Notes specifically state that vases are examples of products included in Heading 7013. The CIT then determined that the products at issue are "vases" and, therefore, classified in 7013.

But, Dependable points out, the word "vase" does not appear in Heading 7010 and, therefore, the definition of vase is irrelevant to determining the scope of that heading. The issue, according to Dependable, is whether the goods are "containers," which they most certainly are. Nevertheless, based on commercial documents and statements at the hearing, the Court concluded that they are also vases.

That left the Court with having to decide between 7010 and 7013, both of which are use provisions. Thus, the question boils down to finding the principal use of the class or kind of products similar to these vases. If the single most common use in the U.S. is not for the conveyance or packing of the goods, then the vases cannot be classified in 7010.

To determine principal use, the Court applied the so-called Carborundum factors . . . .

Sorry, I nodded off.

At this point, you and I can both lose interest in this case. The remainder is a close approximation of the analysis performed by the Court of International Trade. You should review the prior post for a summary of that analysis.

That said, I think this case and the prior R.T. Foods decision are notable for the clarity and detail of the classification analysis they contain. The common denominator may be that both were authored by Circuit Judge Wallach who came to the Federal Circuit after a stint as a Judge of the Court of International Trade, where he clearly learned a thing or two about classification. This case is a good teaching example of how principal use works and how importers should think about classifications based on use. So, the decision is worth reading despite my giving it short coverage here.

Finally, what the heck is a carboy? According to Bing, its a large bottle for corrosive liquids. Apparently, they are also commonly used in home brewing. Stuff like that is part of why being a customs lawyer is interesting. Who else but dealers in sulfuric acid, hipsters and product classifiers would know that?

Sunday, July 06, 2014

Catching Up

I am behind on my blogging. As I have said in the past, that usually happens when I am busy at work, which is a good thing. So, to play a little catch up, I am going to combine several recent cases in this single post.

Tempura Tempest

First up, the Federal Circuit ruled on the classification of tempura in a case called R.T. Foods, Inc. v. United States. We discussed the Court of International Trade decision here. The government asserted that cut, flour dusted, fried, and flash frozen vegetables are classified in HTSUS 2004.90.85, which covers "Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, frozen, other than products of heading 2006: Other vegetables and mixtures of vegetables: Other: Other, including mixtures." According to R.T. Foods, the products are classifiable in HTSUS 2106.90.99, which provides for "Food preparations not elsewhere specified or included: Other: Other: Other: Frozen." The latter classification is entitled to duty-free entry from Thailand. So, this comes down to whether the prepared tempura is "elsewhere specified or included." If it falls into Heading 2004, it is elsewhere specified and cannot be in Heading 2106.

The Court of Appeals noted that Heading 2004 describes the products by name and is, therefore, an eo nomine provision encompassing all forms of the named item (i.e., all forms of vegetables prepared other than with vinegar, frozen, etc.). On the other hand, Heading 2106 is a basket provision, which is inherently not very specific.

R.T.'s main argument was that its product is substantially different from the simple prepared vegetables of Heading 2004. These were mixtures of different vegetable and, in the case of one product, were formed into attractive bird's nest forms. Based on the combination of components, R.T. also argued that the products are more properly treated as ready-to-eat meals and that they have a use distinct from simple prepared vegetables.

None of this was persuasive enough. In what I will call the decisive utterance of this case, the Court of Appeals for the Federal Circuit held that:
R.T. has not identified a feature or component of the subject merchandise that so substantially transforms the vegetables so as to remove them from the eo nomine provision. Furthermore, R.T. has not shown how tempura battering and frying does not fall within the eo nomine provision’s specification that the frozen vegetables be “prepared or preserved otherwise than by vinegar or acetic acid.” Absent such a substantial transformation, it is clear the merchandise falls within the scope of heading 2004.
Try as it might,  R.T. was unable to overcome the conclusion reached by Customs and Border Protection and the Court of International Trade that the goods are fully described by Heading 2004. As a result, the decision of the CIT was affirmed.

International Custom Products

When we last left International Custom Products, it was fighting for its day in court despite not being able to pay the duties Customs and Border Protection alleges it owes for allegedly misclassifying "white sauce base" to avoid the application of a dairy quota. The Court of International Trade previously dismissed the case for failing to state a cause of action on which relief can be granted, because paying all the duties owed is a statutory requirement to secure judicial review.

