|
CUSTOMS AND INTERNATIONAL TRADE
CUSTOMS
NAFTA COUNTRIES REVISE CUSTOMS OPERATIONS
1/01
Published by the Journal of Commerce on January 12, 2001
Much has been said in the American trade press about ways in which U.S. Customs has revised its operations in response to ever
changing times and priorities. However, little has been said about changes in Canada and Mexico which are equally broad-based.
U.S. Customs has adopted the phrase "risk management" as the moniker to explain its revisions. The idea behind the
effort is quite simple. Customs is being asked to deal with breath-taking expansions of trade with the same approximately 17,000 employees it has had for the last almost ten (10) years.
While the number of employees has remained stagnant, its responsibilities have risen dramatically (trade is expected to double
between 1990 and 2010). In addition, Congress keeps giving the agency more responsibility often with no additional funding and always without providing more personnel. In order to operate "smartly" (as
commissioner Kelly puts it), Customs has taken to identifying and implementing programs which allow it to focus its energies where the violations are likely to occur.
While this author has taken issue with some of Customs' efforts (such as in the pornography area which needs to be dealt with
but is perhaps more appropriately handled by other agencies), the mainstay of Customs has been cargo and passenger processing. To that end, the agency has brought new technology and new methods of operation on line
often times with great success. It has also revised the way in which it conducts its audits.
At the same time, Canada and Mexico have made similarly sweeping changes with little fanfare or notice in the U.S. In Canada,
there have been changes in operations which also revolve around risk management. Canada's changes have been done for the benefit of the agency but also as part of the Canada/U.S. Partnership Initiative, a joint
effort looking at what steps must be done at the border versus those which can take place elsewhere or at a later point in time. To that end, Canada created its Customs Action Plan which requires that where possible
all compliance verification for contraband, and health and safety be conducted at the first point of arrival. Most other types of verifications are performed post-release. The Plan has three elements: border
management, post-release verification and client service. Border management, as the name implies, seeks to determine the risk posed by people and goods prior to arrival at the border crossing port. To achieve this
end, Revenue Canada hopes to enhance its use of intelligence and targeting practices. It wants to focus on higher risk and unknown risk situations although random examinations will continue. Risk categories
associated with people, such as illegal migrants, people smugglers and terrorists continue to be a high priority. Risks associated with goods, such as contraband, trade, and health and safety, will be dealt with
through priorities set according to commodity and mode of transportation but flexible enough to change depending on geographic location and types of traffic.
Post-release verification priorities for 2000-2001 are steel, textiles and apparel, footwear and tariff rate quotas. Again
random selection based on sectors, importers and programs will continue.
Client services have been structured to seek consistency and uniformity. The focus for 2000-2001 will be to expand client
education and outreach, such as visits and information sessions including through electronic delivery. The long-term goal is stated to be to increase the role of electronic technology in providing services and to
improve efficiency, convenience and accessibility while at the same time reducing the reporting burden and the costs of compliance. Like the U.S., Canada is seeking greater acceptance of electronic filing of its
export declaration, plus expansion of CANPASS (an expedited crossing program) and the like.
The following sectors were identified for initial focus: chemicals and chemical products; agricultural machinery and
equipment; pulp and paper; petroleum and natural gas; aircraft and aircraft parts; and metal and metal products.
To further implement its plans, Revenue Canada has posted to its Web site information about the Commercial Driver Registration
Program. This program seeks to pre-register Canadian drivers, thereby expediting their Customs and immigration border crossings. Once registered, a driver will be allowed to make his or her declarations (but cannot
import any controlled, restricted or prohibited animals, plants or goods) on a travelers form and will be billed any duties to a credit card account on file with the agency.
To be eligible, the driver cannot have had goods seized by Customs in the past five (5) years, cannot have a criminal record
or otherwise have been found to be in violation of any Customs or immigration laws. Much like Line Release in the U.S., the driver has to be pre-registered to get the benefits.Revenue Canada has also created the
Customs Self-Assessment Program.
Similar to monthly reporting as envisioned by the U.S. trade community, the purpose of this Program is to provide approved
importers the benefit of streamlined accounting and payment processes. Companies will be allowed to use their own business systems to self-assess and meet their Customs' obligations. Likewise, if the importer uses a
pre-approved carrier and registered driver, his goods will be subject to streamlined clearance processes.
Importers are eligible if they are active importers without contraband or major commercial infractions; are prepared to invest
in business systems; will have senior management involvement in the establishment and maintenance of the program and will sign an agreement.
Carriers are eligible if they are bonded or post-audit; have a history of transporting international goods without contraband
or major commercial infractions; will properly control bonded shipments until delivery; will have senior management involvement and adequate business processes including an audit trail. Again they must be willing to
sign an agreement.
The goal of the program is to eliminate transactional transmissions of data elements; end artificial customs systems; increase
the certainty of expedited processing; ease the means to meet legal obligations; and streamline legitimate trade; all goals also sought by many American importers. For more details about the changes made by Revenue
Canada, see their web site at www.ccra-drc.gc.ca/customs/business/importing <http://www.ccra-drc.gc.ca/customs/business/importing>.
While the American and Canadian Customs agencies operate using similar procedures, Aduanas (Mexican Customs) operates in a
somewhat different environment. For example, the U.S. and Canada place the ultimate responsibility on the importer for his entries, require him to post a bond and seek recourse against the surety if the importer
defaults. (Canada, of course, has the added benefit of being able to stop a company from importing.)
In Mexico, entry is made by the customs broker who by law has absolute liability for the accuracy of the data submitted. While
some Mexican brokers have expanded their procedures to allow importers, especially large American companies, to indemnity them in exchange for expedited procedures (such as not inventorying the goods at time of
entry or export), that benefit has not been extended by the brokerage community to all importers (or exporters). Nonetheless, Aduanas has attempted a number of laudable changes. Its goals remain protecting its
people (national security, health and environment) and the revenue, while at the same time facilitating trade to promote economic growth (sounds very similar to the goals of its U.S. and Canadian counterparts). Like
Canada and the U.S., Mexico (even under the new Fox Administration) seeks to employ expanded means of communication and technology to reach those goals while at the same time facing budget constraints, insufficient
infrastructure (especially railroads), increasing pressure from the trade community and on-going integrity concerns.
Mexico has 270 check points. Its main concerns are trade fraud in the form of illegal transhipments and undervaluation, and to
facilitate compliant importers and exporters. Mexico is fully committed to total automation. As of November 2000, it had an enhanced system in place. It also wants a Uniform Electronic Entry System with its NAFTA
partners, something similar to what American importers want - all three countries should require the same minimal basic data, a goal being worked on extensively by the International Chamber of Commerce and the G7
governments as well.Risk management by Aduanas is being implemented relying on a Scientific Compliance Measurement System which is updated in real time with feed back from the field. It is compatible with U.S.
Customs' Automatic Commercial System. Aduanas is also strengthening its Audit and Investigative divisions. It has also participated in task forces and joint audits with U.S. Customs.
To address on-going concerns regarding integrity, Mexican Customs applies a zero tolerance policy. It has devised new training
programs; established an ethics code; investigations are now conducted by internal affairs; it is institutionalizing its personnel into a civil service system; implemented mandatory procedures; and has a program
which involves second inspections by private companies. Like the U.S. and Canada, Mexico is achieving its goals through improved infrastructure such as equipment, facilities, and laboratories. In addition, like
Canada and the U.S., Mexico is implementing expedited procedures for large frequent but compliant importers.Mexican Customs is also building partnerships with the trade community. It has programs with 46 industry
sectors, a Facilitation Committee at each port and, of course, second inspections are provided by private companies.
