Source: http://customslaw.blogspot.com/2013/01/
Timestamp: 2018-03-21 08:51:48
Document Index: 573077523

Matched Legal Cases: ['art 102', 'art 102', 'art 102', '§ 102', 'art 102', 'art 102', '§ 102', 'art 102', 'art 102', '§ 134', '§ 134', 'art 102', '§ 134', 'art 102', '§ 1625']

I am going to make short work of a long opinion.
The Pomeroy Collection, Ltd. v. United States concerns the tariff classification of various glass and glass and metal decorative items that may or may not be used as candle holders. And that is really the gist of the case. As imported, none of the items included a candle and, unlike traditional candlesticks or candelabras, there was no cup, spike, or other mechanism in these articles to hold a candle in place. Rather, the imported merchandise consisted of the following:
Somewhat to my surprise, the Explanatory Notes to 9405 state that lamps and light fitting include items that use any source of light including candles and specifically states that it covers candlesticks and candelabras. Turning to dictionary definitions, the Court found that candlesticks and candelabras have a cup, socket, or spike to secure the candle. None of the imported merchandise had similar features. And, none came with a candle.
Looking at the "pillar plates," the Court found that they lacked design features similar to other candle holders. The Court also noted that the decorative plates could be used to hold many decorative items including fruit. Consequently, they could not be classified in 9405.
An interesting alternative theory was also addressed. Plaintiffs proposed that this merchandise could be classified as furniture in Heading 9403. The first problem with that theory was that, with some exceptions, "furniture" has to be designed to be placed on the floor or ground. That would eliminate the plates and sconces. The second problem is that, despite what the design diva's on HGTV might tell you, furniture is utilitarian in nature rather than decorative. These products, on the other hand, are decidedly decorative. Hence, they are not furniture.
So, the Court found all three categories of merchandise to be decorative glass and ordered it classified accordingly.
Posted by Larry at 5:50 PM No comments: Links to this post
It has been a while since I covered a Customs and Border Protection ruling. But, HQ H171035 is right in my wheelhouse of personal and professional interest. It concerns the application of NAFTA and non-NAFTA marking rules to used motor vehicle parts imported for remanufacturing. In the industry, these are called "cores."
It is important to note that the ruling does not address the NAFTA origin of or the entry requirement for the dirty core when imported. It appears from the ruling that non-NAFTA claims were involved. The ruling also does not address the origin marking on the outermost packaging of the dirty cores imported for further processing. Rather, it focuses only on the marking of the remanufactured parts, which are presumably sold in the aftermarket.
For core from non-NAFTA countries, the applicable law is that the ultimate purchaser should be able to identify its country of origin from the marking on the imported goods. For this purpose, “country of origin” is defined as the country in which further work or added material effected a “substantial transformation.” A substantial transformation takes place when there is a change in the name, character, or use of the product. If the remanufacturing in the U.S. results in a substantial transformation, then the remanufacturer is the “ultimate purchaser” and no country of origin marking would be required for subsequent sale in the United States. Another way to say that is that a substantial transformation renders the United States as the country of origin of the remanufactured cores.
According to Customs, the core components remanufactured in the United States do not undergo a substantial transformation. Customs concluded that the dirty core components have the same name, character, and use as the remanufactured parts. Essentially, Customs believes that the process of converting a dirty, say a used pump into a clean, almost-new pump for resale does not substantially transform the pump.
Applying this conclusion, Customs determined that the remanufacturer is not the ultimate purchaser for purposes of the marking law. Rather, the parts must be marked when they reach the end-user who purchases the remanufactured part. Customs then held that where the products are marked with their country of origin, that will be the country of origin for marking purposes. For unmarked products, and in the absence of other evidence of origin, the country of origin will be the country in which the parts were used prior to collection.
With respect to core from a NAFTA country, the analysis is different. Here, the question is whether the production in the U.S. renders the parts “goods of a NAFTA country,” specifically, the United States. If so, the NAFTA marking rules apply (which is clearly a circular analysis). To make this determination, Customs relied on the NAFTA Marking Rules of 19 CFR Part 102. The marking analysis under the NAFTA requires several steps, which are clearly explained in the ruling. Customs ultimately determined that the origin of the remanufactured core is the origin of the material that imparts the essential character, which is the core itself. Thus, Customs concluded that if the core is marked with its country of origin, that is the country of origin for marking purpose. This is consistent with the outcome of the non-NAFTA analysis.
In situations where the core collected in a NAFTA country and is not marked, the result is different. In those cases, the remanufacturing operation in the United States is sufficiently complex (i.e., it is not “minor processing” or “simple assembly”) to provide a new origin to the part. Consequently, for unmarked core imported from a NAFTA country and remanufactured in the U.S., the country of origin is the United States and the remanufacturer is the ultimate purchaser of the imported goods.
