Source: http://www.barnesrichardson.com/?t=40&an=7102&format=xml&p=3734
Timestamp: 2019-04-19 18:52:12+00:00

Document:
A number of significant developments have taken place in international trade law over the past twelve months; only some of the most important changes will be touched on here in the area of regulations, judicial, and World Trade Organization decisions.
The most important regulatory developments in Customs law for 1996 concern the formulation and development of regulations to implement the Customs Modernization Act ("Mod Act").1 Few final regulations were published but, in an effort to generate discussion and industry input as to the effectiveness and the language for the anticipated regulations, the agency published several documents on the Customs electronic bulletin board (CEBB)2 and invited comment and suggestions for improvement.
On January 22, 1996, Customs published on the CEBB a "discussion draft" to encourage comments regarding agency interpretation of the Mod Act's directive that an importer use "reasonable care" in connection with its importing operations.3 This document included four alternative proposals that may be implemented, if at all, together or separately. The proposals included changes to 19 C.F.R. § 141, the publication of position statements in the Customs bulletin, the publication of a reasonable care "checklist," and the publication of "case analyses" as examples of reasonable care. It is anticipated that the regulations, when promulgated, will draw largely from the alternatives enumerated here and any comments on these suggestions. As a matter of law, the failure to exercise reasonable care constitutes negligence under 19 U.S.C. § 1592. However, as a matter of policy, Customs could consider alternatives to penalty enforcement action such as counseling and compliance programs.
Several core concepts involved in the reasonable care standard are discernable from the four proposals. It is clear that reasonable care places some burden on the Customs Service to inform the trade community of the requirements for compliance. Customs states in this "discussion document" that the following of an "Informed Compliance or other informational publication . . ." demonstrates reasonable care until the publication is superseded, amended or supplemented.4 The failure to follow one of these publications "will generally constitute the failure to exercise reasonable care."
The primary burden, however, remains with the importer. All of the proposals require the importer to be familiar with the relevant statutes, regulations, rulings and interpretations, tariff schedules (including interpretive and explanatory notes), judicial and administrative decisions, as well as "other publications." The importer must also be informed as to the terms of the import transaction, the description, use, composition and origin of the merchandise, and in certain cases, the production steps which were performed on their merchandise prior to importation. Customs also points out that gathering this knowledge is likely to require the coordination of many departments of a large corporation. Finally, Customs must be provided with the information necessary for Customs to determine whether the merchandise should be released from Customs' custody and the accuracy of the declared value, classification and rate of duty, as well as any other requirements of law.
Importers who use a customs "expert" must still show that reasonable care was exercised. The expert should be qualified to handle the importer's commodities or specific Customs issues. Reasonable care also requires that all material facts be disclosed to the expert, and that in most cases a written record should be maintained.
Requesting a binding ruling is another example of reasonable care. Ruling requesters are required to follow the ruling upon entry of merchandise covered by the ruling, and identify the ruling on the entry documentation. In return, Customs will, under most circumstances, liquidate the entry in accordance with the ruling. Importers who have not requested the ruling but believe that an existing published ruling covers the circumstances of their importation may choose to follow the published ruling however, the importer does so "at its peril." If a party wishes to follow one of several apparently conflicting rulings, reasonable care dictates that the party notify Customs of the rulings which are being disregarded or distinguished, as well as the ruling being followed.
The Customs Service issued draft proposed revisions to its administrative rulings regulations, on the Customs Electronic Bulletin Board (CEBB),5 which would increase the documentation requirements for ruling requests, and require the requester to certify that no other similar issue is pending before any customs office or the courts. Also, under the proposal, unless an extension is granted, rulings will automatically expire three years after issuance. The U.S. Customs Service intends to process the comments it received in response to this draft before issuing a proposed rule for publication in the Federal Register.
The Customs Service has also issued "discussion draft" regulations regarding penalty procedures and mitigation under 19 C.F.R. §§ 171, 172 in an effort to conform these rules the Mod Act and Customs' administrative reorganization plan.6 Several components of this proposal merit consideration at this time. First, Customs wishes to avoid running up against the statute of limitations where a court may find a lower degree of culpability than originally alleged. Under the proposal, therefore, Customs reserves the right to require a waiver of the statute of limitations as a condition precedent before accepting a supplemental petition in any case where the statute will be available as a defense to all or part of that case within one year from the date of decision on the original petition for relief.