If one wonders why the changes in all three countries seem so similar, one need only remember that NAFTA included the
establishment of a Customs Working Group. The heads of the three Customs Services continue to meet on a regular basis long after the implementation of NAFTA has been finalized. The NAFTA Customs Subgroup meets four
times a year to iron out issues between the three countries, such as hours of service, direct communication lines, bilingual signs and flyers and differences in the interpretation of NAFTA's provisions. It is
through the NAFTA Customs Subgroup, for example, that the three agencies agree about rules of origin, market access and Customs procedures and regulations. It is through this working group that audit rules are also
being harmonized.
It is, however, at the Heads of Customs level at which statistics are exchanged, documents used in trade are harmonized and
data elements are standardized. The objectives for the Heads of Customs Conference are enforcement, compliance, trade facilitation, industry partnerships and international cooperation. For example, a serious concern
for American law enforcement is stolen vehicles being smuggled into Mexico. Mexican and U.S. Customs have established programs, relying in part on the American private sector, which allow both American and Mexican
authorities to access a common database in Arizona to determine the legal ownership of American vehicles exported from that state. As well, the procedures applying to the return of stolen vehicles have been
streamlined so as to result in quicker returns.
If three such disparate countries are able to work out their differences, one can only hope that the efforts in Brussels to
generate transparent Customs procedures worldwide under the aegis of the Word Trade Organization will meet with similar success.
NAFTA DRAWBACK CHANGES IN MEXICO
12/00
Published by the Journal of Commerce on December 11, 2000
December 1 was a big day for Mexico as it inaugurated President Vicente Fox, but international traders should focus on January
1, 2001 because that is the date on which the duty-free status of most items imported into Mexico ceases.
As close observers will recall, part of the Nafta agreement provided that duty-deferral programs goods traded among Canada,
Mexico and the U.S. would end.
When Nafta was enacted, drawback between Canada and the U.S. was on the verge of expiring under the then-existing U.S.-Canada
Free Trade Agreement. Although extended, it did expire on January 1, 1996. On January 1, 2001 that same portion of the law takes effect for trade between Mexico and the U.S. Canadian trade with Mexico is similarly
affected.
In anticipation of the imposition of duties on goods which had previously been duty-free, the Zedillo Administration was
concerned that change might make Mexican products too costly. Discussions between representatives of the government and the private sector took place which led to key raw materials and components being identified,
called Sectoral Promotion Programs. The Mexican government then reduced the duty rates on goods for those Sectoral Promotion Programs to between zero 5% , with limited items still subject to higher rates of duty.
The changes were originally scheduled to take effect 60 days ahead of time, i.e. on November 1, 2000 (see below for a further
explanation of the timing). It took until November 20th for the rules to be in place.
The new sectors were identified as chemical; plastic and rubber manufactures; iron and steel; medical equipment, medicines and
pharmaceutical products; transportation, except automotive; paper and carton; wood; leather and furs; automotive and auto parts; and textile and apparel. These sectors were added to the ones previously named:
electrical; electronic; furniture; toys, games and sporting goods; footwear; mining and metallurgy; capital goods; photographic; agricultural machinery; and a miscellaneous or basket category. The October 30, 2000
rules augmented those previously published on May 9 and October 13, 2000.
The goods impacted are set out by tariff number and the importer must be a producer of goods. These rules create a new
category identified as an "indirect producer," a company which produces merchandise but is itself not identified in a particular Sectoral Promotion Program, but supplies that merchandise to a producer
whose goods are identified in such a Program.
The degree of manufacturing required by an indirect producer is open to question. To take advantage of the new rules, indirect
producers will have to be registered by the direct producer or another indirect producer.
Registration is accomplished with the office of the General Director of Services to Foreign Trade or before the Delegation or
Sub-Delegation office corresponding to the address of the plant where the production process will be carried out. Maquiladora and PITEX programs could seek certification as early as October 23, 2000. Others could
register as of December 1, 2000.
The Mexican economic development agency, SECOFI, has agreed to process the applications promptly, promising responses within
20 working days, and granting extensions to existing programs within 15 working days.
Some of the rules are left for later promulgation by Hacienda, the Mexican taxing authority, while others will require
Congressional action to change the Customs laws. The new rules clarify that materials imported prior to November 20th will not be subject to import duties regardless of the date of exportation of the goods they are
used to produce. Materials imported as of November 20th will also not be subject to import duties provided they are exported before January 1, 2001. Materials imported as of November 20th are subject to import
duties if the goods they are used to produce are exported on or after January 1, 2001.
The new regulations also establish minimum export levels for both maquilas and PITEX companies plus the law creates some
limitations on service maquilas in terms of the entities to which they may render their services and still remain qualified.
Generally, the result of these changes is that temporary imports under maquila or PITEX status become subject to import duty,
including maquila to maquila transfers. Machinery and equipment imported temporarily under either status are subject to the payment of duties at time of importation, while duties are not due on materials until the
goods they are used to produce are exported from Mexico. The duty rates applicable under the Sectoral Promotion Programs apply provided the licensee has the proper authorization.
Since all temporary importations are becoming subject to duty, it would appear fuels, lubricants and other consumables also
are subject to duty payment. Trailers, containers and boxes are specifically exempted from duty. The regulations also provide certain additional exemptions: Nafta-origin materials; non-Nafta origin materials
provided they are exported to a country other than the U.S. or Canada; non-Nafta fabrics and other items for the textile and apparel industry imported under limited conditions; merchandise returned or exported to
the U.S. or Canada in the same condition as it was imported into Mexico; repairs and alterations as described in Nafta Article 307.
Lest anyone be confused, these changes have nothing to do with the change in Mexican administrations or the handing over of
power from one Mexican political party to another. They are simply Mexico implementing its obligations under Nafta. With Nafta, the rules change so that each item (raw material, component or good) is dutiable each
time it is imported into one of the Nafta countries. Obviously this circumstance leads to the possibility that an item could have duty paid on it three times. In order to minimize that potential, the Nafta parties
agreed to a process called "drawback" [an unfortunate choice of words because all three countries already have a program called drawback which has nothing to do with Nafta claims].
The basic idea behind Nafta drawback is that the total amount of duty paid on any one item will not exceed the amount of duty
generated by whichever country has the highest rate of duty for that particular item.
For purposes of illustration, suppose a raw material is imported into Mexico where duty of $1 is due. The resulting component
is then imported into the U.S. for further processing, where duty of $2 is due. Nafta drawback provides that the lower amount of duties is paid or owed to either the original importing Nafta country or the
subsequent importing Nafta country.
In the example just given, duty would be due in the U.S. generally within 10 days of release of the goods [it is five days in
Canada].
However, in Mexico it is possible the duty would not be due for 60 days. Therefore, the Mexican importer could use his proof
of U.S. duty payment to legitimately avoid the payment of any duty in Mexico.
Conversely, if the duty into the U.S. were zero, duty would have only been paid once (in Mexico) so there would be no basis
for a drawback claim.
On the other hand, if the duty on the finished good exported into Canada was $1 (resulting from the component being further
processed in the U.S.), the Canadian importer could also make a legitimate claim for duty avoidance and/or a refund of duty.
