US Customs Perspective on Ambiguities in CAFC Decisions

The CAFC is the appeals court for cases that are heard at the U.S.C.I.T. for which appeal is sought by a party that is unhappy with the lower court’s decision. The U.S.C.I.T. hears cases that both relate to US Customs and Border Protection issues, such as those regarding the classification or valuation of merchandise, in addition to hearing what are known in the industry as “trade” cases which deal with anti-dumping duties (ADD) and/or countervailing duty (CVD) issues, whose duties and the rules are governed by the U.S. Dept. of Commerce (DOC).

Last week I had the pleasure of going to the Court of Appeals for the Federal Circuit (CAFC) in Washington D.C. to attend a seminar that dealt, in part, with court decisions and ambiguities therein. Among the speakers was Sandra Bell, Executive Director for the Office of Regulations and Rulings at U.S. Customs, who shared a few thoughts from her agency’s perspective.

US Customs primary interest in court decisions is their impact on the agency to have a clear mandate follow after the decision is made. That is, in her own words, she wanted to see a “bright line rule” so that US Customs could have clear guidance for setting regulatory policy that would be in accordance with court decisions.

Ms. Bell spoke about 2 cases in which US Customs “learned” a bright line rule. In the first case, the court had to consider whether or not US Customs had erred by not accepting certain information from an importer regarding ADD which had not been provided at the time of entry, but which had been later provided pre-liquidation.

When it comes to ADD, US Customs is merely supposed to follow instructions set by the DOC regarding the treatment of imported goods subject to an ADD. US Customs does not have the authority to make independent decisions or rules regarding the cargo when it comes to the application of ADD rules on imports.

Despite this, US Customs nonetheless denied the acceptance of the importer’s post-entry submission of information with respect to ADD, deeming it to be untimely as it had not been filed at the time of entry, and ultimately denied the Protest made by the importer (who claimed it had filed all of the requisite information) despite it having been timely filed.

The outcome of this case - or in other words, the Bright Line Rule - was that when applying DOC instructions, US Customs is required to consider additional information properly provided in a Protest and by not doing so, it’s actions had been wrong.

Another example of a case that had a “bright line” was CBB Group, Inc. v. United States, Slip Op. 11-75.

This case dealt with a detention by US Customs of plush toys with a protected trademark on the toys. Rather than seizing the goods, US Customs merely detained them without making a decision on the status of the goods. It detained them for so long that they were ultimately considered a “deemed exclusion.”

CBB Group filed a Protest which was denied by US Customs and the very next day CBB Group went to the U.S.C.I.T. and filed a Summons to begin the process of judicial review of the action taken by US Customs. Oddly enough, US Customs decided at virtually the same time, but not before the Summons had been filed, to seize the goods.

The question presented to the court was thus a jurisdictional one: Whether or not Customs was still able to control the cargo now that a court case had been commenced, or if instead, that jurisdiction was now with the court.

The outcome of this case was that once jurisdiction had already been attached by the U.S.C.I.T., it was no longer within the purview of US Customs to take further action with respect to the cargo.

Both of these cases reflected outcomes that were unfavorable to US Customs however, both provided guidance with respect to how to treat cargo under specific circumstances, and for this they were instructive and of value to the agency according to Ms. Bell.

Whether the case was favorable to the agency or not, what mattered was that there was clear guidance with respect to agency action that came out of the decision.

Contrasting these decisions to a different one, another speaker made reference to the Le Mans Corporation v. US, 2010-1295 case, in which sportswear for motorcross activity had not been considered as being properly classified under Chapter 95 as articles of sports equipment but were instead classified under Chapter 61 and 62 as apparel.

In this case, a long-established designation for what had been considered sportswear was prima facie challenged (however, upon further discussion it was pointed out by an audience member that a distinction had been made with respect to the padding within the garment itself, causing it to be categorically ineligible - something I am sure other members of the bar could have argued about in disagreement.)

As many other sports equipment cases had been decided under this long-established designation, the court’s decision to not treat these articles in a similar fashion was considered by many to have created an ambiguity within the classification of such products.

Ambiguities may make it harder to know how to classify a particular item, and some would argue that it does. On the flip side of this however, it is the flexible nature of an ambiguous decision itself that can provide for a broader application of a certain set of rules across a wider variety of imports.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Advantages of The Foreign Trade Zone

I received an invitation through the Long Island Importers and Exporters Association to take a tour of Long Island’s Foreign Trade Zone (FTZ), known as the “Town of Islip/Foreign Trade Zone 52.”

Created in 1934, the FTZ program was established to stimulate domestic economic growth and development through the promotion of American competitiveness by encouraging companies to maintain and expand their operations in the United States.

The FTZ program encourages U.S.-based operations by removing certain disincentives associated with domestic manufacturing.

What is an FTZ?

