CUSTOMS AND INTERNATIONAL TRADE

CUSTOMS

RECOTON SENTENCED ON CRIMINAL CHARGES
1/00

It was recently announced that Recoton had entered into a settlement with Customs regarding civil and criminal allegations that it had falsified country of origin markings on its products plus under valued its goods. Customs estimated the loss of duty to be $4.1 million. Recoton settled with Customs for $14 million. The criminal case was recently disposed of with the judge ordering a sentence requiring Recoton to pay $8 million in fines for 15 counts of smuggling. That $8 million will now be credited against the $14 million settlement previously announced. The net payment to Customs over 36 months will total $8 million.

CHALLENGING CUSTOMS
1/2000
©1999 Los Angeles Daily Journal

Supreme Court Hears Arguments in Two Import-Export Cases The 1999 U.S. Supreme Court session was quite surprising for practitioners in the import-export arena. At the beginning of the year, the first import-export case was argued before the Supreme Court since the early 1970s. The case involved the harbor maintenance tax. See United States Shoe Corporation vs. United States, 523 U.S. 360, 118 S.Ct. 1290 (1998).

The HMT was assessed as a percentage of value on imports into, and exports out of, the United States and was intended to fund improvements at America’s ports and waterways. See 26 U.S.C. § 4461. U.S. Shoe challenged the HMT assessment on exports only. Despite the Government’s argument that the HMT was a permissible user fee, relying on the export clause of the U.S. Constitution (U.S. Const., art. I, §9, cl. 5), the Supreme Court found the HMT to be a tax on exports and declared it unconstitutional.

Still pending is the question of whether interest has to be paid on the HMT amounts being refunded. Interest was found to be due by the Court of International Trade (a specialized lower court), but that decision has been appealed to the U.S. Court of Appeals for the Federal Circuit. See International Business Machines Corp. v. United States, Court No. 94-10-00625, 1998 Ct Intl Trade LEXIS 73 (1998). The judgment in U.S. Shoe found interest was due, but that portion of the decision was stayed pending the outcome of the IBM case, an outcome that carries substantial consequence for the government in that as of early September 1999, some $732 million previously paid in HMT fees had been refunded.

Using different procedural devices, the HMT was challenged on imports in Thomson Consumer Electronics, Inc. v. United States, Court No. 95-32-00277, 1999 Ct. Intl. Trade, LEXIS 81, Slip Op. 99-84 (1999) and Amoco Oil Co. v. United States, Court No. 95-07-00971, 1999 Ct. Intl. Trade LEXIS 89, Slip Op. 99-91 (1999). In both cases, the basic argument was that the HMT on imports is not severable and so, if invalid on exports, it is equally invalid on imports. Further, assessing the HMT solely on imports violates the Uniformity and Port Preference Clauses of the Constitution (as some 20 States do not have ports). These arguments were rejected by the Court of International Trade which found the HMT to be validly assessed on imports.

Later in the same Supreme Court session, the second trade-related case was argued before the Supreme Court, United States vs. Haggar Apparel Company, 143 L.Ed. 2d 480, 119 S.Ct. 1392 (1999). The basic dispute was over whether the operations Haggar performed on the jeans it processed in Mexico qualified as assembly or manufacturing. The difference was important in determining the value on which duty would be calculated. If the process was a manufacturing operation, duty would be assessed on the full value of the finished jeans. However, if the operation was qualified as an assembly process, duty would be due only on the value added in Mexico.

The trial and appellate court both dealt with the issues and found in favor of Haggar. The result turned on how the courts interpreted the “permapressing” performed in Mexico was interpreted.

Permapressing became the focal point of the case because of the way in which the tariff provision relied upon by Haggar was worded. Harmonized Tariff Schedule provision 9802.00.80 and 19 U.S.C. § 1202 provide a duty exemption for:

Articles... assembled abroad in whole or in part of fabricated components, the product of the Unites States, which ... (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting.

Subheading 9802.00.80 HTSUS, 19 U.S.C. § 1202.

The relevant regulation described processes that did not qualify for partial duty exemption under HTSUS 9802.00.80:

Any significant process, operation, or treatment other than assembly...shall not be regarded as incidental to the assembly and shall preclude the application of the exemption to such articles...Chemical treatment of components or assembled articles to impart new characteristics, such as showerproofing, permapressing, sanforizing, dying or bleaching of textiles.