One of the most controversial aspects of Nafta drawback is the extensive record-keeping which is required. In the U.S. there
is particular concern about the mandate to provide a copy of the Mexican or Canadian entry in order to obtain the refund. Often such documentation is not available for purely commercial reasons, e.g. the buyer and
seller are not related and the seller has no means to convince his buyer to provide the documentation, especially with one time transactions. A similar circumstance arises where the goods are sold ex-factory at the
U.S. site. The buyer hires the American freight forwarder and the Canadian customs broker, neither of which owes any duty to the seller so neither is willing to provide the entry copy.
In the U.S., goods imported into a foreign trade zone or bonded warehouse will similarly become subject to duty if exported to
Canada or Mexico. This issue has become quite a headache relative to U.S. exports to Canada because importers hope to use entry into a foreign trade zone or bonded warehouse to avoid payment of anti-dumping or
countervailing duties, and have been unnerved to learn it does not work with goods exported to Canada regardless of whether Nafta is claimed. The same result will apply at the beginning of the year for exports to
Mexico.
Under the traditional American definition of drawback, only same condition direct identification drawback survives between the
U.S. and Canada or Mexico. There are, however, exceptions to the new Nafta drawback transportation and exportation entries and non-conforming goods, such as rejected merchandise. There are also special exceptions
for certain sugar and citrus products.
Manufacturing drawback with originating components is allowed as well as goods delivered for joint undertakings and limited
non-Nafta textile and apparel transactions.
To make his claim, the importer will have to provide certain documentation to his home country Customs service: a receipt
evidencing payment of Customs duties on a particular entry; a copy of the entry document showing its receipt by the Customs administration of the other country; a copy of the final Customs duty determination; and
other evidence of payment as needed. It is left to the governments of the three countries to work out the duty debits and credits between themselves.
However, in addition to anti-dumping and countervailing duties, quota charges and/or tariff preference payments and Section 22
Agriculture fees are not subject to refund (with rare exceptions).
In the hopes of minimizing the impact of Nafta drawback, Mexico sought to have its Sectoral Promotion Program in place by
November 1, 2000, 60 days before January 1, 2001. The idea was that by lowering the applicable duty rates in advance of Nafta drawback, such a step would greatly ease the impact of these changes on doing business in
Mexico.
Remarkably, the Mexicans have come up with a practical solution - lower the duty rates - well in advance of implementation and
despite a historic change in government.
The author wishes to thank Carlos Angulo Parra of the Baker McKenzie office in Juarez, Mexico for his assistance in the
preparation of this article.
STEPPED UP ENFORCEMENT
12/00
Arising from allegations of forced child labor , Customs has issued a detention for all imports of apparel made by Dong Fang
Guo Ji of Mongolia. Most of the company's exports are under its own brand name, although some sub-contracting work is performed.
INTERNET TRANSACTIONS
12/00
Anticipating problems for individuals with goods bought over the Internet, Customs has posted to its web site a publication
titled Internet Transactions reminding importers of the pitfalls which can arise when ordering for importation over the web; for details:
<http://www.customs.ustreas.gov/impoexpo/inetrade.htm>.
CUSTOMS REISSUES BOND AMOUNT REMINDER
12/00
The Port of Blaine has issued a reminder to the trade that entries involving FDA, EPA, FCC and TSC ALL require bonds set at
three (3) times the entered value. Bonds for BATF goods of alcoholic beverages and distilled spirits, CPSC shipments of toys and fireworks, and AMS shipments of goods subject to marketing orders also require bonds
set at three (3) times the entered value.
COTTON BOARD REVISES ITS FEES
12/00
In order to avoid imposition of the cotton user fee on U.S. produced cotton which is exported and then reimported as textile
or apparel products, USDA has amended its regulations to exemption tariff numbers in headings 9819 and 9820 from imposition of the cotton user fee.
CUSTOMS CAN'T STAY OUT OF COURT
11/00
(Published in the Journal of Commerce, November 7, 2000)
Given his background, when Raymond Kelly became Commissioner of Customs, the understandable concern of the trade community was
how much more of a law enforcement agency would Customs become? Well, we have certainly seen a tightening of the enforcement noose, something not altogether unexpected in that the Mod Act has been in existence since
1994. Perhaps the more interesting indication of Mr. Kelly's stewardship is the apparently non-traditional issues with which the agency has come to concern itself.
By way of example, on October 25, 2000 the United States Court of Appeals, Ninth Circuit, issued its decision in U.S.A. v.
Hay, No. 99-30101, D.C. No. CR-98-00340-BJR. The case involved a conviction for possession and distribution of child pornography by means of a computer. Customs was involved in the case from the outset. The original
tip arose because the Canadians arrested an individual who was known to actively trade and exchange child pornography. The evidence the Canadians developed showed the transmission of nineteen (19) graphic files to a
specific File Transfer Protocol in the United States. That information was given by Canadian law enforcement to the U.S. Customs Service Attache in Canada. He turned it over to the Customs' field office in
Washington State which tracked down the FTP address. Customs found it belonged to Hay, who, in a ruse telephone conversation, admitted to being the only user of the computer to which the address was attached. Hay's
receipt of graphic files did not come through e-mail or SPAM mail but rather by direct transfer to his personal FTP address.
Relying on the information it developed, Customs obtained a search warrant which allowed the search of Hay's apartment and
seizure of his computer hardware, software, records, instructions, documentation and depictions of child pornography. On one of the seized hard drives, hundreds of computer graphic files were found which contained
sexually explicit conduct involving minors.
Following trial, the jury convicted Hay. He appealed arguing the search of his entire computer system was unreasonable. He
appealed on other grounds which were unrelated to Customs' actions. The appellate court upheld the conviction rejecting all of Hay's objections and finding the search warrant was drawn with reasonable particularity
plus the actions of Customs were proper under the circumstances. Mr. Hay is not the first defendant convicted for engaging in child pornography as the result of Customs' action. The agency is to be applauded for its
efforts. At the same time, however, one has to wonder - why did Customs proceed with the case? Why not turn it over to the F.B.I. or some other domestic law enforcement entity?
For an agency with limited resources, a static work force of about 17,000 employees, and trade growing exponentially, one has
to wonder why Customs is going so far afield from trade related matters? No one is suggesting child pornography is not a serious crime or that those engaging in it should not be pursed and severely punished. The
question is should Customs be the agency doing the pursing? Like a lot of things the agency does, we in the trade community look at it with mixed feelings. Should the agency pursue criminals outside the trade arena?
Since it has, we all should be proud of Customs as it sets the standard in the Internet environment for other law enforcement agencies.
Even when operating in the traditional trade arena, Customs cannot stay out of court. Only a couple of days after announcing
the Hay decision, the Ninth Circuit announced its decision in Nippon Miniature Bearing Corp. vs. George J. Weise, et al., No. 97-55930, D.C. No. CV-96-08837-RSWL, which involved the importation of miniature steel
ball bearings. In the mid-1980s, Customs began an investigation of Nippon's importation practices. The investigation concluded that Nippon was misdescribing its ball bearings in such a way that they were materially
misrepresented and, as such, were illegal to import. In 1989 Customs seized nineteen (19) shipments at Los Angeles, California. Nippon sought early release. Customs agreed but demanded a deposit of over $1 million
which equaled the dutiable value of the seized ball bearings. Nippon took advantage of the petition process but later paid the fine imposed.
During the course of its investigation, Customs determined that many more than the nineteen (19) shipments seized had been
similarly misrepresented and so issued a penalty case relying on 19 U.S.C. § 1592 (a statute which allows the agency to impose a penalty when goods are materially misrepresented or a material omission had occurred).