FTZs are secure areas under U.S. Customs and Border Protection supervision that are generally considered outside CBP territory upon activation. Located in or near US Customs ports of entry, they are the United States’ version of what are known internationally as free-trade zones.

Under zone procedures, the usual formal US Customs entry procedures and payments of duties are not required on the foreign merchandise unless and until it “enters” the territory of the U.S. for domestic consumption, at which point the importer generally has the choice of paying duties at the rate of either the original foreign materials or the finished product (in the event the original goods have now been assembled into a completed different product).

The duty on a product manufactured abroad and imported into the U.S. is assessed on the finished product rather than on its individual parts, materials, or components. The U.S. based manufacturer finds itself at a disadvantage compared with its foreign competitor when it must pay a higher rate on parts, materials, or components imported for use in a manufacturing process.

The FTZ program seeks to correct this imbalance by treating products made in the zone, for the purpose of tariff assessment, as if it were manufactured abroad. At the same time, the United States benefits because the zone manufacturer uses U.S. labor, services, and inputs.

Another benefit is that domestic goods moved into an FTZ for export may be considered exported upon admission to the zone for purposes of excise tax rebates and drawback. Goods may also be exported from the zone free of duty and excise tax after being reworked or merely being warehoused there temporarily.

US Customs is responsible for the transfer of merchandise into and out of the FTZ and for matters involving the collection of revenue. The local US Customs Port Director, in whose port a zone is located, is charged with the oversight of zone activity and enforcement as the local representative of the Foreign-Trade Zones Board. The Port Director controls the admission of merchandise into the zone, the handling and disposition of merchandise in the zone, and the removal of merchandise from the zone.
For more information, you can click here and/or contact these offices below directly:

U.S. Department of Commerce
Foreign-Trade Zones Board
1401 Constitution Avenue, NW, Room 2111
Washington, D.C. 20230
Main Phone: (202) 482-2862
(Foreign-Trade Zones Board )

CBP Regulations, 19 CFR Part 146, govern the transfer of merchandise to and from foreign-trade zones. For answers to specific questions contact the Port Director of the CBP port where the zone is located or CBP headquarters at:

U.S. Customs and Border Protection
Office of Field Operations
Cargo and Conveyance Security
1300 Pennsylvania Avenue, NW, Room 5.2C
Washington, D.C. 20229

Questions/comments? Post below or email me at clark.deanna@gmail.com

Oct. 25, 2011, 6 PM: The Business Case for Foreign-Trade Zones

Come join me next Tuesday, Oct. 25, 2011 from 6 pm to 8 pm for an Organization of Women in International Trade (OWIT-NY) event about the benefits and uses of Foreign Trade Zones!

Date: Tuesday, October 25th, 2011
Time: Networking and refreshments at 6:00pm. Program commences at 6:30pm.
Location: Law offices of Baker & McKenzie in the Grace Building, 1114 Avenue of the Americas (the entrance is on 42nd Street directly across from Bryant Park.) New York, NY
Cost: $20 for OWIT-NY members, students and government employees, $25 for non-members

As companies turn to the supply chain in search of additional cost savings, one of the most untapped areas of value creation is that of Foreign Trade Zones (FTZs).

FTZs were established in 1934 to stimulate economic growth by allowing companies to operate in a specially designated area, outside the Customs territory of the United States. Now, seventy five years later, companies are still generating tremendous returns by reducing or eliminating duty payments, and minimizing transactional costs.

The agenda for this special evening will focus on FTZ’s noting the special privileges granted to U. S. companies to help them remain competitive and help keep American jobs at home. Your presenter for this special evening will be Trudy Huguet, Vice President of Foreign-Trade Zone Corporation.

What you will learn:

• FTZ Program Overview
• The expanded role and duties of U.S. Customs and Border Patrol under the Department of Homeland Security
• The many ways a company may benefit from operating its own FTZ
• The key business benefits to present to senior management for approval
• The overall process to apply for, certify, and operate an FTZ
• Best practices in the on-going administration of your FTZ

To register for the event click here.

Hope to see you there!

The Manufacturer’s I.D. – What Is It?

When merchandise is entered into the U.S., part of the declaration made to US Customs on the entry summary (CBP Form 7501) is that of the Manufacturer Identification Code (MID).

This code is intended to identify the manufacturer of the merchandise and together with the name and address of the invoicing party (whose invoice accompanies the Customs entry), an MID code is constructed.

Special attention should be paid to textile shipments, as the manufacturer should be construed to refer to the actual manufacturer in accordance with 19 CFR §102.23(a) and the Appendix to 19 CFR Part 102 – Textile and Apparel Manufacturer Identification.

This code is required for all entry and entry summaries, including informal entries, filed on CBP form 7501.

So how do we put this code together anyway? The following rules explain how to construct the MID.*

These instructions provide for the construction of an identifying code for a manufacturer or shipper from its name and address. The code can be up to 15 characters in length, with no inserted spaces.