19 C.F.R. § 1016(c) (1998).

The U.S. Customs Service contended that permapressing took the jeans out of the assembly provision because permapressing is specifically named as a disqualifying operation and so that the resulting garments were manufactured in Mexico not assembled. Haggar argued the exact opposite and won before the Court of International Trade, Haggar Apparel Co. vs. United States, 938 F. Supp. 868 (1996), relying on arguments explaining that permapressing as done today is no longer the harsh chemical treatment it was once thought to be and so Customs’ regulatory determination was no longer accurate.

The question of the deference to be given to Customs’ interpretation of HTSUS 9802 was raised again by Customs before the appellate court, which nonetheless affirmed the decision. United States v. Haggar, 127 F.3d 1460 (1997). Customs then appealed to the Supreme Court, which granted Certiorari.

What makes Haggar notable, beyond its being the second trade case in one term argued before the Supreme Court, was the deference question. The question posed to the Supreme Court was whether Customs had undertaken sufficient rule-making in enacting the relevant regulations so that judicial deference should be given to its interpretation, an issue raised for the first time by this case. This type of deference is known as Chevron deference (Chevron U.S.A. Inc. vs. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984),

Relying on the holding in Chevron, courts generally give the regulations promulgated by an agency judicial deference, provided those regulations are the result of proper rule-making and reasonable interpret and implement an otherwise ambiguous statutory provision.

The Supreme Court in Haggar found that if Congress speaks directly regarding a question, the court must give deference to Congress’ specific intent pursuant to Chevron. However, if an agency’s statutory interpretation fills a gap or defines a term, that interpretation is to be given judicial deference, provided the Administrative Procedures Act (5 U.S.C. Section 553) has been complied with.

In the case of the regulations in question, Customs had indeed published them in proposed form, accepted comment, and then issued final regulations. In those regulations, permapressing was specifically named as a chemical treatment, which qualified the resulting garments as having been manufactured, rather than assembled. As a result, the Supreme Court remanded the case to the Federal Circuit for further consideration, as the appellate court had only dealt with the question of Chevron deference and rejected it. On remand, the Federal Circuit was directed to consider whether the regulations themselves actually warrant deference.

The question of Chevron deference was raised again by Customs in Mead Corp. vs. United States, 1999 U.S. App. LEXIS 17831 ( Fed. Cir. July 28, 1999). Customs issued a ruling to Mead regarding the tariff provision and rate that would apply to its day-planners. Mead took issue with Customs’ decision. By complying with the requisite procedures, Mead was eventually able to bring the matter before the Court of International Trade, which granted Customs’ motion for summary judgment affirming the original classification decision.

The Federal Circuit took note of the Haggar case and held that a ruling by the Customs Service is an interpretation of a tariff provision. It does not involve input from any party except the importer to whom the ruling is issued. A ruling is issued only when requested by an interested party. It involves no public debate prior to issuance (although it is subject to public comment after the fact if an appropriate petition to overturn the results is filed - a rare but not unheard of event). A ruling is confined to the specific facts presented. It does not clarify the law or the rights of an importer.

Conversely a regulation undergoes notice and comment and provides a mechanism for input from the interested public. It may be amended or changed later in response to subsequent public input. Therefore, the appellate court found that rulings are not entitled to Chevron deference. Customs has not yet decided whether it will appeal this decision to the Supreme Court.

Many practitioners think the holding in Haggar will force them to carefully monitor each regulation as it is proposed by Customs to ensure it is a reasonable interpretation of congressional intent so as to preserve the issue for trial. Many others think it does not mean that each and every regulation is subject to challenge because it wrongly interprets congressional intent. In the end, what both Haggar and Mead do is provide practitioners with yet one more tool to use in challenging Customs’ decisions.

SHOULD CUSTOMS PENALIZE IF DUTY IS OVERPAID?
12/99

That question was posed in the Tri-State Hospital case. The jury found Customs could not penalize in that case but the decision is expected to be appealed. Tri-State overvalued its products in order to work with its exporter to get around certain Pakistani currency controls.

FAILURE TO REDELIVER FDA REJECTED GOODS
12/99

A thorn in everyone's side for years has been cases where FDA refuses admission of goods which are not then timely exported or destroyed. The key question has been at what point must Customs issue the Notice to Redeliver? In some cases, the notice was issued more than 120 days after FDA's notice. A settlement has been reached between Customs and various sureties in which only about 30% of the total demanded will be paid. In addition, Customs has agreed to change its practices. It may well be that Customs and FDA will develop a joint form. In any case, Customs is now expected to issue its Notice of Redelivery within thirty (30) days of FDA's Notice of Refused Admission.