In summary, there are four core remanufacturing scenarios considered in this ruling.
1. Imported from a non-NAFTA county and marked with origin
a. Remanufacture does not result in substantial transformation
b. Country of origin is the country marked on the product
c. Goods must be marked when they reach the end user
2. Imported from a non-NAFTA country and not marked with origin
Remanufacture does not result in substantial transformation
Country of origin is the country where the parts were used
Goods must be marked when they reach the end user
Imported from a NAFTA country and marked with origin
Imported from a NAFTA country and not marked with origin
Country of origin based on location of last processing other than minor processing or simple assembly
This ruling does not address the country of origin of the dirty core to be reported when it is imported into the United States or the NAFTA origin status of the dirty core. Under the disassembly rule, it is possible that the core might be originating for purposes of the NAFTA even though it is marked with a non-NAFTA country of origin. For example, the part may undergo a qualifying shift in tariff classification from vehicle, for example, to part. In that case, the part would be originating for purposes of the NAFTA. In this circumstance, the so-called NAFTA preference override ( 19 CFR 102.19(a)) makes the country of origin of originating goods the last NAFTA country in which the goods underwent production other than minor process. Accordingly, the part would be originating for purposes of the NAFTA, declared as a product of the NAFTA country at the time of entry and marked consistent with that conclusion (if required under the above tests).
One aspect of this puzzles me and I throw it open to discussion. Why were goods from NAFTA and Non-NAFTA countries treated differently? If you look at the regulations, under 19 CFR 134.1(b) the country of origin for a good of a NAFTA country is the country of origin determined under the NAFTA Marking Rules. So, when making an origin determination, the first thing that must be done is to determine whether you are dealing with a good of a NAFTA country under Part 102. The Part 102 NAFTA Marking Rules do not focus on the country from which the goods were exported, which is how Customs applied the rules. Rather, following 19 CFR § 102.11, Customs is to apply a series of tests until a single country of origin is determined.
If that is true, it applies across the board. Assume that the core in this ruling was collected in and shipped from Bulgaria and either unmarked or marked "Made in Bulgaria." If the first marking question is to determine whether we are dealing with a good of a NAFTA country, then it is clear at the time of importation we are not. There is no connection to Canada, the U.S., or Mexico. Thus, the normal marking rules apply and Bulgaria will be the country of origin based on substantial transformation if there is evidence for that, the marking itself, or the Ashdown principal of use. If these same goods were marked "Made in Canada," the result is different. Now, have a non-NAFTA originating good (because it was used outside of North America) but the essential character imparted by the core part is Canadian. That makes it the good of a NAFTA country and the country of origin is Canada. In that case, there is no need to apply substantial transformation. Rather, the marking rules already tell us that the origin for marking purposes is "Canada."
The second question that arises is more convoluted. It is whether the Part 102 rules should also be applied to determine whether further processing in the U.S. produces "a good of a NAFTA country." The textual problem with doing so is that Part 102 specifically says it is used to determine the country of origin "of imported goods" for specific purposes including the NAFTA marking determination. See 19 CFR § 102.0 (Scope). Once we are talking about further processing in the U.S., we are no longer talking about imported goods. "Imported goods" is best understood as referring to the goods at the time and in the condition in which they crossed the border. Further, if the Part 102 rules were applied to make the origin determination for goods further processed in the U.S., then (as illustrated above) it should be applied to all such products to determine if they become goods of a NAFTA country (i.e., the United States). If that is true, then the substantial transformation analysis will only follow a Part 102 analysis in which the result is a non-NAFTA country.
I think a close reading of 19 CFR § 134.32(h), which is the marking exception at issue here, clears this up. That provision reads:
The "ultimate purchaser" is defined in § 134.1 as, in part, "for a good of a NAFTA country, the 'ultimate purchaser' is the last person in the United States who purchases the good in the form in which it was imported." The examples in that section make it clear that the Part 102 NAFTA Marking Rules are used to determine whether the goods are sufficiently further processed to allow the importer to be the ultimate purchaser.
To illustrate this inquiry, assume goods are imported from China for further processing by the importer. The importer wants to know whether the finished goods need to be marked. Traditionally, the answer to that question depends on whether a substantial transformation has occurred. But, maybe it is not so. Rather, the first real question might be whether the goods from China that are further processed in the U.S. are goods of a NAFTA country. Clearly, at the time of importation, they are not. When imported, they are to be declared products of China and at least the outermost contain should be marked "China."
