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If you are a manufacturer or an importer of consumer products, you should keep an eye on what’s happening with the Consumer Product Safety Commission (CPSC).  Last week, the CPSC issued a proposed rule to establish the requirements pertaining to the third party laboratories authorized to test children’s products in support of the certification required by the Consumer Product Safety Act (CPSA) as amended by the Consumer Product Safety Improvement Act of 2008 (CPSIA).  77 Fed. Reg. 31086 (May 24, 2012).  Now, this isn’t the first proposed rule published by the CPSC addressing the accreditation of laboratories for testing children’s products.  Rather, between August 14, 2008, and August 14, 2011, the CPSC has published 19 notices of requirements.  

The CPSC was created in 1972 by Congress under the Consumer Product Safety Act.  The purpose of the CPSC is to protect the public from unreasonable risks of injury or death; and, today, the CPSC has jurisdiction over more than 15,000 kinds of consumer products, which primarily include those consumer products used in and around the home, in sports, recreation and schools.  However, the CPSC does not have jurisdiction over other types of products such as automobiles and other on-road vehicles, tires, boats, alcohol, tobacco, firearms, food, drugs, cosmetics, pesticides, and medical devices.  The CPSC works to keep consumers safe by:

• developing voluntary standards with industry
• issuing and enforcing mandatory standards or banning consumer products if no feasible standard would adequately protect the public
• obtaining the recall of products or arranging for their repair
• conducting research on potential product hazards
• informing and educating consumers through the media, state and local governments, private organizations, and by responding to consumer inquiries

In the most recent proposed rule, CPSC is seeking to (1) establish the requirements related to CPSC acceptance of the accreditation of a laboratory for purposes of testing  children’s products; (2) delineate how a laboratory may voluntarily discontinue its participation with the CPSC, (3) establish procedures for the suspension and/or withdrawal of CPSC acceptance of the accreditation of a laboratory, (4) amend the audit requirements for accredited laboratories, and (5) amend the agency’s regulation on inspections of accredited laboratories.

The CPSC recognizes that there are three different types of laboratories at issue:  the independent laboratory, which is neither owned, managed or controlled by a manufacturer or private labeler of a children’s product to be tested by the laboratory, nor owned or controlled in whole or in party, by a government; the firewalled laboratory, which is owned, managed or controlled by a manufacturer or private labeler; and the government laboratory, which is owned or controlled in whole or in part by a government (this includes any unit of a national territorial, provincial, regional, state, tribal, or local government, and applies to foreign governmental entities).  It is important to note that firewalled laboratories must be owned or managed by a manufacturer or private labeler…not the other way around.

In addition to this proposed rule, the CPSC also published the final rule establishing the requirements for the periodic audit of laboratories as a condition of their continuing accreditation.  77 Fed. Reg. 31074 (May 24, 2012).  The purpose of establishing requirements for a periodic audit of the laboratories is to ensure that any accredited laboratory continues to be competent to perform the testing services for which it has been accredited.

If you’d like to learn more about the CPSC or the proposed and final rules, drop us a line.

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It’s a busy day today, May 22.  Here in San Francisco, it’s Harvey Milk Day…but in D.C. and for those of us involved in trade, it’s CBP Industry Day!  Never heard of it?  Well, don’t be surprised.  The U.S. Customs and Border Protection (CBP) made the announcement just last week that May 22 would be “Industry Day” and to celebrate this most auspicious day, CBP created a one day event at the Ronald Reagan Building called “Evolving Border Security and Trade Missions:  Insights and Discussions with Industry“.  The link above will provide you with all the information you need;  access to the agenda, registration, speaker bios, etc.

This event will be available via webcast for those of us that were not able to attend in person.  If you are interested, you must register for Industry Day and then you will be able to view the webcast, which will be available until May 29, 2012.

Happy Industry Day!

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In last week’s post, we talked about the role of the Advisory Committee on Commercial Operations of Customs and Border Protection (COAC).  And, if you attended CBP’s first West Coast Trade Symposium last week, you would have learned about the two new industry trade centers, known as the Centers of Excellence and Expertise (CEEs).  How are COAC and the CEEs related?  Well, the idea for the CEEs was one of many ideas developed and put forth by COAC.  In 2009, COAC, in its advisory capacity, suggested that CBP shift its approach to view companies as accounts rather than review each entry on a transaction by transaction basis.  In response to COACs suggestions, CBP formed a workgroup to take a deeper look into this very different approach as to how the trade and CBP would work together to facilitate trade and to minimize the threat to our nation’s security.  What are these CEEs all about?  