CUSTOMS IDENTIFIES MAJOR DISCREPANCIES
12/99

As part of its Compliance Assessment (CAT) audits, the importing community has demanded that Customs distinguish between major and minor discrepancies. In other words, not all mistakes are equal. Customs took that suggestion to heart, has been reviewing its practices and recently published information in which it seeks to make changes. Details about those changes can be found on Customs web site www.customs.treas.gov <http://www.customs.treas.gov>.

Major discrepancies are identified as involving illegal narcotics, intellectual property rights, Customs and other agency refusals, misdelivery (excluding stolen shipments), quota/visa (if the change in quantity is more than ten (10%) percent), eight-digit misclassifications, line release sub-chapter misclassifications, anti-dumping/countervailing duty, not legally marking goods, country of origin, special program indicators, forced labor, all unentered merchandise constituting line values exceeding $2,000, all imports where a value or quantity discrepancy is either ten (10%) or $5,000 in excess of the entered line's value, all imports where there is an excess of $1,000 in lost revenue. All other discrepancies will be considered minor.

Customs is proposing to change its procedures in terms of placing an importer in the high risk category. There may be a suspense period giving the importer an opportunity to alter its operations within a set time frame.

IMMEDIATE DELIVERY
12/99

Importers are reminded that some duty rates will again fall at the start of 2000. To take advantage of that possibility, Customs has issued its standard year end reminder about the availability of immediate delivery procedures. It applies to any goods released from December 16th to the end of the year. For importers who can wait and are willing to pay the additional cost, the alternative is to enter the goods into a bonded warehouse or foreign trade zone.

SHIPPING ACT CONFIDENTIALITY PROVIDES PROBLEM
11/99

Importers are reminded that if their cost of goods includes freight, carriers are relying on the Ocean Shipping Reform Act of 1999 in declining to provide customs brokers with the actual prepaid freight amount. As a result, importers in this situation should make sure that their commercial deal obligates their supplier to state the actual freight cost. Customs has repeatedly stated that only the actual amount of freight may be deducted and, if it cannot be determine, duty should be paid on a value which includes the freight. The alternative is to purchase on an F.O.B. or exworks term of sale which provides the additional benefit of controlling freight costs.

RECONCILIATION WARNING
11/99

As we approach the end of the first full year of reconciliation, Customs has issued a bulletin reminding the importing public that anyone who flags entries for reconciliation should make sure the follow up entries are filed timely. Mitigation guidelines to be used in those instances where importers fail to timely file are expected to be published shortly. NAFTA reconciliation entries must be filed within 12 months from date of entry. All remaining reconciliation entries are due within 15 months of date of entry.

AND THE COST KEEPS GOING UP
11/99

Customs has just announced that Pentax has agreed to pay a penalty of $20 million to resolve the issues which arose from the company importing Chinese goods which bore a Made in Hong Kong label. This case is of particular interest because the mistake was brought to Customs' attention by Pentax through a prior disclosure. Customs refused to accept the disclosure as valid stating instead that company officials acted intentionally and the facts submitted to support the disclosure were incomplete and/or misrepresented what actually occurred. This settlement deprives importers of a court articulated standard regarding what constitutes a completed prior disclosure.

Pentax's penalty amount exceeds the $14 million recently agreed to by Recoton but is drawfed by the almost $34 million paid by Daewoo a number of years ago regarding the valuation of certain of its steel imports.

HARMONIZED RULES OF ORIGIN STALLED
11/99

At the Seattle APEC ministerial later this month (November 1999), negotiators will again have to confront their inability to agree upon harmonized rules of origin. When the Uruguay Round was ratified in 1994, signatory countries agreed to a three (3) year schedule in which to complete harmonization of the rules of origin. That effort has been extended many times as the more contentious issues remain stalled. With the Seattle ministerial, the question to be addressed is whether the rules of origin effort will remain on a separate track or whether it will be combined into new multi-lateral negotiations.

There are about 5,000 tariff provisions under discussion. Agreement has only been reach on about 1/3 of them. The most contentious areas are agricultural, textile and machinery products. Agricultural products alone have over a hundred items still under discussion.

The concept of tariff shift was agreed to in the context of NAFTA and has proven extraordinarily complicated for many. In the WTO context, the question is how to determine origin if the various components do not undergo a sufficient change in classification to meet a tariff shift required for the specific product. One possibility proposed by the Europeans is based upon value added. Another possibility was proposed by the U.S. and would confer origin based upon the origin of that component or part which did not tariff shift.

In the agricultural area, the question is how to decide origin for mixtures of processed foods. One possibility would be to figure out the component which determines origin. Another possibility would be to consider value or weight.