Second, in response to the decision in Trayco, Inc. v. United States,7 where an importer was allowed to pay a mitigated penalty "under protest" and later judicially challenge the applicable degree of culpability, Customs proposes to refuse payments made "under protest." Customs proposes that any mitigation payment will act as an accord and satisfaction; the payment of a mitigated penalty will serve as an election to resolve the case through the administrative process, the right to sue for a refund will be waived. If these changes remain in the final rules, importers who dispute the amount of a mitigated penalty will be required to wait for Customs to sue in the CIT for the entire unmitigated amount.
Third, Customs proposes to concurrently notify the principal and the surety of claims for liquidated damages and penalties which are secured by a Customs bond. The petitioning period, will also run concurrently, but will be extended to allow for coordination between the parties.
All records must be retained in their original format unless alternative methods of storage have been approved in writing. All record keepers must designate a Record keeping officer and a backup officer. Written procedures, a description of the storage medium, effective data transfer, storage, retrieval procedures, audit trail, self-surveillance and other protections must be built into the record keeping system.
Certified Record keeping agents are also allowed under the proposal. The proposal does not spell out whether the use of a third party record keeper would reduce the liability of the primary record keeper. Importers and others required to keep records under the proposal must not assume that their customs broker will retain the records he is supposed to, even though in practice, they could obtain missing records from the broker. Primary responsibility will usually fall on the primary record keeper.
The Customs Service also recently issued draft proposed revisions to its protest regulations.11 Matters subject to protest now explicitly include notices of redelivery and reconciliation entries. Additionally, the draft proposal clarifies the circumstances under which a Port Director may deny an application for further review ("AFR") without having to forward it to Customs Headquarters or to the National Commodity Specialist Division. Allegations in an AFR that the protest decision is inconsistent with an existing ruling or decision must be stated with particularity. Also, under the proposal the Port Director may request further review by Customs Headquarters or the Director of the National Commodity Specialist Division.
If the Director of the National Commodity Specialist Division determines that an AFR forwarded to him should be denied on substantive grounds, then the protest will be referred to Customs Headquarters for a disposition. It is proposed that conferences will only be available for decisions that Customs contemplates to be adverse to the protestant's position.
The proposed regulations clearly state that an importer must follow the protest decision when making subsequent entries containing the same merchandise at all Customs field offices. If a protest decision is received with respect to merchandise which is currently being entered, the Customs field office handling the current entry must be notified. Failure to do so may result in the rejection of current transactions and the imposition of penalties.
Customs has published in the Federal Register a notice of proposed rulemaking on new "prior disclosure" regulations.12 Under section 1592,13 heavy penalties, in addition to the payment of any unpaid duties, can be imposed on importers found violating the customs laws. The prior disclosure statute provides an avenue of protection from these steep penalties by allowing a person who violates a customs law and discloses it to Customs before, or without the knowledge of, the commencement of a formal investigation. In return for this disclosure Customs may reduce or eliminate the penalty.
The new regulations define "commencement of a formal investigation" as the date, recorded in writing by Customs, "when facts and circumstances were discovered, or information was received, that caused Customs to believe" that a possible 1592 violation occurred. If an importer is denied the benefit of prior disclosure, and Customs initiates a formal investigation, then a copy of that writing must be forwarded to the importer.
Another significant proposed modification would give Fines, Penalties and Forfeitures ("FP&F") Officers leeway to defer investigations of unintentional violations until the disclosing party has had the opportunity to fully explain the situation. The proposed regulation provides that the disclosing party may request additional time to get information necessary to complete the claimed prior disclosure before the matter is referred for investigation.
On July 1, 1996, new rules took effect for determining the country of origin of a textile or apparel product for purposes of customs duties and quotas (except for products of Israel).14 "Substantial transformation" or value-added are no longer factors for determining whether an article originates in a particular country, instead, five alternative rules of origin are applied. In essence, the new rules result in origin being conferred in the country in which the pieces are assembled rather than the country where fabric is cut.
1. Articles wholly produced in one country originate in that country.
2. Origin is conferred in the country in which each foreign material incorporated in the product underwent an applicable change in tariff classification.
3. (a) If "knit to shape" in one country, it originates in that country.
Congress reauthorized the Generalized System of Preferences ("GSP") program on August 2, 1996.18 The new legislation, in addition to extending the program through May 31, 1997, makes several substantive changes to the prior law. First, it reduces the competitive need limit for imported products and alters the annual increase scheme from an indexed measure to an absolute one. Second, it grants the President explicit discretion in designating least developing country eligible products, limited only to non-statutorily exempt, non-import sensitive articles. Finally, it postpones for three years from denial the reconsideration of an article for eligibility.