Again Nippon petitioned. Again Customs refused to mitigate. Nippon then filed a supplemental petition and shortly thereafter filed suit in federal court in Los Angeles.
In its lawsuit, Nippon argued that Customs had violated its due process and free speech rights by subjecting its goods to
forfeiture and initiating administrative penalty proceedings. In other words, Nippon claimed its constitutional rights had been violated. Nippon, in fact, did what many importers dream about doing - it took Customs
to court. While the dream is an appealing one, the result was a rude awakening to Nippon.
The trial court found it did not have the power (jurisdiction) to hear the case because, it said, federal law grants exclusive
jurisdiction over import issues to the Court of International Trade. The appellate court agreed in part but also disagreed in part.
While it is always tempting to want to sue Customs and exact a pound of flesh for the way in which the importer perceives
himself to have been treated, there are limits to what can be done. Unlike state court actions where just about anyone can be sued for just about anything, one gets into the federal court against the government only
when the government agrees to be sued (and the government agrees to do so based on laws which Congress enacts). The problem for Nippon was that Congress granted exclusive jurisdiction to the Court of International
Trade to decide penalty actions. However, Nippon claimed that both the penalty and the forfeiture actions were improper. As a result, the appellate court remanded the case back to the federal district (trial) court
for further proceedings to answer the question - did the government act properly in seizing Nippon's goods?
Even though Nippon seems to have won the battle, it will quite possibly lose the war! The problem Nippon is going to have to
overcome is the claim of the government that it waived its right to protest the government's actions. As stated earlier, in order to obtain its goods, Nippon paid the fine demanded. When it first submitted its
check, the accompanying cover letter stated it was being paid under protest. Customs refused to accept the payment in that fashion. Nippon then submitted the payment removing the protest language from the cover
letter. Nippon contends it never agreed to waive its remedy of going to court. Customs says it did.
There is a lot of money at stake. Nonetheless, the Nippon case serves as an expensive lesson for importers whose goods get
seized. If you want your goods, you end up giving up your right to challenge Customs' action because, as a condition of obtaining release, Customs now requires all importers to waive their right to court action.
Therefore, if an importer believes Customs acted outrageously and really wants to take the agency to court, he has to be willing to risk the loss of his goods. In a forfeiture action, the basic decision the court
makes is whether or not the goods violate the law. If so, the importer loses. Therefore, an importer has to be very careful about proceeding in court. To do so, he has to reject administrative disposition of the
case and, instead, seek to defend himself in court. The danger, however, is that if the law has been clearly violated, the importer loses his goods, spends a considerable amount of money for attorneys' fees and
costs plus a large chunk of his time, and ends up with nothing positive to show for it. Customs does not often end up in court on forfeiture actions because they are seldom dead wrong, an unfortunate fact because
often the way in which the case has been processed by Customs leaves a great deal to be desired!
<http://www.joc.com/lede/20001107/sections/spec3/w15151.shtml>
TRADE AND DEVELOPMENT ACT OF 2000 - Update -
11/00
On October 5, 2000, Customs published interim regulations implementing both parts of the Trade and Development Act of 2000
(the Act) - the U.S.-Caribbean Basin Trade Partnership Act (CBTPA) and the African Growth and Opportunity Act (AGOA). Of particular interest to importers and their suppliers is the record keeping aspects of these
new regulations. A new Certificate of Origin form has been created and must be in the importer's possession before a claim can legally be made. Additionally, importers are now required to keep all the relevant
records in the U.S. In the event of a Customs verification, an importer can expect a request for production records, information relating to the place of production, the number and identification of the types of
machinery used in production and the number of workers employed in production. These types of documents (along with others) are now routinely requested when Customs wants proof no transhipment occurred. Importers
will also need to be able to produce purchase orders, invoices, bills of lading, shipping documents and import and clearance documents. In addition, importers are expected to be able to document how they came to the
conclusion their product qualifies for benefits under the Act, potentially a particularly challenging task if part of the claim is based on the U.S. origin of certain inputs which the supplier sources. In the case
of CBTPA, proof of growth or manufacture is needed which includes a cost and value breakdown.
As with NAFTA, a Certificate of Origin from a supplier is considered adequate documentation for CBTPA. In the case
of AGOA, a GSP Declaration would be acceptable. However, importers cannot ignore red-flags or self-blind. Even the existence of the Certificate of Origin or GSP Declaration may not be enough if other circumstances
suggest the goods in question do not qualify. Importers need to be sure the form is properly filled and out and signed by someone with knowledge about the supplier's operations (an officer or manager, but not a
clerk). Even having done all of that, if the contents of the Certificate or Declaration do not support the granting of benefits, an importer cannot ignore that fact and make his claim anyway. Having done all of
that, if so requested, importers will also have to show Customs the adequacy of their internal controls.
Importers should also keep in mind that although the regulations and the Act took effect on October 1,
2000, benefits will not be available to certain countries until the U.S. Trade Representative makes the necessary findings to make a country eligible. These findings will be published in the Federal Register and
come into force on the date of publication. For a guide to the AGOA, the U.S. Trade Rep. has posted an implementation guide written in non-legalese terms, see <http://www.ustr.gov/regions>.
CUSTOMS ANNOUNCES TEST OF POST-ENTRY AMENDMENT
11/00
A test of the Post-Entry Amendment (PEA) process has finally been published and takes effect no
earlier than December 28, 2000. It lasts for about a year, unless extended. In order to create a more manageable means than Supplemental Information Letters and allow importers to report post-entry pre-liquidation
changes, and because importers have an obligation to exercise reasonable care and a self-serving interest to avoid penalties and increased monetary obligations, Customs developed PEA. It allows importers to report
both revenue and non-revenue changes.
While recognizing the omission or misstatement leading to the filing of a PEA may still trigger a penalty, Customs has determined that changes involving less than $20.00
per entry (refund or increase) will generally be disregarded, with exceptions related to other agency requirements.
To file a claim, the importer must explain the erRodriguez O’Donnell and provide corrected
information on a per entry basis. Individual amendments are required where the over payment or under payment involves $20.00 or more, or when any amount of dumping or counterveiling duty is involved. Quota and
textile goods, as well as those subject to a Voluntary Restraint Agreement, will require per entry corrections for errors related to country of origin, net quantity, visa number and classification. Individual
amendments are required for non-revenue errors related to Census Bureau statistical changes, generally where a line item is revised by $10,000 or more. Quarterly reports may be used in all other circumstances and
are due on the 15th day following the close of the calendar quarter. If the types of corrections are mixed, an individual amendment must be filed.
Customs is developing a cover sheet to be used. The importer
must explain the erRodriguez O’Donnell and provide corrected information along with any relevant supporting documents for each affected entry whether filing quarterly or individually. Customs is also developing a
database report which importers will be able to use. Importers are cautioned to regularly check the liquidation status of affected entries to make sure their claims have been granted. If not, timely protests must be
filed. In addition, even when corrections are filed through the PEA process, importers should consider whether a prior disclosure should be filed to avoid the imposition of a penalty.
U.S.-JORDAN FREE TRADE AGREEMENT
11/00
On October 24, 2000 Jordan and the U.S. signed a bilateral free trade agreement. It’s local content rules read much like the
G.S.P. rules and require 35% domestic content. The text reads much like NAFTA when defining rules of origin.