Given the complexity of the issues and the protectionism which seems to be washing over America, it is an open question just how much can be accomplished on the rules of origin harmonization question.

CUSTOM'S ACTIONS SOUNDLY REJECTED
10/99
In a closely watched case involving Heartland By-Products, Customs' actions were rejected as not in accordance with the law. Judge Barzilay of the Court of International Trade issued her opinion on October 19 stating that the law is well settled. An importer may design his product to take advantage of the lowest possible duty rate, also called tariff engineering. Those present at the hearing commented about the shocked reaction of the lawyers for Customs who apparently were not prepared to limit their argument to just the legal issues. Judge Barzilay confirmed that Heartland obtained its original classification ruling based upon a full disclosure of all the relevant facts. She also ruled that the tariff classification in question was not a use provision and, therefore, whatever Heartland did to its sugar syrup post-importation was of no consequence to its classification at time of entry. Critics felt Customs changed Heartland's classification ruling simply to mollify domestic interests. Judge Barzilay roundly rejected Customs' actions. The only question remaining is will Customs quit now or will it appeal? That decision must be made by mid-November.

HEARTLAND CASE DECIDED
10/99

late last week the Court of International Trade found in favor of Heartland and against Customs. Judge Barzilay found that the tariff provision in question had nothing to do with use and so Customs' consideration of post-importation processing was misplaced. The decision also reinforced tariff engineering, the concept of designing a product to take advantage of the lowest possible duty rate.

IMPORTER SETTLES WITH CUSTOMS
10/99

Recoton Corp. has settled its differences with Customs by paying $14 million. Customs sought civil and criminal penalties from the company for under reporting value, falsely claiming goods were made in Costa Rica to qualify for duty-free treatment under CBI and repackaging Chinese goods in the U.S. but failing to declare certain dutiable fees paid to its suppliers. Recoton entered into a plea agreement to resolve the criminal case and a settlement to end the civil case. The under paid duties alone totaled about $4.1 million.

Recoton hired a former Customs import specialist to handle compliance issues who was later elevated to a vice presidential position in order to reinforce for Customs its intention to comply with the law. Customs retained the right to continue to monitor Recoton's compliance efforts. The largest penalty ever collected by Customs was $34 million from Daewoo Corp. in 1989 in conjunction with certain steel entries where dumping was an issue.

MANIFEST CONFIDENTIALITY
9/99

Customs regulations (§103.31) allow importers and consignees to obtain confidentiality of certain manifest information. However, a given request is only valid for two (2) years so importers and consignees are reminded to review their requests and submit new ones as required.

SHIPPING REFORM HAS UNINTENDED SIDE EFFECT
8/99

With the advent of confidentiality in ocean shipments, many importers are having trouble determining the amount of ocean freight included in the cost of their goods. This fact has presented a problem in calculating dutiable value. If an importer purchases goods on terms of sale which include prepaid freight, the only way he can safely deduct the freight charges is to be able to document the amounts involved. However, shippers are now reluctant to provide those numbers. In the past, bills of lading were rated so the importer would know what to deduct. However, when the Ocean Shipping Reform Act took effect last May, rate confidentiality was allowed so often bills of lading are no longer rated, ostensibly out of concern that others could learn freight rates and use them to their competitive advantage. As a result, if the importer guesses at the amount of freight included, he runs the risk of being penalized by Customs for not being able to support his declaration. If he guesses high, he pays too little duty. If he guesses low, he pays too much. In other words, an importer cannot exercise reasonable care by guessing.

PENALTIES ON COUNTERFEIT GOODS
7/99

Customs has issued proposed mitigation guidelines for anyone who “directs, assist financially or otherwise, or aids and abets the importation of merchandise [bearing] a counterfeit mark.” The regulations are so broadly written as to allow Customs to penalize anyone in the chain of distribution. The amount of the fine will be geared to the manufacturers suggested retail price (MSRP) and involve a sliding scale percentage of that price as the final fine amount. For a second and each subsequent offense, the fine is set at twice the MSRP.

MISC. TRADE BILL SIGNED
7/99

H.R. 435 was signed by Pres. Clinton in June 1999. While much of the legislative change is technical in nature, there are two changes of general interest. The new bill allows mid-point interest calculations for those filing reconciliation entries. While the enabling regulations still need to be published, in general the change allows importers to calculate the interest owed for additional duties resulting from reconciliation entries to be calculated from a mid-point rather than on an entry-by-entry basis as previously required.