ICP has now asked the Court of International Trade to reconsider that prior decision or to amend its prior judgment on the theory that the requirement to deposit duties is, as applied here, an unconstitutional violation of due process. Unfortunately, this has all been fully briefed and rejected by the CIT in the previous case.

Even more unfortunately, the Court of Appeals for the Federal Circuit has also held that the Notices of Action rate advancing these entries, which are the sole basis on which ICP is deemed to owe this enormous amount of money, were invalid and void. In other words, ICP has won its case on the merits. It should not actually owe this money. But, because of the statutory requirement, ICP must pay the money to make that legal conclusion apply to the remaining entries. That is an absurdity that the Department of Justice and Customs should recognize and address outside of the context of a law suit. Why? Because it is actually the right thing to do.

On the other hand, and this is an important consideration, the long litigation history of this dispute leads one to read between the lines that ICP may not be exactly an innocent party. Clearly, only the parties and their counsel know for sure. But, from the outside, something stinks here. It is just not clear from which side the odor is emanating.

Pop Quiz

What is this thing?
If you said that it is a pair of pliers or a pair of locking pliers, you would be properly using the English language. Unfortunately, a prior decision of the Court of International Trade has moved Customs and Border Protection to hold that locking pliers are actually wrenches. Why? Because the locking mechanism facilitates "wrenching" a bolt or similar item and that fact is acknowledged in the relevant industrial standards. This is actually an issue on which I worked, so I will leave it at that.

Monday, June 23, 2014

Riddell Me This: When are Football Uniforms Not Sports Equipment?

Answer: when they are classified under the Harmonized Tariff Schedule of the United States.

This classification decision in Riddell v. United States, addresses one of my pet questions. At some point, is apparel designed for use in conjunction with participating in sports "sports equipment" rather than apparel?

The products at issue in this case are football jerseys, pants, and girdles. Each of them is designed to be worn in conjunction with protective football pads (both hard and soft). However, no pads were included with the merchandise when imported. Customs and Border Protection classified these items under chapters 61 and 62 if the HTSUS. Riddell argued that the merchandise was more properly classified as "Football . . . equipment . . . ." under subheading 9506.99.20. Because the imported goods were not imported with or otherwise incorporate padding or other protective features, the Court of International Trade held that the merchandise is clothing, not sports equipment.

On appeal, Riddell argued that these items constitute football equipment because . . . well, because hockey pants are sports equipment. We know that because the Court of Appeals for the Federal Circuit said so in Bauer Nike Hockey USA v. United States. But, those pants came imported with protective pads. Furthermore, the CAFC found that motorcycle jackets with foam padding were still apparel because they were not protective enough when compared to the helmets worn by motorcycle riders. In that case, the Court held that apparel will only classified as sports equipment when it is "almost exclusively protective in nature."

Stated another way, the Court said that "sports equipment" does not include merchandise that, as imported, would be understood as clothing. Rather, it must have a "transformative element" such as the pads in the hockey pants.

Lacking such transformative elements, i.e, protective padding, the Riddell products did not qualify as sports equipment.  The facts that they were designed for use in conjunction with playing football and that they were often required equipment, were not sufficient to transform them into protective equipment. Everyone involved, though, agreed that the girdles, if not sports equipment, are also classifiable in 6114 because they are not support garments of 6212.

To me, this case raises two questions. First, does Riddell have an opportunity to tariff engineer these products by importing them with the pads?

Second, what about this?

Specialized padding? Check. Designed specifically for cycling? Check. Not something you choose to wear off bike? Check. Lack of pockets and fly? Check. Seriously, if you import these, feel free to call.

Ford Recon Decision Redux

Back in 2004 and 2005, Ford Motor Company imported some vehicles from the UK, which I will assume were Jaguars even though that is completely irrelevant. Ford flagged the entries for reconciliation. When it filed the reconciliation entry, Ford sought a refund of overpaid duties. Ford did not get the refunds and ended up in the Court of International Trade seeking to recover overpaid duties on the grounds that the reconciliation entries liquidated by operation of law at the amount of duty asserted by Ford. Because I image these vehicles as expensive Jaguars, I assume a lot of money is involved. Customs, for its part, believes that the liquidation of the reconciliation entries were properly extended and that Ford was given proper notice.