The CEEs actually have been operating as a pilot program since November 1, 2010.  In creating a pilot program for the CEEs, former Commissioner Alan Bersin also wanted to focus on creating an account executive and an industry specific CEE.  The account executive pilot was created with the intent of focusing on those companies with good compliance history and were members of CBP’s trusted partnership programs like CTPAT, ISA, etc.  The industry specific pilot would look at an entire industry in totality with the intent of facilitating trade and bringing uniformity to CBP’s practices across all ports, nationally.  The workgroup identified several industries:

1. Agriculture & Prepared Products
2. Automotive & Aerospace
3. Base Metals & Machinery
4. Consumer Products & Mass Merchandising
5. Industrial & Manufacturing Materials
6. Electronics
7. Petroleum, Natural Gas & Minerals
8. Pharmaceuticals, Health & Chemicals
9. Textiles, Wearing Apparel & Footwear

These industries were targeted for several reasons:

• Companies in these industries imported large quantities of high value goods;
•  Companies in these industries partnered with CBP and were members of CBP’s trusted partnership programs; and
• Identified industries enabled CBP to work with other regulatory governmental agencies.

For the pilot programs, the workgroup narrowed it down to the pharmaceutical industry, selected for the industry center CEE and electronics, selected for the account executive CEE.  With specific industries identified, CBP identified three goals for the centers:

1. Develop agency knowledge and expertise concerning a specific industry;
2. Facilitate shipments for trusted partners;
3. Develop quality enforcement operations that enable CBP to go after high-risk companies or importers that the agency knew little, if anything, about.

Throughout the pilot program, CBP and the companies within the identified industries partnered with one another.  For example, during the pilot program, CBP met with 22 of the largest pharmaceutical importers over a two-day period to discuss business processes, to understand why certain business decisions were made and to understand how industry worked with the other governmental agencies.

The pilot programs also allowed CBP to work very closely with the other governmental agencies and to share and access their data and information.  This proved to be invaluable as both agencies could identify discrepancies with the information that was submitted, which ultimately led to CBP identifying smuggling activities.

Overall, the CEE pilot programs seem to be moving in the right direction.  And, although there may be some bumps down the road, the information between industry and CBP and CBP and other regulating governmental agencies is becoming more and more transparent, which is moving us all towards the fundamental goals of facilitating legitimate trade and to allow CBP to focus on potential threats to the nation’s security and economic competitiveness.  The CEEs are not only important for importers – brokers are critical partners and also play an important role.  Where a broker would have once interacted with the port, the broker will now interact with the appropriate CEE.

But wait, there’s more news, last week, CBP Acting Commissioner David Aguilar announced that CBP is expanding the program creating two more CEEs:  a center for Automotive and Aerospace in Detroit and a center for Petroleum, Natural Gas and Minerals in Houston.

If you would like more information on the Centers of Excellence and Expertise, check out CBP’s overview, Frequently Asked Questions (FAQ) sheet, and Fact Sheet.

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U.S. Customs and Border Protection has announced the next meeting of the Advisory Committee on Commercial Operations of Customs and Border Protection (COAC).

When:   May 22, 2012, 1 pm to 5 pm, EST
Where:  Hyatt Regency Savannah Hotel, Savannah, Georgia

If you are interested in attending, you must register to attend either in-person or via webcast.   Registration is open until May 18, 2012.  What is COAC, what does the the committee do and why is COAC important?  

COAC is a 20-member advisory committee that was established by Congress in 1987. Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, Title IX, Subtitle F, § 9503(c), 101 Stat. 1330, 1330-381 (1987) (codified at 19 U.S.C. § 2071 note).  See also 68 Fed. Reg. 28322, May 23, 2003.  In fact, the first meeting was convened on December 16, 1988.  COAC is jointly administered by the  Departments of Treasury and Homeland Security.

The purpose in creating COAC was to serve as an advisory committee to the Secretaries of the Department of the Treasury and the Department of Homeland Security (DHS) on the commercial operations of Customs and Border Protection (CBP) and related DHS and Treasury functions.  For example, COAC has considered and advised on the development of advance electronic cargo information requirements; streamlining Customs procedures, and other issues related to trade facilitation and cargo security;  safety of imports and protection of intellectual property rights; management by account and the  interaction of all government agencies in the border environment.

Although COAC advises the Secretaries of the Department of Treasury and DHS, COAC also provides advice and recommendations to the Commission of CBP and the Deputy Assistant Secretary for Tax, Trade and Tariff Policy (Treasury).  Although COAC is a 20-member advisory committee, there are also two government co-chairs, one from Treasury and one from DHS.  These government co-chairs preside over the COAC meetings and are not members of the COAC…meaning, they do not vote on COAC actions to provide advice but, rather, they set the agenda, manage the deliberation proceedings, participate in the discussions, and ensure that COAC operates in accordance with the law.

Members of COAC must apply to participate and are appointed by the Secretary of the Treasury and the Secretary of DHS.  Generally, COAC members are drawn from the trade or transportation community who are affected by CBP commercial operations and related functions and generally represent the interests of either importers (and their agents) or those associated with the carriage of international freight.  In addition,  the Secretary of the Treasury and the Secretary of DHS try to select members to avoid geographic, regional or political concentration.