The second change eliminates the application of the current textile making rules to silk products and containers which are classified under subheading 6214.10.10 or heading 5007 as of Jan. 1, 1997. This change is the result of extensive negotiations with many European trading partners who objected to the way in which the textile rules of origin required their goods to be marked, i.e. the country of origin became the origin of the fabric (e.g. China or Pakistan) rather that the site of further production (e.g. Switzerland). The problem was, of course, the inability of exporters to obtain textile visas from the fabric making country once the goods were ready for shipment from the finishing country.

GOVERNMENT STEPS UP PENALTIES
7/99

The Commerce Dept. is again imposing penalties on companies who violate America's Anti-Boycott regulations. American company are barred from participating in any Arab boycott of Israel or boycotting companies which engage in business with Israel.

Likewise U.S. Customs has just announced a settlement with an importer which involved a payment of $14 million. Recoton Corp. in Florida pled guilty to 15 violations of law. It admitted under reporting values and mislabeling goods as "Made in U.S.A." It also admitted falsely claiming goods were made in Costa Rica to take advantage of special low rates of duty for goods from Caribbean countries. Recoton also imported Chinese Goods, repackaged them in the U.S. and failed to declare dutiable fees paid to suppliers.

The message these recent fines reinforce is that it is critical for companies to have knowledgeable people on staff with authority to make sure companies do business properly. Otherwise, officers and directors could be liable to shareholders for their failure to take proper action to protect the assets of the company.

CUSTOMS EXPANDS CONTAINER EXAMS
7/99

Customs has announced it will expand its random examination of inbound containers by also inspecting their contents, called Physical Verification of the Manifested Quantities. Customs' reason for doing so has to do with insuring the integrity of manifests, a primary tool in deciding which shipments to examine for commercial as well as contraband reasons. 262 vessels nationally will be selected leading to the full examination of the contents of approximately 1,000 containers.

CUSTOMS AUTOMATION
7/99

One of the biggest concerns to the international trade community (import and export) right now is whether there will be adequate funds for Customs to be able to replace its antiquated computer system. The current system is about 15 years old. Recent efforts have been directed at a series of fixes. It really needs is to be replaced. However, the President's budget for 2000 contains no monies for that purpose but rather a proposal for a user fee which has been universally rejected. In funding Customs for next fiscal year, the Senate on July 1, 1999 passed a budget which provides $67 million for the maintenance of the current system. There is no money provided for a new system but there is $5.4 million for ITDS, a computer system which ties together various U.S. federal agencies along with the governments of the three NAFTA countries.

While the House has yet to pass a budget, it is expected to enact something similar but at perhaps different funding levels. In other words, there will be no money for a new computer system next year. Those interested in influencing Congress to make sure the economic boon of international trade continues with the benefit of a proper computer system have joined together to form the Coalition for Customs Automated Funding. For more information contact Robin Lanier at the International Mass Retail Association in Washington, D.C. at 703/8412300 or rwlanier@imra.org <mailto:rwlanier@imra.org>.

TRADEMARKS AND EXPORTS
7/99

In a further expansion of its jurisdiction over U.S. exports, the Customs Service has begun examining export shipments to determine whether or not they involve counterfeit goods. If the exporter is not able to prove that he is entitled to trade in goods bearing a given trademark and that those goods are legitimately made by the trademark holder or his authorized licensee, Customs appears intent on seizing those goods relying for authority on 18 U.S.C. § 2320. While a criminal statute, this law allows the imposition of fines or jail time for those intentionally “trafficking,” attempting to “traffic,” and “knowingly using a counterfeit mark or in connection with such goods or services.” Possession or title to goods bearing counterfeit marks will undoubtedly be enough for the agency to act.

A mark is obviously counterfeit if it is reproduced without the holder’s permission. However, if a mark is legitimate but sold outside the usual distribution channels, it is also considered counterfeit. In other words, the well-established grey market trading of many types of goods may be at risk.

RECONCILIATION UPDATE
6/99

Customs has announced its grandfather clause update. The cut-off date is May 14, 1999. If by then the importer has its application and bond rider in place and is flagging entries for reconciliation, then the grandfather clause is extended for that importer from October 1, 1998 to "the summary date of their earliest entry summary flagged for reconciliation." The importer must inform the Reconciliation Team at Customs Headquarters know the range of dates for the entries affected and the importer of record number (all 11 digits) by June 1, 1999. Notification may be provided by e-mail to GOTOBUTTON BM_1_ don.p.luther@customs.treas.gov and reference "RECONEXT." Failure to take advantage of the reconciliation process results in importers being limited to correcting their entries on an entry-by-entry basis through Shippers Letters of Instruction and protest. Entries flagged for reconciliation after May 14, 1999 will not be allowed unless the importer is in full compliance with the reconciliation program. Failure to participate in reconciliation where the importer has the types of transactions for which reconciliation is designed will be considered by Customs as a failure to exercise reasonable care.