The Court of International Trade agreed with the government in this opinion.

The dates involved become important to see how this plays out. Ford commenced the action on April 15, 2009. At that time, CBP had not liquidated any of the entries. However, while the case was pending, CBP liquidated and in some cases reliquidated the entries. Ford claims the liquidations or reliquidations are meaningless because the reconciliation entry was deemed liquidated a year after filing. So, the question is what happened first: deemed liquidation or affirmative liquidation? If deemed liquidation happened first, Ford wins.

If this all sounds familiar, it is because these issues had been addressed previously and, on appeal to the Federal Circuit, remanded back to the CIT. And, here we are . . . again.

Ford raised a number of related arguments. Its second point was that CBP did not give proper notice of the extension of the liquidation dates. According to Ford, this made any extensions invalid. Similarly, Ford argued that the notices did not provide a reason for the extension and that to the extent the reason was to permit CBP to gather more information, it never asked for it.

For two entries, Ford argued that Customs improperly extended the liquidation to a date beyond the four year maximum. And, for one entry, Ford argued that because CBP requested information prior to liquidation, it was not permitted to deny Ford's claim when Ford responded with legal objections to the request.

The government has asked the Court to dismiss a number of the claims because the two year statute of limitations applicable to these cases had expired when the case was filed. Despite Ford's argument that the Federal Circuit implicitly found the case to have been timely, the Court of International Trade noted that it has an obligation to ensure that cases are properly brought before it. Further, nothing in the decision from the Court of Appeals indicates that that Court considered the statute of limitations argument. Consequently, it considered the government's argument.

To have a claim, Ford must have brought this action within two years of the date it first had the right to do so and reasonably knew it could do so. Looking at three of the entries involved, the Court found that they were filed on June 29, July 28, and August 26, 2005. Absent a valid extension, they would have been deemed liquidated one year later, respectively. When Ford failed to receive a liquidation notice after "a reasonable period" following the allege deemed liquidation dates, it should have known it needed to pounce like a big predatory cat (a jaguar, maybe) within two years. According to the Court, even measured from the date of Ford's actual knowledge that a notice of extension should have been received, Ford failed to commence the action within the two-year limitations period.

The remaining issue for the Court was whether to entertain Ford's claim for declaratory judgment. This is an action that asks the Court to determine the rights of the parties to a real case or controversy. These cases are pretty unusual at the CIT, but bravo to Ford for pressing the issue. The Court seems to concede that it could have decided the issue presented in this claim.

However, on discretionary grounds, the Court declined to do so. The main point in favor of not addressing the issue was that Ford has another case currently pending in the CIT addressing denied protests covering the same issues and entries. This is a different way for the Court to review the same questions. But, in the review of a denied protest, the parties engage in discovery and the Court can look beyond the administrative record. Because that case will be arguably a better means of getting to a resolution of the matter, the CIT declined to decide the declaratory judgment action.

That means I will get to write at least on more post on this issue.

If I was less tired, I would go back and insert analogies to striking cobra's, galloping mustangs, and maybe the Court's need to focus on dates. Would be too much to imply that the analysis of the case explorer-ed a fusion of legal principles? At this point, Ford's counsel could probably use a pint-o' something cold to drink, although this is not a fiesta. Instead, I leave all that to your imagination.

Wednesday, June 11, 2014

Nerd Alert

I teach trade remedies law at the Center for International Law at the John Marshall Law School. It turns out that drafting an exam is a fairly difficult task that takes some level of inspiration. This year, I decided to let my geek flag fly and craft an exam based on an original comic book scenario. After grading the tests, I sent it to the completely awesome Law and the Multiverse, which was kind enough to run it as a guest post. Yesterday, it was picked up the by also awesome Above the Law. For me, that's a good day.

Read the exam and the resulting discussion at Law and the Multiverse. Can you tease out all the references to the DC universe?

Jean Loring, Esq. and Ray Palmer, Hero.

Tuesday, May 27, 2014

Make it so . . . .

Speaks for itself.

Stolen from Julie Whitt by way of Pete Mento. Hat tip to both.