COAC is an important advisory committee that allows the industry and the government to work as partners on critical issues that affect trade, security programs and the economy.  In fact, last year, Allen Gina, the assistant commissioner of CBP’s Office of International Trade stated, “You all have provided innovative ideas and helped CBP move forward on a number of issues critically important to American business–and the U.S. government.”  Both the government and trade are interested in simplifying and streamlining  import processes and reducing costs.  Both of which are good for business and the economy.

If you are interested in attending the meeting in Savannah, don’t forget to register!

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Unfortunately, for Ford Motor Company, the check is not in the mail!   The United States Court of Appeals for the Federal Circuit (CAFC) had some bad news for Ford Motor Company (Ford) in its recent decision on Ford Motor Company’s claims for refunds of Harbor Maintenance Taxes (HMT), which the company claimed it paid on exports made before July 1, 1990.  Ford Motor Company v. United States.  How bad was this news?  How does $2.5 million bad, sound?

Why did the CAFC rule against Ford?  What can you do to ensure you get your HMT refunds?  First, a little history. . .  In 1986, Congress enacted the HMT, which required all shippers to pay an ad valorem tax on commercial cargo shipped through the nation’s ports.  The HMT was imposed on all exports, imports and domestic shipments.  In order to collect these taxes, Customs set up separate lock boxes for each type of HMT with a bank where importers and exporters could submit their HMT payments.  Basically, HMT payors were required to send their payments, along with the necessary documentation, to the appropriate lock box (export, import or domestic shipment).  The bank would then process the payments, enter the payment into its system and that information was then submitted to Customs’ Automated Commercial System (ACE) database.  The bank would then send all of the original paperwork to Customs.

Then, in 1998, the U.S. Supreme Court held that the HMT was unconstitutional, but only as it applied to exports because it was found to violate the Export Clause of the Constitution.  United States v. U.S. Shoe Corp., 523 U.S. 360, 363 (1998).  In light of the Supreme Court’s decision, Customs had to develop an administrative refund process for HMT paid only on exports!  Not on imports or domestic shipments.

As Customs began processing these refunds, tremendous inaccuracies in its HMT database were quickly discovered.  Some HMT filings were consolidated and did not sufficiently, correctly or clearly distinguish whether the HMT payment was for export, import or domestic shipments.  Sometimes, the bank failed to separate out the payments into different categories and the payments would be entered into the system incorrectly. Sometimes, the payor might just submit payments to the wrong lock box and the bank personnel were not carefully reviewing each submission.  And, on top of all this, Customs had not been reviewing the documentation that the bank had been transmitting to verify that the documentation matched the electronic data that the bank was recording.  There were so many possibilities as to how or why these errors occurred, Customs determined that the information contained within their system was so seriously flawed that there was no way they could rely upon that data to issue refunds.

To deal with the unreliable data, Customs created two different processes for exporters seeking HMT export refunds.  One process addressed pre-July 1, 1990 refund claims and the other addressed post-July 1, 1990, payments.  For pre-July 1, 1990, payments, exporters were required to submit “supporting documentation” or some kind of documentary evidence establishing that the exporter was entitled to a refund.  For post-July 1 1990, payments, Customs issued a “Harbor Maintenance Tax Payment Report and Certification”, which listed all export tax payments that were reflected in its corrected database.  If an exporter determined that a payment was not included on the report or if the proposed refund amount was incorrect, the exporter could challenge the report with “supporting documentation”; again, establishing that the exporter was entitled to the refund.

So, what happened in Ford Motor Co.?  In 2003, Ford filed HMT refund claims for both pre- and post-July 1, 1990, payments and had already received more than $17 million in export HMT refund payments.  But, Ford claimed that it was still entitled to an estimated $2.5 million in HMT refund payments.

For the claims involving the $2.5 million, Ford relied upon a 1998 Freedom of Information Act (FOIA) Report, provided by Customs, which summarized and listed each quarterly HMT payment made between 1987 and 1992.  It’s important to keep in mind, however, that the FOIA report was drawn entirely upon Customs’ database, which was already determined to be filled with inaccurate data.  But, giving Ford some credit, Ford also submitted an affidavit attesting that it was only claiming refunds of HMT paid on export shipments and two declarations from Ford employees attesting to the consistency and quality of Ford’s quarterly HMT payment records.  For the post-July 1, 1990, claims, Ford submitted 20 files to evidence HMT payments Ford had made on export shipments for which Customs had no record.

Customs denied Ford’s claims and its subsequent protest finding Ford’s documentation to be insufficient supporting documentation.  And, in the end, the CAFC also found Ford’s documents to be insufficient “to constitute supporting documentation establishing entitlement to a refund.”  Ford’s reliance on the FOIA report for the pre-July 1, 1990, claims was drawn from Customs’ database and contained the same errors that Customs could not rely upon.  Although the affidavit and declarations might have demonstrated that Ford did, in fact, carefully prepare its refund claims and may not have misidentified or incorrectly consolidated its export HMT payments, there was still the possibility of bank error in recording the payments or that the payment had been sent to the wrong lockbox.  Basically, the court could not ignore the fact that there was, still, a very high potential for error.