RECONCILIATION
5/99

Customs is working on a fix for those companies which did not timely apply to enter the reconciliation program. It is planned as a onetime fix and requires companies to file their applications by May 14, 1999 and their list of affected entries by June 1, 1999. The issue Customs is trying to address before publishing any notices is how to make sure none of the affected entries retroactively made reconciliation eligible is subject to a drawback claim.

Customs is also working on a tutorial called "ReconoMatic." It will be on the Customs web site in the near future in Microsoft Access format. The tutorial is a guide to the preparation of the spread sheets required to accompany reconciliation entries. Users may either work with the fictitious numbers Customs provides or use their actual entry data. Customs will also make clear the results are advisory only and do not guarantee compliance with the Customs requirements.

MPF EXPIRES FOR MEXICO
5/99

Under the provisions of NAFTA, on June 30, 1999 goods eligible to be marked Made in Mexico and qualifying as NAFTA originating will no longer be subject to the merchandise processing fee.

DRAWBACK
5/99

Wondering what your application for accelerated payment, waiver of prior notice should look like? Check the Customs web site for sample letters.

SUPREME COURT DECIDES HAGGAR
5/99

On April 21, 1999, the United States Supreme Court decided that Customs’ regulations are to be accorded deference when importers challenge them. In the Haggar case, Customs interpreted 19 U.S.C. Section 1202, Subheading 9802.00.80, HTSUS, to exclude the permapressing operations Haggar undertook in Mexico as outside the operations permissible as "incidental" so that the 9802 duty allowance was denied. The Court of International Trade and the Court of Appeals for the Federal Circuit (CAFC) sided with Haggar against Customs. The Supreme Court vacated their decisions and remanded the case back to the CAFC for further hearings. What makes the Haggar classification determination unique is the extensive regulatory framework of 9802. The question for other importers challenging classification decisions is whether there are extensive regulations which back up Customs’ decision or whether it is a matter of how Customs exercises its discretion regarding a given tariff provision. Even in Haggar, the importer still has the opportunity to challenge whether Customs has written its regulations as "a reasonable interpretation and implementation of a statutory provision." If the court ultimately agrees Customs has done so, Haggar will lose as permapressing (the Mexican operation in dispute) is clearly listed as an exclusion from 9802. In other words, this case is far from over.

DRAWBACK AND USER FEES
4/99

As the Texport Oil Co. vs U.S. case is on appeal, importers claiming drawback should be sure to include the merchandise processing and harbor maintenance fees in their claims. Protests should be filed if those recoveries are denied. If a claim has been filed which does not include these user fees, an amended claim should be filed as soon as possible. Because the Texport case is on appeal, claimants should expect Customs will liquidate as to duty only until the case is finally decided.

DRAWBACK PRIVILEGES
4/99

Claimants are reminded that the deadline to file for drawback privileges is April 6, 1999. If you want to still claim exporter summary procedures, waiver of inspection and accelerated payment, you must renew your privileges with Customs by the April 6th deadline.

HMF ON IMPORTS UNDER LEGAL CHALLENGE
4/99

The harbor maintenance fee on exports has been declared unconstitutional. Now the assessment on imports is under similar challenge. Because it is not clear under which provision the court will accept jurisdiction, importers must both file protests and lawsuits to protect their interests.

FORMAL ENTRY REQUIRED
2/99

As part of its ongoing efforts to keep the trade community informed, Customs has published an updated list of the Harmonized Tariff numbers which require formal entry, see TBT98070.

WHAT SHOULD THE STANDARD BE TO CHALLENGE A CUSTOMS' DECISION?
2/99

It started out as a typical classification dispute between an importer and Customs but turned into a battle worthy of Supreme Court attention. Haggar assembles slacks in Mexico using U.S. origin fabricated components, so it claimed a partial duty exemption under 9802. Customs decided the ovenbaking process being used created a new garment and so denied 9802, instead requiring duty payment on the full value of the labor and materials. Haggar won before the trial court and again before the appellate court. Customs appealed the case to the U.S. Supreme Court which, to the amazement of many, agreed to hear the case. Oral argument was held in January. The question before the Supreme Court was how much deference should be given to a Customs' decision?