TARIFF SUSPENSION AND TRADE ACT OF 2000
11/00
As many importers continue to push Customs to gain the full benefits of the Customs Mod Act, the first compromise bill was
signed into law. The Tariff Suspension and Trade Act of 2000 includes treatment of certain multiple entries as a single entry; provides permanent authority for the imposition of mid-point interest for overpayments
and under-payments of duty whether in the reconciliation or prior disclosure context. There are other provisions of interest but one closely being watched is the requirement for a report on Customs procedures
regarding imports. Once issued the report is expected to support trade community efforts to convince Customs to move further along in implementing many of the Mod Act benefits still missing, e.g. periodic reporting.
HARMONIZED RULES OF ORIGIN
11/00
When GATT became the WTO, one of the goals agreed to by all members was to create a set of uniform rules of origin. That
effort was to be completed by July 1998 but is still pending. The Committee on Rules of Origin is still unable to pinpoint a completion date but is expected to discuss the issue again at its December meeting. While
there is no official word yet, there appears to be consensus for setting the deadline at the end of 2001.
CUSTOMS UPDATE: THE IMPORTER'S NIGHTMARE
10/00
Published in the Journal of Commerce on Oct 31, 2000
Click here for a printable version of this article <p-jococt00.htm>
Each year a small handful of importers live through the same nightmare having to pay duty twice. While the occasions are now
few and far between, double payment of duty hits these importers out of the blue because they have forgotten the first rule of duty liability: Just because you paid the duty to your broker does not mean you are
discharged from your obligation to pay the duty to Customs!
While most brokers are professional, responsible and plan for lean times, things can happen unexpectedly even to the best of
companies. Sometimes serious financial difficulty leads to unexpected results and duty money paid to the broker does not get remitted to Customs. The problem was acute in the 1980s when in the span of two or three
years, we heard about brokers who absconded with $1.5 million, $800,000 and two who took $700,000 each from importers. They were criminally prosecuted and received jail sentences.
Importers should bear in mind the long standing requirement of 19 C.F.R. §141.1, which makes payment of duty the personal
liability of the importer. The cited regulation specifically states that payment of duty to the broker does not relieve the importer of the obligation to pay Customs if the broker fails to remit those funds to
Customs. Brokers are also required by law to yearly notify the importer of his/her continuing opportunity to pay Customs duties by way of a check payable directly to Customs, see 19 C.F.R. §111.29(b).
In the typical broker importer relationship, the broker files the entry and advances the duty money for the importer (unless
the importer pays direct, see further comments below). At about the same time the entry is filed, the broker bills the importer. Duty is due ten (10) business days following release, with some exceptions. Most
importers never give the payment of duty a second thought. They simply write a check to their broker for all the charges billed (including duty), frequently 2030 days following release. Most often, these importers
find out about the broker's failure to pay duty because Customs imposes a fine for the nonpayment long after the fact.
There is a case working its way through the license revocation process right now involving a customs broker in Los Angeles who
hit upon lean times and ended up failing to pay Customs duty monies it had received from several small importers. In many cases, the duty money totaled less than $25,000. However, for small companies even $25,000 is
a large amount to have to pay twice. It certainly eats up any profits realized from the sale of the underlying imported goods.
Importers are reminded they can protect themselves in a couple of ways. One option is to write the check payable to the U.S.
Customs Service before the duty is due and give it to the broker to submit with the Entry Summary, thereby insuring duty is paid in a timely fashion.
The other alternative is the Automated Clearing House, a program whereby Customs is able to automatically debit the importer's
account, see 19 C.F.R. §§24.25 and 24.26.
Some importers have expressed reluctance to allow Customs direct access to their bank accounts and so have set up a separate
duty payment account which Customs is able to debit. If you opt for the latter approach, it is important to make sure the account is regularly funded. Customs recently announced that debits may take place on bank
holidays instead of the old two-business-day rule.
Brokers are under a statutory obligation to remit all funds to Customs received from their clients in payment of duties and
other obligations in a timely fashion, see 19 C.F.R. §111.29(a), but sometimes the survival instinct takes over, to the dismay of all.
IMPORTERS UNDER ATTACK
10/00
(Published in the Journal of Commerce, October 5, 2000)
American importers used to be able to predict the direction from which attacks on their trade practices would arise. Beside
the obvious source - commercial difficulties, there might be a dumping or countervailing duty case brought or one claiming unfair foreign trade or import practices, but that predictability is long gone. While
difficulties from these long-standing sources continue, in the last few years, importers have been inundated with challenges from many previously unimagined sources. For example, there was the well-publicized case
involving unilateral state sanctions. The State of Massachusetts sought to impose sanctions on those companies choosing to do business with Burma (Myanmar). The enforcement method selected was to add a surcharge to
the contract prices bid for projects with the State. In Crosby vs. National Foreign Trade Council, the United States Supreme Court forcefully told Massachusetts it could not set foreign policy in the face of a clear
Congressional mandate. While not an unexpected decision, it raises the question of how the outcome might differ had Congress not forcefully articulated how business would be conducted with Myanmar?
While the Burma situation with Massachusetts was perhaps the most widely publicized of these non-federal unilateral sanctions
cases, as far back as 1997, the Wall Street Journal identified at least 18 localities and states which either had enacted or were considering enacting unilateral sanctions. Indeed the Massachusetts lawsuit led to
the creation of USA Engage, a private sector group focused on seeking to resist the imposition by Congress of sanctions by the U.S. alone which, in effect, do little more than make legislators "feel good,"
i.e., makes it appear something is being done but whether the intended impact is achieved is highly questionable. In 1997, USA Engage put the number of intended or actual unilateral sanctions by localities and
states closer to 30. By 1999, it reported the number dropped to 14. In its June 22, 1998 edition, the Journal of Commerce identified over 100 federal unilateral sanctions and in its editorial dated September 1, 1999
identified 70 countries as being the subject of federal unilateral sanctions. USA Engage is now focused on having Congress enact legislation which requires an objective analysis of proposed unilateral sanctions
before their adoption.
Helms-Burton has long been cited as another example of "feel good" legislation which has little practical positive
impact. The latest outrage in this context is the attempt to disavow otherwise legitimate trademarks (on rum products) arguing they arise from confiscated property.
A couple of years ago an importer was the subject of lawsuits in California, one filed in federal court and the other in state
court. The plaintiff - a direct competitor - claimed the defendant was engaging in unfair business practices because, according to the plaintiff, there was no way the defendant's goods could possibly qualify for
NAFTA benefits. To the contrary, those goods did indeed legitimately qualify, without cutting corners. The case eventually settled but, as it does most times in such cases, it cost the defendant a "ton" of
money to get to that result.
Recently the Court of Appeals for the Sixth Circuit issued a decision in a case involving dumping claims. Wheeling Pittsburgh
Steel claimed certain products were being dumped in the U.S. market. Wheeling sought an injunction barring those goods from being imported. Defendants pointed out and the court agreed that Congress articulated
specific remedies in the Antidumping Act of 1916 and those are the only ones available. As a result, if Wheeler wanted relief, it would have to proceed before the Department of Commerce and the International Trade
Commission. The decision went on to point out that neither agency could bar imports. Therefore, if Wheeler really wanted that remedy, it could try to convince the President to invoke his powers under the
International Emergency Powers Act. Failing that, Wheeling was limited to seeking the imposition of a dumping duty on imported goods as provided by law.