As to Ford’s post-July 1, 1990, errors, Ford submitted reports identifying exports that Customs did not have in its system.  Unfortunately, the claims presented by Ford did not show that the claims had been submitted and accepted by Customs, but more importantly, there was no evidence that the claims had been submitted and accepted by the bank.

The Ford Motor Co.  case is important for exporters seeking to close out their HMT claims for refunds on its exports.  The “supporting documentation” to establish entitlement to a refund should demonstrate to a reasonable person that the payments were remitted for exports.  You must connect the dots and establish that “Claim A” relates to “Payment A”, which was made for “Export A”.  Be sure your claims for HMT refunds meet the documentary evidence required by the regulations.  You don’t want to miss out on those refunds!

If you’d like to read more about the history of the HMT and the rules adopted by Customs for the payment and refund of the HMT, the court’s opinion in Chrysler Corp. v. United States, 592 F.3d 1330 (Fed. Cir. 2010) provides a fuller discussion.

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Last week, the United States Supreme Court granted a writ of certiorari in a case where a U.S. publisher sued an enterprising student, who imported and subsequently sold (legally) foreign-made versions of the publisher’s book online in the United States to help finance his education.  Will importers be prohibited from importing legally copyrighted goods that are purchased outside of the United States unless authorized by the copyright holder?  Or, will importers be protected by the “First Sale Doctrine”?  

In John Wiley & Sons, Inc. v. Kirtsaeng, Thai student, Supap Kirtsaeng, made arrangements with friends and family to have them ship him foreign edition books that were printed abroad by John Wiley & Sons (Asia) Pte Ltd (Wiley Asia).  Kirtsaeng then sold these books on websites such as eBay.com and, according to his testimony, made about $900,000 in sales.  John Wiley & Sons, Inc. (Wiley) relied upon Wiley Asia to manufacture these books for sale in foreign countries.  As a result, Wiley, as the publisher of academic, scientific and educational journals and books, sued Kirtsaeng for infringement under 17 U.S.C. § 602(a)(1), also known as the Copyright Act of 1976 (the Act).

Can Wiley prohibit these importations?  Here’s a little background that might be helpful.  First, Congress has the power to create laws that protect the works of authors and inventors from unauthorized copying in order to promote the creation of future works of art, music, literature, etc.  See Article 1, Section 8, Clause 8 of the U.S. Constitution.  Current copyright law is found in the Copyright Act of 1976 and grants certain rights to copyright owners.

Specifically, Section 106(3) of the Act grants a copyright owner the exclusive right to distribute copies of his/her copyrighted works.  However, that exclusive right is limited by §§ 107 through 120.  One of the exceptions to a copyright owner’s exclusive right is the “First Sale Doctrine”, addressed by the Supreme Court in Bobbs-Merrill Co. v. Strauss, 210 U.S. 339 (1908).  The First Sale Doctrine is now codified in Section 109(a) of the Act and allows the purchaser of a copyrighted work that was lawfully made under the Act to later dispose of it as he or she chooses.  So, for example, if I purchase a book from a publisher, I could then resell that book on eBay and not be liable for copyright infringement.

There seems to be a bit of a rub between § 602(a)(1), which gives copyright holders “broad control over the circumstances in which their copyrighted material may be imported (directly or indirectly) into the United States, and § 109(a), which limits the extent to which the copyright holder may limit distribution following an initial sale.

In Quality King Distribs. v. L’Anza Research Int’l, 523 U.S. 135 (1998), the Supreme Court ruled that goods that are manufactured in the United States, exported and then make their way back into the United States are not infringing.  In Quality King, the Court applied the First Sale Doctrine once the copyright holder sold his/her goods, whether in the United States or abroad.  Since § 602(a)(1) states that an unauthorized importation is an infringement of the right to distribute copies under § 106, the Court reasoned that the First Sale Doctrine results in § 602(a)(1) not applying to lawful owners of copyrighted goods, i.e., those to whom the copyright holder sold the goods.

But, what if those goods are manufactured abroad?  According to the U.S. Court of Appeals for the Second Circuit, the First Sale Doctrine does not apply to foreign-made goods that are subsequently imported into the United States and resold.  See John Wiley & Sons, Inc. v. Kirtsaeng, No. 09-4896-CV (2d Cir. August 15, 2011).  The Second Circuit distinguished Quality King by emphasizing that the goods in that case were made in the United States while the books in Wiley were foreign-made.  The Second Circuit recognized that the language of § 109(a) was ambiguous and that other provisions in the Act did not provide clarification.  However, the Court reasoned that § 602(a)(1) would rarely have any force if the “First Sale Doctrine” applied to both domestically and foreign-made goods.  The Second Circuit also relied on dicta in Quality King to support its holding that the language of § 109(a) “lawfully made under this title,” was in reference to goods manufactured in the United States.  In Quality King, the Supreme Court stated that § 602(a)(1) was broader in scope than § 109(a) because it applied to copies that are neither “piratical nor ‘lawfully made under this title.’  That category encompasses copies that were ‘lawfully made’ not under the United States Copyright Act, but instead, under the laws of some other country.”  Quality King, 523 U.S. at 147.