The deferential standard comes from a 1984 case involving Chevron U.S.A. Inc. wherein the Supreme Court found that an administrative agency is generally deemed to have expertise in the areas over which it has jurisdiction. Therefore, reviewing courts should ordinarily defer to the agency's interpretation. If Congress addressed the issue, the court must implement Congressional intent. If Congressional intent is not clear, the court must defer to the agency's interpretation so long as it is not unreasonable or plainly contrary to the language of the statute. Under these circumstances, the agency is right even if the court thinks its interpretation is flawed. In Haggar's case, the question was how Customs interpreted its regulation about "incidental to assembly."

Haggar questions whether such deference is also due to Customs given that the Court of International Trade is a specialized court. Both lower courts have said no, as the court has co equal expertise. If the Supreme Court finds a specialized court is not coequal in expertise with the agency over which it has jurisdiction, importers will face an even greater uphill battle to succeed in their disputes with Customs. A decision by the U.S. Supreme Court is expected by spring.

CUSTOMS REORGANIZATION CONTINUES
2/99

While the regulatory reorganization of the Customs Services has generally been completed, the agency continues to examine how it can meet its mission while maximizing the accomplishments of its employees. One recent review involves an internal study regarding the skills and abilities of Customs’ employees. Recommendations have apparently resulted in nine (9) areas:

1) tariff specialization among ports - import specialists with commodity knowledge would serve more than their local port;
2) trade compliance teams - a further attempt to organizationally link employees with specific skill sets - e.g. import specialists with entry specialists and inspectors;
3) entry evolution - how entries are structured;
4) trade inspectors - inspectors who handle both cargo inspection and entry related functions would be directed during core hours to inspectional responsibilities;
5) the rotation of trade compliance supervisors to enhance expertise;
6) eliminating generalists by turning them (including liquidators) into specialists - e.g. import or entry specialists;
7) review again the drawback procedures and identify needed changes;
8) expand the role of the operational analytical staff;
9) review again how Customs conducts its internal training focusing especially on analysis and strategic thinking.

PIRP GETS CHANGES, TOO
2/99

The Pre-Importation Review Program is being looked at again with an eye toward reviving it under a new name - Classification Assistance Program (CAP). In a recent policy paper, Customs instructed its personnel not to perform classification reviews of entire inventories or lines but rather limit those reviews to troublesome products with which the importer was having difficulty determining the correct classification. The policy paper goes on to state that the focus of CAP should be to provide guidance to importers so they can meet their statutory responsibilities and improve their ability to classify their goods. Ports were also instructed to identify and target importers with depressed compliance levels in order to raise those levels.

DRAWBACK PENALTIES TAKE EFFECT
2/99

In order for Customs to be legally able to impose drawback penalties, it first had to operationally implement an automated drawback selectivity program. In a December 8, 1998 Federal Register article, Customs gave notice of that selectivity program so liability for monetary penalties for filing of false drawback claims applies to all drawback claims filed on or after November 25, 1998.

DRAWBACK - COMMERCIAL INTERCHANGEABILITY
12/98

Customs recently issued a notice regarding commercial interchangeability for drawback purposes in which it itemized those documents claimants should routinely include when claiming commercial interchangeability by ruling or claim:

1) Applicant’s name, address and IRS number;
2) A brief explanation of claimant’s business;
3) A statement whether the claimant is both the importer and exporter of the merchandise [certificates of delivery should be retained but not submitted]; and
4) A full description of what is imported, what will be substituted, including its source. If there are differences (e.g., size, color, grade, style, texture, design, odor, composition, critical product specifications, purity, etc.) between the two, they need to be explained.
5) identify whether domestically purchase substituted merchandise has been imported.
6) If claimant has many different exported articles, a description of each major product group.
7) Provide part/model numbers, item numbers or other identifiers with descriptions for both the imported and exported merchandise. Explain any numbering differences between the imported and exported products.
8) Complete documentation relating to the purchase and/or sale of the imported and substituted goods, including import and export invoices, packing lists, and purchase orders. Customs must be able to trace commercial interchangeability from these documents.
9) Complete documentation supporting commercial interchangeability, such as technical bulletins, literature, lab reports, specifications, government or recognized industry standards, catalogues or anything else which discusses uses, grades, and other pertinent details;
10) The location of the records which include inventory, import and export documents;
11) The company contact including name, title and phone number;
12) Export countries of destination; and
13) Harmonized Tariff numbers and values for the imported and substituted merchandise.

DUTY RATE REDUCTIONS
12/98

With the coming new year more duty rate reductions take effect. On December 8, 1998 Customs published the procedures available for importers to clear their goods in 1998 but pay duty at 1999 rates. For more details, contact your customs broker.