Customs, too, periodically also causes importers difficulties. The latest example is its decision to ignore long-standing law
and practice by unilaterally changing the country of origin marking rules for pipe fittings and flanges. Boltex Manufacturing took Customs to court and won resoundingly. The products in question were made from
imported steel forgings. The original marking practice was articulated in the Midwest Industries case decided in 1970 finding imported steel forgings were substantially transformed by further processing in the U.S.
As a result, their origin was determined by place of processing and not by the origin of the imported steel flanges. The holding is important because U.S. processing generally obliterates the die-stamped origin
markings on the imported products and each imported product must be marked with its country of origin as legibly, indelibly and permanently as the product will allow.
NAFTA was then enacted. Customs was faced with reconciling the NAFTA marking rules with the Midwest holding. In the end,
Customs decided it was no longer bound by Midwest and so in March 2000 published notice that all pipe fittings and flanges made in the U.S. from imported forgings would have to be marked with the country of origin
of those imported forgings. In the end, the court found that Customs overstepped its bounds by ignoring valid case law. The court's previous decision could not simply be ignored. Midwest was still good law and so
Customs was bound by it and could not unilaterally change the relevant marking rules. The decision in Midwest followed the overturning of Customs' position in the Heartland case. In Heartland, the importer had
obtained a ruling which fully explained pre and post-importation processes and fully and accurately described the goods under consideration. Heartland made entry in accord with that ruling for a number of years. As
with the Midwest holding, domestic industry was not happy and so sought to and finally did convince Customs to change its position. The result for Heartland was that its product would be subject to a sugar quota and
the company would effectively be out of business. In its decision, the court upheld a long standing principle of classification - so long as classification is not based on the use of the finished good, an importer
was free to tariff engineer, i.e. import his product in whatever condition would result in the most advantageous rate of duty. In the end, the court held that since Heartland had made full disclosure in its ruling
request, Customs could not now overturn its previous decision as nothing had changed.
The country of origin marking on Skippy peanut butter also remains in dispute. The peanut butter is made from a small amount
of Canadian peanut slurry. Customs wrote the NAFTA regulations to basically disallow application of a de minimus rule in the marking of agricultural products, which would include the Canadian peanut slurry imported
by Bestfoods. Therefore, the finished peanut butter was required by Customs to be marked Made in Canada. Skippy is a well-known American brand. Bestfoods obviously saw the value to the Made in USA label for such a
product and so elected to fight for its application. In its most recent decision, the court pointed out there was nothing in NAFTA which granted Customs the discretion to refuse to apply the de minimus rule to the
marking of agricultural products relying on health and safety concerns. As a result, the Court of International Trade found Made in USA to be a proper label for the resulting Skippy peanut butter. Given the hard
fought nature of the dispute between the parties, it is reasonable to expect Customs will appeal this decision.
Another case which received a lot of publicity because it was again unusual in its method of challenging importers was the one
brought by the American Textile Manufacturers Institute (ATMI) against various textile importers, including The Limited. The basis of the case was a claim by ATMI on behalf of domestic industry that the imported
goods were mislabeled as to their country of origin, a classic transhipment claim. ATMI asserted the mislabeling was intentional, Customs had conducted an investigation but declined to penalize or prosecute and,
therefore, it had the right to step into the shoes of the government under the False Claims Act. In view of the misdeed these importers supposedly committed, ATMI claimed the government was defrauded and deprived of
revenue and since it did not proceed to collect that revenue, ATMI could do so in place of the government. ATMI lost at every stage of the proceedings but again at great expense to the importers involved.
Now an Orange County man has just sued many of the most prominent department stores and home improvement chains claiming they
are defrauding the public by marketing goods as American-made when, in fact, they are made in Mexico. The suit also contends consumers are being charged higher prices for these goods than for other foreign made
goods and by claiming American origin, the defendants are tricking consumers into thinking they are supporting American jobs and companies when, in reality, the goods are imported. Because the case was just filed,
it is far too early to determine its outcome. However, given the existence of long standing Customs rules about country of origin marking when American inputs are used to make products in Mexico, there is no reason
to think the case will succeed. Given this backdrop, importers are well advised to give serious thought to the direction from which the next effort at xenophobia might come.
POST-ENTRY AMENDMENT POLICY DELAYED
10/00
Recently Customs released its revised post entry amendment policy. Intended to address the overwhelming number of
Supplemental Information Letters importers were filing plus provide a more reasonable method by which quantity discrepancies could be reported, Customs announced the policy was to take effect on October 1, 2000 but
now will be delayed.
This new policy is intended to allow importers to report most entry changes to Customs without fear of penalty action
(although all such changes should be considered in the context of reasonable care which remains the standard; violation of which could still lead to penalty action). The text of the full program is available from
Customs' web site ( www.customs.gov <http://www.customs.gov/> ) and should be carefully reviewed. However, in general, if the change involves less than $50.00 per entry (net) and does not involve admissibility
(such as textiles) or other agency considerations (such as dumping), the importer will be allowed to report the change quarterly. Customs will neither seek to collect the difference nor refund it, unless requested
by the importer. Other changes must be reported on a per entry basis at or near the time the erRodriguez O’Donnell is discovered. Customs intends to provide importers with the use of Microsoft's Access database for
use in the preparation of all reports.
All quota changes must be reported on a per entry basis to the extent they have to do with admissibility, e.g. country of
origin, quantity, visa number, or HTS number. Changes in value or charges are to be treated as any other revision. With instances of nonrevenue changes, the threshold to report on a per entry basis is often $10,000.
However, each type of change should be carefully analyzed to be sure the correct reporting method is selected.
While it is not yet clear whether Customs will issue new regulations to implement the policy, Customs has already announced
that if the entry is liquidated, the reported change may be treated as a protest whereas if the entry has not yet been liquidated, the claim is to be considered during liquidation. In either case, importers would be
wise to make sure they meet not only the changes required by the new policy but also any protest or other criteria.
MORE HMT LITIGATION
10/00
The Swisher International case has been appealed to the U.S. Supreme Court. The HMT was found unconstitutional in the U.S.
Shoe case and allowed refunds of HMT paid for a period of two years. Swisher seeks to address whether or not HMT payments are protestable. The key question turns on the fact that the HMT law has no deadline in it.
The court is being asked to address whether an exporter can pick the time to seek his refunds and so be eligible in effect indefinitely rather than be limited to the two year statute of limitations found to apply in
the U.S. Shoe case.
CUSTOMS ENFORCES CHILD LABOR LAWS
10/00
The Dept. of Treasury issued an advisory regarding abusive child labor which includes a list of 18 "red flags"
importers should keep in mind. Treasury stated the listing was published in the interest of enhancing voluntary compliance.
CUSTOMS REGULATIONS AMENDED TO PRECLUDE GOODS MADE WITH FORCED OR CHILD LABOR.
10/00
Goods made with certain kinds of forced or indentured labor are to be seized and forfeited as 19 C.F.R. Part 12 has been
amended to bar the importation of goods made with convict labor, forced labor or indentured labor under penal sanctions, including forced child labor or indentured child labor. The existing detention/seizure case
processing safeguards continue to apply.
HAGGAR CLAIM DISALLOWED
10/00
Some months ago, uneasiness roared through the trade community when Haggar's 9802 claim was accepted and heard by the U.S.
Supreme Court. In the end, the Court held that because the underlying Customs regulations were subject to public notice and comment prior to finalization, Customs' interpretation was entitled to be given preference.
i.e. deference. The case was then remanded to the appellate court for further review relying on that standard. Now the appellate court has ruled that oven baking and enzyme washing disqualify Haggar's pants from
9802 treatment, not unexpected given the Supreme Court's mandate.