What about after processing in the U.S.? One way to decide that is to apply the NAFTA Marking Rules and see whether the resulting country of origin is U.S. If so, then we have produced a good of a NAFTA country and the question is whether the last person in the United States who purchased it in the form in which it was imported reasonably knows the origin. That analysis to goods from China would supplant the substantial transformation test for almost all imports and, as I said, seem not to be what was intended.
Rather, § 134.32(h) refers to goods of a NAFTA country and "the circumstances of their importation." This links their status as goods of a NAFTA country to the time of importation. That means that the Part 102 rules only apply to the further processing question when the goods, as imported, are "goods of a NAFTA country." That limits the application of these rules substantially [sorry for the pun] and preserves substantial transformation as the starting point for most further processing questions. It is also consistent with the Federal Circuit decision in Best Foods, which applied the NAFTA Marking Rules to determine whether peanut butter produced in the U.S. from Canadian materials needed to be marked as an article of Canada. Lastly, it is consistent with how Customs approached this ruling, which takes us back to where we started.
You will recall that this is a case where the United States is trying to get a default judgment against an importer who falsely declared the country of origin of apparel on the entry documents. Customs and Border Protection assessed a penalty based on negligence and moved in the Court of International Trade to collect 20% of the value of the goods.
In the first decision in this matter, the Court denied the claim because the pleadings did not establish that the false statement of origin was material. Materiality is required by the penalty statute, 19 USC 1529. The Court gave plaintiff the opportunity to amend the complaint to assert facts showing that the statement of origin was both false and material. The government undertook two motion to amend, the first of which was denied and the second was withdrawn. This opinion focuses on the third amended complaint.
In this motion, the government asserts that each entry contained merchandise subject to quota and, therefore, the false statement of origin was material. The important unstated argument here is that the quota for a given country of origin can get used up and imports outside of the quota are typically subject to extremely high rates of duty. As a result, a false statement as to origin would prevent the government from properly managing quota. Further, a false statement of origin might circumvent the import controls implemented via the quota and avoid the payment of extremely high out of quota duties. That, according to the government, would be material because it would impact the treatment of the imported goods and the management of the quota system.
It is important to make two notes here. First, that was my summary of the apparent argument rather than a summary of what is in the opinion. Second, not ALL of the merchandise on every entry was subject to quota. However, every entry had SOME merchandise subject to quota.
The Court then noted that the proposed new complaint was too vague to allow it to determine tariff classifications and, therefore, the materiality of origin with respect to quota. The mere assertion that the goods were classified by the importer in HTSUS item 6204.63.3090, was not deemed sufficient for the Court to accept it as true.
Nevertheless, a single sentence saved the complaint. The complaint stated: "By misstating the country of origin of these articles, Active Frontier allowed them to be entered into the country without having them count toward the quota on these goods." Drawing all reasonable inferences from this sentence, as the Court is required to do, the Court found this to be an assertion that the apparel was classifiable in 6204.63.3090 and, therefore, subject to quota. That was apparently enough for the Court to use as a peg on which to hang its judicial hat.
Thus, the third amended complaint was accepted.
Those of you who are not lawyers but work in the compliance and brokerage field are surely scratching your heads. Yes, that is the world in which I live.
Posted by Larry at 4:21 PM No comments: Links to this post
This is a follow up to my tweet from last week about the Canadian International Trade Tribunal determination in the long-running dispute between Frito-Lay Canada and Canada Border Services Agency.
The issue had to do with Cheetos erroneously entered into Canada classified as cardboard boxes. [Insert your own cardboard Cheetos jokes here.] Frito-Lay paid the MFN duty applicable to cardboard, which was zero. Apparently because of the zero duty, Frito-Lay did not make a NAFTA claim at the time of entry, although the goods were originating.
Subsequently, Frito-Lay discovered the error and corrected it under subsection 32.2(2) of the Customs Act. Because Cheetos are dutiable, Frito-Lay included a NAFTA claim and supporting NAFTA certificates of origin in the corrections. In Frito-Lay's eyes, this was a revenue-neutral correction, and should not have been very controversial.
Posted by Larry at 3:29 PM No comments: Links to this post
Labels: Canada, Court Decision, Customs Law, NAFTA
One such issue has to do with the reimbursement of antidumping duties. As you likely know, antidumping duties ("ADD") are assessed on imports where the Department of Commerce has found that the goods are sold in the U.S. at a price that is less than the price for the like product in the home market. So, Bruce in Sydney sells his locally made wombat food for $10 per pound in Australia and $8 per pound in the U.S., Bruce is dumping the goods and the margin on that particular sale is $2. Before the U.S. will take any action, the International Trade Commission must also find that the $2 margin on wombat food causes or threatens to cause injury to the U.S. industry producing the like product over here.