AUTOMATED EXPORT SYSTEM (AES) STATUS

In a recent announcement, Customs advised the results of the interest based negotiations which took place between Customs and the trade to resolve their differences about what had to be reported by exporters at time of exportation. The result is a series of four (4) options:

Option 1 - paper Shippers Export Declaration (SED) and pre-departure filing: this option has no AES electronic component to it and maintains the present practices regarding the information required;

Option 2 - AES Filing of all pre-departure information: all commodity information is filed electronically;

Option 3 - AES filing of partial pre-departure information: 14 data elements have been identified and must be filed prior to exportation with the remaining details transmitted within five (5) working days of the date of export. This option applies only to sea and air shipments.

Option 4 - AES filing of post-departure information: qualified exporters will be allowed to export approved commodities without filing any pre-departure data. Complete commodity information must, however, be filed within ten (10) days of exportation. A formal screening and approval process is required to qualify under this option.

As a result of these successful negotiations, AERP expires on December 31, 1999 and AES-PASS expires one year after full implementation of Option 4.

DRAWBACK
11/98

Drawback claimants are reminded that applications for accelerated payment under the new drawback regulations must be filed no later than April 9, 1999. Customs is required to approve any such applications within ninety (90) days but is taking longer at many locations.

CUSTOMS FUNDING STILL HELD UP
10/98

The Drug Free Border Act was held up over concerns by Cong. Archer regarding Customs overtime and related compensation issues. The Act would have provided sophisticated equipment for drug interdiction. Also held up was any meaningful funding to allow Customs to upgrade its computer system. The ABI system crashed twice in September alone. More delays are expected as the debate over how to fund the upgrades continues. The only funding proposal from the Administration is to raise the merchandise processing fee, something opposed by the trade community.

INCREASED PENALTIES
10/98

Regulations implementing the Anti-Competitive Consumer Protection Act of 1996 were recently announced by Customs. Under these new rules, penalties of the domestic value of genuine goods are possible against those importing counterfeit goods for first violations. Subsequent violations may be at levels up to twice the retail price of the goods involved.

RECONCILIATION
3/98

Because it is not always possible to have all the pertinent information at time of entry, the Mod Act contained a provision for a reconciliation entry, i.e. one which allows an importer to designate the area where more information is needed, e.g. value.All other aspects of the entry are liquidated with the outstanding value question, in effect, transferred to a new (reconciliation) entry. All entries similarly affected can have their value question consolidated to one reconciliation entry.

The often-used practice of Customs liquidating all entries but one, holding it open to make adjustments when cost submissions are filed will cease. Those importers who make entry under 9802 or NAFTA or who have on-going value issues will now be required to participate in a test program being run by Customs if they import at the 11 test ports involved throughout the country.

CUSTOMS ELECTRONIC BULLETIN BOARD NOW ON LINE

U.S. Customs has announced its Electronic Bulletin Board can now be accessed through its web site at http://www.customs.ustreas.gov/ <http://www.customs/ustreas.gov/>. Customs also advises the existing Customs Electronic Bulletin Board currently available at 703-921-6155 will be eliminated sometime in the near future.

Customs Electronic Bulletin Board Modem Line: (703)440-6155 Modem Settings: Parity=None, Data Bits=8, Stop Bits=1 For more information contact: Telephone Line (703)440-6236

CAT AUDIT UPDATE
3/98

Advancing its on-going effort at full compliance, U.S. Customs continues with Compliance Assessment (CAT) Audits. These audits are intended to be different from other Customs audits as they focus primarily on an importer's systems used to provide accuracy to his import declarations. Expecting to find written policies in place and being followed, Customs also looks at how information flows within a company so that all the pertinent and correct information is stated at time of entry. Where that is not the case, Customs is committed to working with importers to help them improve, a goal which is followed except in cases of fraud.

Designed to heighten the largest importers' compliance rates, Customs is focusing on the top companies by dollar value in the primary focus industries: automobiles and parts; advance displays; telecommunications; textiles; steel; production equipment; agricultural goods; quota goods; footwear; and critical components. The goal is to have a 95% universal compliance rate by 2000.

Customs recently released information about the 291 CAT audits undertaken to date. 94 have been completed: 51 companies are low risk so their inspection rates have been substantially reduced; 24 are medium risks; 19 are high risks. The main problems were classification errors, followed by value and quantity discrepancies. Customs also announced it is developing a self- assessment program which it will encourage importers to follow before Customs starts a CAT audit.

For more details about the Compliance Assessment Team (CAT) kit, please contact the Customs Electronic Bulletin Board.