In the process, Customs has gotten bolder and is now asking the courts to find that rulings are entitled to similar
deference. In a case involving Mead Corp. and its paper organizers, Customs is seeking preference for its classification ruling decisions.
MARKING INTERVENTION
10/00
Occasionally and in order to inform the trade so that reasonable care is exercised, Customs announces areas in which it has
seen what it considers too many errors. Such an announcement was recently made regarding the marking of wearing apparel. Many importers will receive a letter from Customs reminding them about the relevant marking
requirements. 120 days later, the New York Strategic Trade Center will begin a discrepancy test. Continued marking problems will likely result in enforcement action.
MPF DRAWBACK CLAIMS
10/00
Due to the length of time it will take Customs to reprogram ACS to allow automatic refunds of drawback mpf claims, Customs
has issued an interim instructional memo advising the trade how to calculate any such claims.
ENTRY LIQUIDATION UNDERGOING CHANGE
9/00
(Published in the Journal of Commerce, September 8, 2000)
Importers have generally assumed that once an entry is liquidated, any issue raised by that entry is subject to protest, a
long and dearly held belief which is undergoing change.
The tide of change began to turn in 1995 with the holding in Executone Information Systems v. U.S., where the court found
the importer had not proven inadvertence in failing to file Forms A to support a claim for GSP treatment of telephone hand sets.
There was really nothing unusual about the case. The broker had correctly classified the goods. The importer was required,
but was unable, to file the Forms A both at time of entry and later in response to notices from Customs demanding their production and threatening to liquidate the goods as fully dutiable if they were not filed.
The forms were missing simply because they had not been provided by the shipper. By the time they were dispatched, it was
too late to protest (as beyond the 90 day time limit) and so a clerical erRodriguez O’Donnell claim was filed pursuant to 19 U.S.C. § 1520(c).
The basis for a clerical erRodriguez O’Donnell claim is inadvertence, mistake of fact or excusable neglect. While the
importer did explain the delay in obtaining the forms, the court found no credible explanation of inadvertence was presented. Hence the Government won. It won again on appeal.
On its face, nothing all that extraordinary was decided, so what's the fuss? In April 1999, Customs raised the ante. In
Headquarters Ruling Letter 227594, Customs took the unusual position that if an entry is liquidated as no change, it cannot be protested because a no change liquidation does not involve a decision by Customs.
Put another way, in order to file a protest, the importer must be challenging the appraisal of the goods, their
classification, a charge or exaction by Treasury, the exclusion of goods, the liquidation of an entry, the refusal to pay a drawback claim, or the refusal to reliquidate a clerical erRodriguez O’Donnell entry. In
all such instances, Customs argued there must be some decision by Customs.
However, in a no change liquidation, Customs claimed it does not review the entry, so there is no decision, so there is
nothing to protest.
In reaching its decision, Customs relied on the Executone case, but also on Taban Co. v U.S. (1997), and Zaki Corp. v. U.S.
(1997). In both cases, the importer filed a clerical erRodriguez O’Donnell claim arguing that classification was wrong as a mistake of fact as the classification decision was based on an incorrect understanding of
the goods. Customs relied on language in the Executone appellate decision.
In it, the court stated "[T]his appeal does not present a typical challenge to a Customs classification where Customs
evaluated the merchandise and, based on its construction of the tariff schedule, determined into which of two categories the merchandise must be placed, e.g. whether a pager should be classified as a radio receiver
or as a signaling apparatus. In such a case, there is no dispute that the only proper course of action would have been a timely protest ... Rather, Customs has never disputed that Executone's merchandise would
properly qualify for duty-free treatment under CBERA had Form A's been properly submitted..."
The ruling in question dealt with a claim by Northern Telecom for relief from a no change liquidation. Customs went on to
say that a no change liquidation is not subject to protest because Customs did not appraise or classify the merchandise. It made no determination but instead acted in a 'ministerial function by liquidating the
merchandise as Northern Telecom entered it.' In short, the importer had no recourse before Customs. However, the ruling went on to grant relief as a post-entry NAFTA claim under 19 U.S.C. § 1520(d).
Customs' position sent shivers through the importing community. It raises the serious question of when can an entry be
protested. Is Customs trying to lessen its work load by finessing language from a court decision? Customs said no and went on to say the ruling was intended to be limited only to the decision before it. However,
there is no limiting language in the ruling itself, and now we have the issue come up in yet another way.
Fujitsu General America, Inc., et al, v. U.S. (2000), raised the question in the antidumping context of whether a deemed
liquidated entry was subject to protest. What was interesting about this case is it was the importer who raised the issue. Equally interesting was Customs' response - the importer should have protested!
Fujitsu argued that an entry is deemed liquidated when the proscribed time has elapsed and so involves no decision by
Customs. Hence no protest is required. Relying on language from the Federal Circuit in U.S. Shoe Corp. v. U.S. (1998), the Court stated: "Typically, 'decisions' of Customs [under the protest statute] are
substantive determinations involving the application of pertinent law and precedent to a set of facts, such as tariff classification and applicable rate of duty."
Ultimately the court held that where the entry is deemed liquidated by operation of law and Customs has not actively
liquidated the entries anew, the importer's only remedy is to come before the court for relief under its residuary jurisdiction provision (referred to as 1581(i) jurisdiction).
However, if Customs reliquidates the entry, the importer must protest and come before the court under 1581(a) jurisdiction.
The importance for importers is, of course, deciding which entries are to be tackled using which tool? Do you protest everything and mark your calendar so that before two years has expired, you file suit at the
Court of International Trade? Do you wait until the protest is decided and then file suit and hope you don't lose out as beyond the two year time limit?
Hoping for a solution by way of listing no change liquidations as one of the activities subject to protest, the National
Customs Brokers and Freight Forwarders Association of America, Inc. is seeking action by Congress. In the meantime, what is an importer to do?
Suppose the importer enters goods using a tariff classification he was told to use by his local Import Specialist? Is that
a decision by Customs subject to protest? How much documentation does the importer need to prove a decision by Customs? What happens if the importer did not know about a court case dealing with classification and
only finds out about it within the protest period? Can he still protest? Is there a decision by Customs to protest?
While some have suggested that Customs took the position it did about lack of a decision to protest as a means to lessen
its workload, what it has managed to do is create more work for itself and create confusion in the importing community. Until this situation is ironed out, importers are smart to protest everything and carefully
watch the calendar.
<http://www.joc.com/20000908/sections/spec3/w15800.shtml>
PROTEST VS. CLERICAL ERROR
09/00
Proving once again that what is on the commercial invoice is the most important piece of information given to U.S. Customs,
the Court of Appeal for the Federal Circuit held that if an importer fails to mark the invoice to state his term of sale as including payment of duty, he cannot get a credit for it later if the adjustment is made
post-importation and the importer fails to file a protest. In Century Importers, Inc. v. U.S., (2000), Slip. Op. 99-1117, the court found that Century submitted invoices which failed to mention the goods were bought
on a duty paid basis. Century had a side deal with its supplier to be reimbursed the duty. In fact, that reimbursement took place but Century failed to notify Customs at the time. As a result, the court found that
Century could not later seek a reduction in value claiming clerical erRodriguez O’Donnell under 19 U.S.C. 1520(c). The failure to properly declare the term of sale on the invoice was found to be an erRodriguez
O’Donnell in the construction of law which could only be protested.