The dissent in Wiley emphasized that courts are split over whether “lawfully made under this title” means made in the United States or made in compliance with U.S. copyright law.  Additionally, the dissent pointed out that Congress never referred to a place of manufacture in the Act.  Rather the focus is on whether the copy was made lawfully with respect to copyright law.  If Congress had intended the place of manufacture to have been decisive, the dissent argued, it could have so stated in the Act.  Not only is the statutory language ambiguous, the dissent also pointed out that a distinction between domestic and foreign-made goods would lead to uncertainty as well as higher transaction costs for sellers.  Finally, if the First Sale Doctrine does not apply to foreign-made goods, the dissent argued, the distinction may give publishers an incentive to produce works abroad rather than in the United States.

The purpose of the First Sale Doctrine is to ensure that copyright holders are justly compensated.  Was Wiley justly compensated when the books were sold abroad by Wiley Asia?  Should the First Sale Doctrine apply?  We will have to see how the Supreme Court ultimately interprets the language of § 109(a) in the Wiley case in its Fall 2012 term.  This is an important case addressing foreign-made gray market goods…stay tuned!

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On April 12, 2012, the U.S. Census Bureau, which is part of the U.S. Department of Commerce, issued its 2009-2010 statistical report:  “Profile of U.S. Importing and Exporting Companies”.  The  report provides data on import and export values, the number of U.S. import and export companies, the type of company, the country of origin of imports and the destination of exports as well as data on company size.  Based upon the numbers in the report, it seems that there’s good news for the industry and the economy.  

Export and Import Values

In 2010, the total value of exported goods was $1,278 billion, which was up from the 2009 figure of $1,056 billion.  Companies that could be identified, i.e. those that could be linked to particular import or export transactions, were linked to a total known value of exports totaling $1,138 billion, which was a 21% increase from the 2009 figure of $940 billion.

The total value of imports for 2010 amounted to $1,913 billion, up from the 2009 figure of $1,559 billion.   The total value of known imports totaled $1,679 billion – a 24.4% increase from $1,350 billion in 2009.

11% of total export value and 12% of total import value could not be linked to any particular company.  These “unidentifiable” values are attributed to exports and imports made by individuals, governments, low-value estimates, transactions where goods were exported and then returned as well as transactions where the company information was simply missing or unknown, etc.

These statistics on export and import values are especially interesting when compared with those from the last report issued by the Census Bureau last year.  In the last report, export and import values were reported to have decreased by 18.4% and 23.4%, respectively, from 2008 to 2009.  The 2010 data appears to indicate that the U.S. economy is slowly recovering from the 2008 recession – a great sign for both the importers and exporters out there.  Here, it is also interesting to point out that U.S. exports and imports grew at relatively the same pace, possibly a sign that this administration’s efforts to strengthen U.S. exports abroad is working.

Total Number of Identified Importers and Exporters

In 2010, the total number of identified U.S. exporters was 293.1 thousand compared with 276.6 identified exporters in 2009, which shows a 6% increase in such companies.  In terms of imports, there were 181.6 thousand identified importers in 2010 compared to 179.8 thousand in 2009 or a 1% increase.

While there has been a general overall increase in the number of companies involved in trade, it appears that more of these companies are focusing on exporting rather than importing.  It is interesting to note that the number of exporters in the U.S. increased by 5% more than the number of importers.  Again, an interesting sign in a country that has long been known for importing from abroad.

Types of Companies that are Importing and Exporting

With regards to exports, 9.1% of identified exporters, which were categorized as “multiple location companies” generated approximately 75% of known export value in 2010.  ”Single location companies,” which made up about 91% of all exporters, were responsible for 25% of total known export value.  The case was similar for imports.   Approximately 10% of all known importers were “multiple location companies” responsible for generating about 76% of total imports.  Single location companies, representing approximately 90% of importers, were responsible for about 24% of total import value.

Additionally, related party transactions made up 35.6% of the trade conducted by multiple location companies whereas 16.7% of single location companies were involved in such transactions.

Manufacturers were responsible for about 60% of all exports and 45% of imports.  The remaining export and import value was generated by wholesalers, unclassified exporters, and a category referred to as “other exporters.”  According to the report, “other exporters consisted mainly of “manufacturers of prepackaged software and books, brokers or freight forwarders and other transportation and warehousing firms.”  See Profile of U.S. Importing and Exporting Companies at 3.

Company Size

Most exporting and importing firms were small and medium-sized companies (SMEs), i.e. companies that employ less than 500 workers.  In fact, about 97% of all exporters and importers were SMEs, however, they only generated about 33.7% of total exports and 31.6% of total imports.