If we assume that Bruce's wombat food is dumped and causing injury, it will be subject to antidumping duties when entered into the United States. The amount of duty to be deposited is subject to a lot of math and often a lot of litigation at the Court of International Trade. For illustration, let's just assume that the duty deposit will be 20%.
As you might imagine, a 20% increase in total landed cost does not sit well with the average importer. Of course, that is exactly the point. The goal of the ADD is to increase Bruce's price in the U.S. to eliminate unfair competition with the domestic producers. We can argue all day and night about whether the economic and policy rationale is sensible. [Hint, it makes the most sense in a world of market segmentation.] But, just accept that this is done to remedy--not punish--unfair trade.
What might a rational importer do? One possibility is to turn to Bruce and say, "This dumping business is your problem, not mine. If you want me to continue buying, you need to reimburse me for these dumping duties." That way, the buyer continue to get the goods at the same price and the exporter absorbs the cost of the dumping duties.
According to Commerce Department regulations, importers of goods subject to ADD are required to file a certificate stating whether they have entered into an agreement to receive reimbursement of the ADD. This can be done on paper or via ACE. For entries made after April 27, 1989, the certificate must be filed prior to liquidation. See 19 CFR 351.402(f). Certificates may be done for individual transactions or on a blanket basis.
I am thinking about this because Customs and Border Protection has apparently been thinking about it. Here is a link to a notice from CBP about the certificate requirements.
On the positive side, Michael B. Hyman was elevated to Justice of the Illinois Appellate Court. That could not have happened to a more deserving lawyer and the people of the State of Illinois will benefit from his presence on the court. Mike was my editor-in-chief for about 10 years while I wrote a column for the CBA Record on law office technology. Mike always struck exactly the right balance of supportive and demanding. He got some of my best non-professional writing and I am proud of the work we did together.
Beyond my small contribution to the Record, I have always been impressed with the passion and energy that Mike puts into everything he does. He was an extremely able litigator, President of the Chicago Bar Association, and active in diverse legal organizations including the ABA and the Decalogue Society. Mike was instrumental in forging relationships among various local bars and the CBA and he always worked toward improving the access to justice.
No professor I had in law school or as an undergraduate showed more care and passion about his teaching and the success of his students. GBT will be missed by all the lawyers he taught over the years. The profession is a better place because he taught us.
UPDATE: Here is an official statement from John Marshall.
Posted by Larry at 9:44 AM No comments: Links to this post
I hate the inevitable New Year's Day news story about the first local baby born in the new year. Not just because I am generally curmudgeonly, but also because I am skeptical of the data. I wonder how many birth certificates that should legitimately list the time of birth as 11:58 PM are fudged to 12:00:03 AM at the behest of competitive hospital marketing staffs.
On the other hand, I can say with certainty that the first decision of the Court of International Trade for 2013 is: [drum roll please] United States v. Millenium Lumber. [Insert sounds of popping corks and a band playing Auld Lang Syne.]
This is a case in which the United States is seeking to collect almost $2 million in liquidated damages from Millenium and its surety. The alleged bond violation was the failure to present to Customs Canadian export permits for products covered by the Softwood Lumber Agreement.
Millenium's point is basically that it did not breach the bond because the goods were actually classifiable as entered and no export permit was required. Further, when Customs and Border Protection liquidated in an HTSUS classification requiring an export permit, it acted contrary to prior Customs rulings. According to Millenium, by failing to properly provide public notice and comments of a proposal to revoke or modify the rulings, Customs violated 19 U.S.C. § 1625. Consequently, the rulings stand and the underlying classification is correct.
Once that issue was determined, things fell into place for the government. There appears to have been no real dispute that the goods, as classified by both Customs and Border Protection and the courts, required an export license from Canada. There also appears to have been no dispute that Millenium failed to get an export permit. Hence, there was a bond violation and liability for liquidated damages.
Keep in mind that as entered the importer would have no notice that the goods required an export permit. Thus, assuming a good faith classification, it had no cause to try and get the document. It was only the retroactive application of the changed classification that triggered the requirement for the license. Thus, this is probably a pretty bitter pill for the importer and the surety.
Making it even a little more bitter, the government moved for prejudgment interest on top of the liquidated damages. This is not unusual and, it should be understood, is not intended to punish the importer. Rather, the law allows for interest to compensate the government for the loss of the time value of the liquidated damages from the time of the demand. Despite arguments based basically on the defendant's perception that having to pay interest was unjust, the Court exercised its discretion and awarded prejudgment interest to compensate the U.S. for not having access to the money.
Labels: Canada, Compliance, Court Decision, Customs Law