To begin, for the first 2 characters, use the ISO code for the actual country of origin of the goods. The exception to this rule is Canada. “CA” is NOT a valid country for the manufacturer code; instead, show as one of the appropriate province codes listed below:

ALBERTA - XA
BRITISH COLUMBIA - XC
MANITOBA - XM
NEW BRUNSWICK - XB
NEWFOUNDLAND (LABRADOR) - XW
NORTHWEST TERRITORIES - XT
NOVA SCOTIA - XN
NUNAVUT - XV
ONTARIO - XO
PRINCE EDWARD ISLAND - XP
QUEBEC - XQ
SASKATCHEWAN - XS
YUKON TERRITORY - XY

Next, use the first three characters from the first two “words” of the name. If there is only one “word” in the name, then use only the first three characters from the first name. For example, Amalgamated Plastics Corp. would be “AMAPLA” and Bergstrom would be “BER.”

If there are two or more initials together, treat them as a single word. For example, A.B.C. Company or A B C Company would yield “ABCCOM.” O.A.S.I.S. Corp. would yield “OASCOR.” Dr. S.A. Smith yields “DRSA,” Shavings B L Inc. yields “SHABL.”

In the manufacturer name, ignore the English words a, an, and, of, and the. For example, “The Embassy of Spain” would yield “EMBSPA.”

Portions of a name separated by a hyphen are to be treated as a single word. For example, “Rawles-Aden Corp.” or “Rawles – Aden Corp.” would both yield “RAWCOR.” Some names will include numbers. For examples, “20th Century Fox” would yield “20TCEN” and “Concept 2000” yields “CON200.”

Some words in the title of the foreign manufacturer’s name should not be used for the purpose of constructing the MID. For example, most textile factories in Macau start with the same words, “Fabrica de Artigos de Vestuario” which means “Factory of Clothing.” For a factory named “Fabrica de Artigos de Vestuario JUMP HIGH Ltd,” the portion of the factory name that identifies it as a unique entity is “JUMP HIGH.” This is the portion of the name that should be used to construct the MID. Otherwise, all of the MIDs from Macau would be the same, using “FABDE,” which is incorrect.

Similarly, many factories in Indonesia begin with the prefix PT, such as “PT Morich Indo Fashion.” In Russia, other prefixes are used, such as “JSC,” “OAO,” “OOO,” and “ZAO.” These prefixes should be eliminated for the purpose of constructing the MID.

Next, find the largest number on the street address line and use up to the first four numbers. For example, “11455 Main Street Suite 9999” would yield “1145.” A suite number or a post office box should be used if it contains the largest number. For example, “232 Main Street Suite 1234” would yield “1234.” If the numbers in the street address are spelled out, such as “One Thousand Century Plaza,” there will be no numbers in this section of the MID. However, if the address is “One Thousand Century Plaza Suite 345,” this would yield “345.”

When commas or hyphens separate numbers, ignore all punctuation and use the number that remains. For examples, “12,34,56 Alaska Road” and “12-34-56 Alaska Road” would yield “1234.” When numbers are separated by a space, the space is a delimiter and the larger of the two numbers should be selected. For example, “Apt. 509 2727 Cleveland St.” yields “2727.”

Finally, use the first three alpha characters from the city name. “Tokyo” would be “TOK,” “St. Michel” would be “STM,” “18-Mile High” would be “MIL,” and “The Hague” would be “HAG.” Notice that numerals in the city line are to be ignored.

For city-states, use the country name to compose the first three alpha characters. For examples, Hong Kong would be “HON,” Singapore would be “SIN,” and Macau would be “MAC.”

General Rules:

Ignore all punctuation, such as commas, periods, apostrophes and ampersands. Ignore all single character initials, such as the “S” in “Thomas S. Delvaux Company.” Ignore leading spaces in front of any name or address.

Listed below are examples of manufacturer names and addresses and their MID codes:

LA VIE DE FRANCE
243 Rue de la Payees
62591 Bremond, France
MID: FRLAVIE243BRE

20TH CENTURY TECHNOLOGIES
5 Ricardo Munoz, Suite 5880
Caracas, Venezuela
MID: VE20TCEN5880CAR

THE E.K. RODGERS COMPANIES
One Hawthorne Lane
London, England SW1Y5HO
MID: GBEKRODLON

CARDUCCIO AND JONES
88 Canberra Avenue
Sidney, Australia
MID: AUCARJON88SID

N. MINAMI & CO., LTD.
2-6, 8-Chome Isogami-Dori
Fukiai-Ku
Kobe, Japan
MID: JPMINCO26KOB

*These rules are taken from Appendix 2 of DHS’ CBP Form 7501 Instructions, updated March 17, 2011, a copy of which may be obtained here.

Questions/comments? Post below or email me at clark.deanna@gmail.com