It is interesting to note here that the statistics on company type and size have remained relatively the same since the Census’ last report.  While larger companies are responsible for the lion’s share of business, the U.S. has maintained a strong base of diverse SMEs dedicated to exporting and importing.

Country of Origin and Destination Countries

Most exporters conducted business with one foreign country whereas 0.4% of exporters shipped to 50 or more foreign countries, however, this small percentage created about 47.8% of total export value.  Similar data was collected with regard to imports, with less than 0.1% of importers doing business with 50 or more countries accounting for approximately 19% of total import value.

Here, it is interesting to note that the data concerning who U.S. companies are trading with has stayed the same.  In 2009 and in 2010, the U.S.’s main export partners were Canada, Mexico, U.K., Germany, and China, with our most “important” import partners identified as China, Taiwan, Germany, Italy, and India.  Some countries such as Brazil, Chile, Australia and Columbia have shown great increases in trade with the U.S., especially on the export side.  The fact that U.S.’s trading partners has not changed significantly might be indicative of U.S. companies exercising caution as the market slowly bounces back.

Top Exporting and Importing States

The top states in terms of imports and exports have also remained the same since the last report.  The top exporting states in 2010 were: California, Florida, New York, Texas, and Illinois.  The top importing states were: California, New York, Florida, Texas, and New Jersey.

States, whose export figures increased dramatically in 2010 included: Maine, New Hampshire, Mississippi, Michigan, and Missouri. Similarly, New Mexico, Maryland, New Hampshire, Michigan, and Louisiana showed the largest increases in imports.

Overall, the latest statistical report shows one very positive trend and that is increases in trade rather than decreases, which – however you look at it – is a good sign for us all.

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We all know that some things take time.  But, what if you file a protest and nothing happens?  Does Customs have an obligation to allow or deny a protest within a certain period of time?  In Hitachi Home Electronics (America), Inc. v. United States, the U.S. Court of Appeals for the Federal Circuit (CAFC) examined the language of 19 U.S.C. § 1515(a) to determine whether a two-year deadline set forth in Customs protest statute is “mandatory or merely aspirational.”

In Hitachi Home Electronics, Hitachi imported plasma flat panel TVs made or assembled in Mexico from 2003-2005.  Hitachi’s TVs were imported under subheading 8528.12.72, HTSUS, which carries an attendant duty rate of 5% ad valorem.  Hitachi claimed that the TVs were eligible for preferential duty treatment under the North American Free Trade Agreement (NAFTA).  Hitachi timely filed protests with Customs challenging the classification of its TVs.  Hitachi’s protests languished for nearly five years beyond the two-year deadline set forth in 19 U.S.C. § 1515(a).  Hitachi was instructed to abandon its protests, see a “deemed” denial under 19 U.S.C. § 1515(b) and file an action in the CIT.  Those instructions to abandon its protests didn’t sit too well with Hitachi, so the company filed an action contending that Customs had two years to either allow or deny the protests under 19 U.S.C. § 1515(a).  Since Customs failed to render a decision within the two year statutory period, Hitachi’s protests should be “deemed allowed”.  Is the two-year deadline set out in Customs protest statute, 19 U.S. C. § 1515(a), “mandatory or merely aspirational”?

19 U.S.C. § 1515(a) provides in relevant part:

(a)  Administrative review and modification of decisions

Unless a request for an accelerated disposition of a protest is filed in accordance with subsection (b) of this section the appropriate customs officer, within two years from the  date a protest was filed in accordance with section 1514 of this title, shall review the protest and shall allow or deny such protest in whole or in part.  Thereafter, any duties, charge, or exaction found to have been assessed or collected in excess shall be remitted or refunded and any drawback found due shall be paid. . . . Notice of the denial of any protest shall be mailed . . . [and] shall include a statement of the reasons for the denial, as well as a statement informing the protesting party of his right to file a civil action contesting the denial of a protest. . . . 

(Emphasis added).

Hitachi argued that its protests should be allowed by operation of law because Customs failed to allow or deny those protests within the statutory time limit of two years.  Further, Hitachi claimed that the “use of the phrase “shall allow or deny” in § 1515(a) means that in the absence of any express denial, a protest is automatically allowed after two years have passed.”

In the CAFC majority opinion, issued on October 31, 2011, the court held that while the word “shall” is used in § 1515(a), it does not mandate that Customs allow or deny a protest within the two-year period set forth in the statute.  Rather, the court determined that that language was merely “directory” because there was no consequence provided for in the statute if Customs failed to comply with the two-year period.  The court further reasoned that there was no language in § 1515(a) that would result in an automatic allowance of a protest if Customs failed to make a finding within the two-year timeframe.  Instead, Hitachi should have filed for “accelerated disposition” under 19 U.S.C. § 1515(b) if Hitachi wanted a decision concerning its protest.   That way, if Customs failed to make a decision within 30 days of mailing its request for accelerated disposition, the protest would be “deemed denied” and Hitachi could then file an action before the Court of International Trade (CIT) under 28 U.S.C. § 1581(a), which grants the CIT jurisdiction to hear cases involving the denial of a protest.