HMF REFUNDS POSSIBLY EXPANDED
09/00
It is clear that any exporter who paid harbor maintenance taxes and filed suit will receive a refund of all sums claimed.
However, in a move which is vigorously opposed by the government, the U.S. Federal Circuit Court of Appeals confirmed that an exporter should receive a refund of all HMF sums paid plus interest. The government
petitioned for rehearing and was denied. Treasury has appealed to the U.S. Supreme Court. If the decision stands, look for the government to publish procedures regarding the processing of new claims.
AUTOMATION DEBATE CONTINUES
09/00
As the debate continues about how to fund the $1.4 billion Customs needs to replace its ailing computer system, the Clinton
Administration has proposed extending the merchandise processing fee (mpf) through 2010. Importers have long contended that the on average $900 million paid in mpf yearly should be dedicated to the new computer
system rather than placed into the general Treasury
MPF was originally enacted in 1986 as a means for the trade to reimburse Customs for the cost of its commercial operations,
instead of paying overtime. While business includes its computer operations as part of its overall cost, Customs has consistently costed its computer operations as a separate budget item in order to allow the MPF to
be found WTO compliant. While the funds paid through mpf go into the general Treasury, the law calls for a yearly report in which Customs separately states the cost of those operations. That report has never been
publicly released, if it even exists, and so the trade has been left in the dark as to the actual cost of those commercial operations and why the computer continues as a separate budget item.
IS CUSTOMS ALWAYS RIGHT?
06/00
Last year, the U.S. Supreme Court held that when Customs enacts regulations, those regulations are due deference by the
courts. That case involved Haggar and the question of whether 9802 applied to its jeans-making process in Mexico. Now the high court has agreed to hear another case which will address just how much deference a court
is required to give Customs in the classification context.
The case involves Mead Corp. which imported loose-leaf daily planners. The Court of International Trade found Customs to be
correct in classifying the planners as bound dairies subject to a 4% rate of duty relying on deference and the Haggar holding. The Court of Appeals for the Federal Circuit found Customs was wrong, stating in its
opinion that no deference was due to Customs' decision because it did not involve rule making. In other words, Customs reached its decision about how to classify Mead's planners without any public input plus its
decision is limited, by the very nature of classification rulings, to the facts of Mead's product.
Commentators speculate the Supreme Court agreed to hear in the case in order to clarify its previous ruling. A decision is
not expected until early 2001.
F&W ABANDONS ACS
06/00
Starting July 3, 2000, filers will no longer be able to submit their Fish & Wildlife releases using Customs' ABI
system. F & W says it found too many problems processing its entries using Customs' computer. The required declaration form may be obtained at http://www.le.fws.gov/le/FAQs/FAQs.htm. Fish & Wildlife also
advises it is attempting to develop its own Internet based system. In other words, in this age of electronic data interchange, goods subject to Fish & Wildlife will have to be filed with that agency only in
paper form. The actual Customs release will continue to be obtained through ACS.
NEW FRAUD PENALTY GUIDELINES
06/00
In T. D. 0041, Customs has issued new guidelines for mitigation of fraud penalties, 19 U.S.C. § 1592. Of most import for
traders is the expansion of materiality to include any document, statement, act or omission which significantly impairs Customs' ability to collect and report accurate trade statistics, deceives the public as to
source, origin or quality of merchandise, and/or constitutes an unfair trade practice in violation of federal law. For more information, check Customs web site.
HARMONIZED TARIFF CHANGES?
06/00
Importers are reminded the ITC has given them until June 30, 2000 to submit their ideas about how the international tariff
should be changed. Should tariff numbers be eliminated? What new products need to be added? Where can the tariff be simplified? What changes are needed to the Explanatory Notes? For more details see the June 2nd
Federal Register.
CUSTOMS BEGINS TRACKING IMPORTER/BROKER PERFORMANCE
05/00
Customs has developed Port Activity Tracking System (PATS) which allows it to track the performance of all filers,
importers and brokers. The prototype ports are Buffalo; Newark/New York; JFK; St. Albans; Chicago; Houston, Nogales, Seattle and San Francisco. Customs will track broker license activity and entry summary
rejections, provide forms to be used in corresponding with filers, and a module to track enforced compliance.
If there are a sufficient number of problems with a given filer, Customs will meet with that filer in an attempt to raise
compliance. Any errors attributable to Customs will be removed from the filer's record. If efforts at informed compliance fail, Customs will move to enforcement activity. While it is expected that eventually the
information kept by one port will be available to all ports, that capability is yet to be developed.
SO HOW CAN YOU COLLECT DAMAGES FROM CUSTOMS?
3/00
In April 1994 an importer's computer chip placement machine was opened by Atlanta Customs for inspection. During the
inspection process, Customs personnel cut the vacuum seal on the machine. As a result, when it was delivered, the machine was rejected by the buyer as defective. The importer sued under the Federal Tort Claims Act
(FTCA) naming the individual inspector and Customs as defendants. Customs and the inspector were relieved of liability under an exception to the FTCA - 28 U.S.C. ? 2680(c) - the U.S. is not liable for the detention
of a shipment by any Customs officer. The decision was upheld on appeal. For more details see Matsushita Electric Company vs. Zeigler, 158 F.3d 1167 (11th Cir. 1998).
ITC STUDIES EFFECT OF DUTY REDUCTIONS IN U.S. TARIFF
3/00
At the request of USTR, the ITC is studying the probably economic effect of the U.S. further reducing its duty rates.
Specifically, the ITC is looking at the impact of reducing all duty rates by 50%, plus the elimination of all duty rates of 5% or less. How such reductions would impact the level of dutiable imports from trading
partners, as well as the impact of elimination of all duties in the anticipated Free Trade Area of the Americas. USTR has requested this study by ITC in anticipation of a new round of trade negotiations at the WTO
and the anticipation conclusion of the FTAA by 2005. USTR's report is expected shortly.
WHAT IS COMMERCIAL INTERCHANGEABILITY?
03/00
When Texport Oil Co. vs U.S., CAFC 981352, 1353, 1373, was decided, it left open the definition of commercial
interchangeability for drawback purposes. The lower court suggested: 1) the imported and exported goods must be commercially accepted; and 2) the descriptions on the sales invoice or contract had to match. The
appellate court aid no too restrictive. The CAFC suggested considering whether the negotiations were arms'length between commercial actors, the description of the goods on all the commercial documentation, and other
factual evidence which might be presented. The CAFC also found the merchandise processing fee (mpf) is subject to drawback although the harbor maintenance tax (HMT) is not.
RECORD KEEPING PENALTIES
3/00
At a public meeting recently, Charles Ressin of the Misc. Penalties Branch at Customs Headquarters admitted that there have
been about ten (10) record keeping penalties authorized for issuance since the mitigation guidelines were published late last year. Every one of those penalties deals with the lack of a NAFTA Certificate of Origin!
JUST WHO IS THE SHIPPER?
3/00
Stating a concern for unnecessary delays, U.S. Customs recently issued a bulletin reaffirming that if a trading company,
partner or parent company is the shipper, that party does not qualify as the manufacturer on the Customs entry. The actual manufacturer must be stated with its unique manufacturer identification code (MID). Keep in
mind that the name and address of the actual manufacturer are needed to construct the MID. Taiwan textile shipments are a particular problem.
MORE CUSTOMS UPDATES
|