Duty-free treatment was reinstated on GSP-eligible products on October 1, 1996. All duty-free articles imported after December 31, 1995 but before October 1, 1996 (1996 entries), are eligible for refunds. Refunds will be subject to interest payments calculated from the dates of deposit of estimated duties and based on quarterly IRS interest rates.
Passage of the reauthorizing legislation also resulted in the graduation of Malaysia from the GSP program,19 the removal of certain products from Pakistan on account of human-rights violations, and the relief of some de minimis products from the application of competitive need limits pursuant to decisions announced last November.
The USTR has resumed the reviews of the beneficiary countries' practices with respect to labor and intellectual property as well as the eligible products. It plans to complete these reviews by May, and will not conduct any reviews for 1996 due to its constraint in resources.
Second, the court decided that it would be inappropriate to certify a class of HMT claimants under CIT rule 23.27 Looking to the requirements of Rule 23(a),28 the Court found the prerequisites to class certification had been met,29 but that "the real point of debate" is whether, as an exercise of discretion, the Court should grant the motion.30 In light of the decision in U.S. Shoe, the pending appeal to the Federal Circuit and the stays pending appeal, the Court found it unlikely that conflicting decisions would arise. In addition, the Court was not concerned about limited funds from which to fashion a remedy. Therefore, class certification under Rule 23(b)(1) was inappropriate.31 Similarly, Rule 23(b)(2), relating to injunctive or declaratory relief, was inappropriate in light of the fact that the Court had already granted injunctive relief that should prevent the government from collecting the unconstitutional tax if the Court of Appeals affirms the decision. Moreover, the Court expressed concern about applying Rule 23(b)(2) to certify an all-inclusive class that would not permit claimants to opt out since the case now turns only on the availability of money damages rather than injunctive relief.
The saga of the HMT now moves to the Federal Circuit where the decision will be guided by the Supreme Court's 1996 decision in United States v. International Business Machines Corp.46 The Supreme Court found that a federal tax on insurance premiums paid to foreign insurers that are not subject to federal income taxes47 violated the Export Clause. Justice Thomas, writing for the Court in a six to two decision, found that the Export Clause prohibits nondiscriminatory federal taxes on goods in export transit.48 This decision obviously enhances the likelihood that the CAFC will uphold the CIT's determination that the HMT is an unconstitutional tax on exports.
Also this year, Judge Pogue thoroughly analyzed the application of Chevron to Customs Service decisions in deciding a motion for summary judgment with respect to the classification of cobalt alloy powders.62 Judge Pogue began his analysis by stating that classification cases come to the Court for de novoreview;63 the role of the Court is to find the correct classification64 even if that requires that the Court rely on information not before Customs at the time of the original decision.
Finally, in Verosol USA, Inc. v. United States,73 Judge Pogue directly addressed Judge Carman's analysis. Judge Pogue stated that the rule of Commercial Aluminum Cookware would require plaintiffs to carry a burden of proof as to the law and would greatly reduce the role of the CIT in classification cases.74 Citing Jarvis Clark Co. v. United States,75 Judge Pogue held that "[s]uch an approach would undermine the court's obligation to find 'the correct result, by whatever procedure.'"
It appears that the correct analysis is to treat the statute giving Customs the presumption of correctness as part of the assignment of the burden of proof in a trial de novo.77 Without an explicit statement of the presumption, it would be unclear whether, in the trial de novo, a plaintiff has the burden of overcoming Customs' decision or Customs has the burden of proving its decision to have been correct. This reading of the statute gives meaning to the agency's decision while preserving the role of the CIT in de novo review. Once in Court, it remains the duty of the trial judge to determine the correct classification by whatever means are available. This is, as the Court in Goodman recognized, completely separate from the question of deference to the agency on issues of law.
The Court held that nothing in the NAFTA implementation Act or the Statement of Administrative Action suggests that Congress intended to amend the marking statute.82 According to Judge Newman, Congress intended that Gibson-Thomsen remain in effect "in addition to and independent of the NAFTA marking rules."83 Thus, the proper role for the NAFTA marking rules is that they be applied in addition to the substantial transformation test under Gibson-Thomsen.84 The Court considered and dismissed Customs' argument that the tariff shift based NAFTA marking rules are a "codification" of the existing law of substantial transformation.85 In a strongly worded opinion, Judge Newman held that by abrogating the substantial transformation test Customs exceeded its authority to promulgate regulations necessary to implement the NAFTA. An appeal of this decision is anticipated.

References: § 141
 § 1592
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