The dissenting opinions in the October 31, 2011, Opinion and the recent denial of the petition for rehearing, argued that the term “shall” is a mandatory term and Congress intended that Customs make decisions on protests within the two-year timeframe when it enacted § 1515(a).  The dissent argues that the cases the majority relies upon do not  interpret this § 1515(a) and are not applicable.

Previously, under the Customs Court Act of 1970, Customs had 90 days to decide a protest.  If a decision had not been made within that 90-day period, the protest would automatically be deemed denied and the matter would then be transferred to the then U.S. Customs Court.  However, this practice resulted in many protestants becoming litigants when the protestants had no intention of taking their matter before the judiciary.  For this reason, Congress extended the timeframe within which Customs was to decide a protest and it provided Customs with what it believed would be ample time to complete a meaningful administrative review–2 years.

The dissent also argues that the statute does provide a “consequence” when Customs does not act on a protest and that consequence is allowance of the protest by operation of law.  After automatic allowance of the protest, the CIT would then have jurisdiction under 28 U.S.C. § 1581(i).

Will this case be heard by the U.S. Supreme Court as Circuit Judge Reyna believes?  This is an important matter concerning Customs procedure that is crucial to the trade community.  For now, Customs does, in fact, have a statutory obligation to review and decide all protests within two years.  Stay tuned to see what develops in this case!

Alexander Kolomietz/Image via Stray.com

Now that the days are getting longer and the weather is getting warmer, our thoughts turn to enjoying the great outdoors!  And, what better way, than camping!  In a recent decision at the Court of International Trade, Target Stores (“Target”) challenged the classification of its gazebos, imported from China.  At issue was whether Target’s imported products should be classified as “tents” or as “structures of iron or steel”?  Now, before you run out an buy your “tent” or “structure of steel”, let’s see how the CIT came out on this issue.  

Upon import into the United States, U.S. Customs and Border Protection (“CBP”) classified Target’s gazebos, which were marketed under such names as the Sun Gazebo, Summer Island Gazebo, Sean Conway Grand Casual Gazebo, Adagio Gazebo, and Veranda Hexagonal Gazebo, as “tents” under Heading 6306 of the Harmonized Tariff Schedule of the United States (HTSUS), specifically under subheading 6306. 22.90, HTSUS, as “Tents: Of synthetic fibers: … Other”), which carries an attendant duty rate of 8.8% ad valorem.  Target argued that these structures were gazebos, not tents and, rather, should be classified under subheading 7308.90.9590, HTSUS, which provides for “Structures … of iron or steel … Other….”, which carries no attendant duty rate!

As a test case, the government offered to stipulate that the entries of the Sun Gazebo, Summer Island Gazebo, Sean Conway Grand Casual Gazebo, and Veranda Hexagonal Gazebo would be reliquidated as “structures of iron or steel” and the Adagio Gazebo would be reliquidated under subheading 4421.90.97 as “Other articles of wood … Other.”  In addition, the government stated that while it would agree to the foregoing classification of Target’s products, the stipulation would not be applied to the other test cases.  Target rejected this offer and instead decided to go to trial and it brought along some key evidence – one of its gazebos!

At trial, Target was permitted to set up one of its gazebos in the well of the courtroom, which according to the decision “dominated the trial.”  Target Stores, Division of Target Corporation v. United States, Court No. 06-00444, Slip Op. 12-41 at 5 (C.I.T. 2012).  This would have been a pretty awesome sight to see.

With the gazebo in full display and expert testimony in its arsenal, Target really hit home it’s point.  The court “could not escape the evidence that tents and gazebos have virtually nothing in common except a form of canopy.”  It was clear to the CIT that Target’s gazebos were not in any way similar to tents.  During trial, the distinctions were many:  tents are “portable shelter” while gazebos are “permanent shelter”; tents usually have walls while gazebos do not; tents are designed to set up and collapse quickly while gazebos are intended to be permanently erected and putting them up them takes time and requires tools; tents can be easily transported while gazebos are not; tents are made of lightweight materials while gazebos are not; tents do not function as a landscape design feature, while gazebos do; tents usually consist of fabric material while gazebos consist of steel and wood; and finally, I could probably put up a tent by myself , I’m pretty darn sure I would never try to put up a gazebo!  See Target Stores, Slip Op. at 8.  Still confused as to the differences between a tent and a gazebo?

The CIT also relied upon  Ero Industries, Inc. v. United States, 118 F. Supp. 2d 1356 (2000) in which it held that “playhouses” for children were not “tents” because they did not offer protection against the elements  and were not “shelters” as described in the Explanatory Notes to Chapter 63.  In the same vein, Target’s gazebos are not “tents” according to the CIT.  While the gazebos have canopies, this alone does not make the gazebos classifiable Chapter 63, HTSUS, whose General Note 1 states that products falling under that chapter “appl[y] only to made up articles, of any textile fabric.”  See Target Stores, Slip Op. at 11.

The CIT held in favor of Target and found that its imported structures were gazebos, and not tents.  So, if you ever were confused as to the differences between a tent and a gazebo, the CIT has finally cleared the air.  Enjoy your starry nights.

Image via Flickr.com

On May 23, 2011, the Import Trade Law blog discussed a decision issued by the Court of International Trade (CIT) in which the Department of Commerce (Commerce) determined that steel nails otherwise subject to an antidumping duty order (Final Order) were not within the scope of that Final Order when imported as one of the components of a household tool kit.  See One Tool Short of a Hardware Kit, May 23, 2011; Mid Continent Nail Corporation v. United States, Slip Op. 11-55, May 17, 2011.  In that post, Commerce struggled with the issue of what constitutes a mixed-media set and when those components of a mixed-media set should be treated as individual items or as part of a set.  In fact, the CIT noted in its decision Commerce’s inconsistency in addressing mixed-media sets.  This month, the CIT offered a bit more clarity on Commerce’s authority and responsibility in addressing mixed-media sets and in determining the scope of a final order. 

On remand, Commerce justified its decision that the steel nails, when imported as part of a household tool kit, were outside the scope of the Final Order accordingly:

(1)   Commerce has the authority to issue scope rulings and to impose antidumping duties on “a class or kind of foreign merchandise;”[1] and

(2)   Commerce has the inherent authority to define the scope of its antidumping duty orders.

In defining the scope of the order, however, Commerce argued that it had to (and has the authority to) inquire into whether certain goods are included within the scope.  And, in order to define the scope of the order, Commerce must employ an analysis to determine whether its scope analysis should focus on the entire product or only a certain specific components of the imported product.  Commerce’s relied upon a four-factor test upon which it could conduct its analysis:

(1)   the practicability of separating the component merchandise for repackaging or resale;

(2)   the value of the component merchandise as compared to the value of the product as a whole;

(3)   the ultimate use or function of the component merchandise relative to the ultimate use or function of the mixed-media set as a whole; and

(4)   any other relevant factors that may arise on a product specific basis.

It was this authority and these factors that Commerce relied upon in determining that the steel nails, when packaged as part of the tool kit, were outside the scope of the Final Order.  Commerce also relied upon prior federal appellate court decisions to support its claim that it had the authority to exercise discretion in focusing its scope inquiries and in determining whether a mixed-media item is a unique product.  More intriguing, was Commerce’s reliance upon Crawfish Processors to support its claim that it had the authority to determine when a subject good (the packet of nails) had “transformed” or were subsumed into a new, non-subject good prior to importation.  See Walgreen Co. of Deerfield v. United States, 620 F.3d 1350 (Fed. Cir. 2010) and Crawfish Processors Alliance v. United States, 483 F.3d 1358 (Fed. Cir. 2007).

Steel nails transforming?  The CIT said, “not so fast!”

The CIT agreed that Commerce does have the authority to define the scope of the class or kind of merchandise subject to an antidumping duty order.  And, the CIT even agreed that once Commerce has defined the scope of the order, Commerce then becomes the interpreter of the order.  However, the CIT found that Commerce’s four factor test expanded Commerce’s role to analyze the product in question rather than interpret the scope of the Final Order.  Analyze or interpret; tomato or to-mah-to.

The CIT importantly noted that there is no statute or regulation providing direction as to when and whether Commerce should analyze a subject good within a mixed-media item on its own or as a unique product.  The statute simply authorizes Commerce to undertake scope inquiries and to issue scope rulings.  But, the CIT said the statute was clear that Commerce’s responsibility was limited to interpreting its orders, not changing them.

The CIT also called out Commerce on its reliance on those federal appellate court decisions.  The CIT found particular issue with Commerce’s reliance on Crawfish Processessors.  Commerce seemed to argue that the nails, when packaged in a tool kit, substantially transformed from steel nails to steel nails in a kit.  Say what?  In Crawfish Processors crawfish tail meat was found to be outside a scope ruling because the tail meat substantially transformed when it became an ingredient for etouffee because the ingredients penetrated the tail meat, permanently altering its flavor.  The CIT, however, didn’t buy it.  The CIT failed to see any crawfish-like transformation just because loose steel nails were packaged and included as a component within a tool kit.  The nails were still going to be used as nails.  The CIT held that the subject steel nails were, without question, subject to the Final Order.

Importers and domestic industries seeking to enforce scope determinations must pay extra attention when dealing with mixed-media sets.  It is a fine line between interpreting an order and analyzing components of a mixed-media set should be treated as individual items or as part of a set.   This certainly won’t be the last time we see this issue, especially when dealing with mixed-media sets.  History tells us so and, to paraphrase Sigmund Freud, “sometimes a nail is just a nail.”