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CUSTOMS AND INTERNATIONAL TRADE
HARBOR MAINTENANCE TAX
HMT Ruled Legal on Imports
09/02
In a closely watched case which attempted to
extend the illegality of the HMT, the position of Thomson Multimedia was rejected by the Court of International Trade. The bases for Thomson's claims were technical in nature relying on
interpretations of several provisions in the U.S. Constitution. The court rejected all of Thompson' arguments. Could this be an indicator of the outcome if the currently mentioned security
user fees are enacted and challenged?
The HMT on exports was found unconstitutional as a tax of exports. That same principal does not apply to imports and so Thomson's position was
soundly defeated. It remains to be seen whether the case will be appealed.
No Interest on Export HMT
06/02
One of the few questions remaining regarding the
harbor maintenance tax on exports was whether the government had to pay interest on the monies refunded to exporters. Under the doctrine of sovereign immunity, a government is immune from
suit unless it agrees to allow itself to be sued. In the case of the HMT, there are statutory provisions which allow the collection of duties and user fees to be challenged in court. The
Court of International Trade in Swisher resoundingly answered the question about payment of interest by saying - no! A variety of arguments were made, including Constitutional ones, all of
which failed to persuade the court. In the end, Judge Restani held there was no statute which authorized the payment of interest in the circumstances presented and so there was no obligation
on the part of the government to pay it.
HMT UPDATE
6/01
Wondering what all the fuss is about the HMT and imports? Check
our web site for a recent posting which provides the latest information regarding both imports and exports.
HARBOR MAINTENANCE TAX UPDATE
5/01
There is much in the
trade press these days regarding an issue many thought resolved - refunds of the harbor maintenance tax (HMT) on exports. We provide in this memorandum an update regarding the refunds for
exports plus information in the newly developing area of the potential for refunds on imports.
Exports:
Between the U.S. Shoe and Swisher cases, it is now clear that the
HMT on exports was unconstitutional and could be challenged in a number of ways which were successful. Swisher challenged the HMT relying on the standard method of challenge - protests. U.S.
Shoe challenged the HMT relying on the inherent jurisdiction of the court. Both were successful and, in many instances, the refunds have already been issued.
Subsequent cases addressed
interest, saying none would be paid if refunds were obtained relying on U.S. Shoe. Whether interest will be paid if protests were filed remains unclear.
The latest development in the
export context is a new Customs regulation which, in effect, cuts off all refund claims not already filed. In reliance on a comment by one of the judge’s, Customs changed its regulations to
provide a one year statute of limitation for all export refund claims. Since no one has paid HMT for several years, such action effectively cuts off all claims not already filed. The new
regulation is not retroactive so any pending claims are unaffected.
Customs is currently focused on the claims arising out of the Swisher decision and is obligated to process those
refunds by June 18, 2001. Customs has approximately 2,700 administrative refund claims on which it will start the refund processing thereafter. One open question is exactly how much
supporting documentation exporters will be required to provide so that their claims are deemed complete and refunds are issued.
Imports:
One area where there has been
recent movement has to do with the possibility of HMT refunds on imports. On April 18, 2001, the Court of Appeals for the Federal Circuit (CAFC) overturned the decision of the Court of
International Trade (CIT) dismissing the lawsuit brought by Thomson Consumer Electronics (Thomson). Thomson filed its claim relying on the inherent jurisdiction of the courts (called 1581(i)
or residual jurisdiction). Thomson claimed the HMT violated the U.S. Constitution regarding the Port Preference and Uniformity clauses. Thomson also asserted that since the HMT on exports was
invalid, the HMT on exports and the HMT on imports could not be severed and so if one was invalid, so was the other. Rather than deciding the case, the CIT dismissed saying it lacked
jurisdiction because the proper basis to challenge the HMT assessment on imports was said to be by way of a protest (1581(a) or the traditional method of challenging assessments on imports).
The CAFC held that Customs had no authority to decide whether or not the HMT was constitutional and so the filing of a protest would be a futile act. The court went on to state that
Thomson is not required to undertake a futile act and so the CIT decision was reversed. The CAFC also made a point of stating it has not made any determination as to whether or not the HMT on
imports is unconstitutional (which many think unlikely) as the merits of that claim must first be decided by the lower court.
While it may well be several years before the HMT
litigation regarding imports is finalized, importers may wish to take advantage of the Thomson decision by filing complaints at the CIT to preserve the issue. They can claim two (2) years of
HMT payments at time of filing. Importers might also keep in mind that a future court could determine that the filing of protests is required and so undertaking both steps in tandem may be
the safest way to proceed.
HMT REFUNDS
4/01
Effective March 28, 2001, Customs issued interim rules for those seeking refunds of harbor maintenance taxes, see T.D.
0125.
INTEREST ON HMT - IS IT DEAD?
01/01
With the holding in IBM v. US, the courts made clear that HMT refunds could be obtained but no interest would be paid.
Then the court issued its decision in Swisher v U.S. relying on standard protest jurisdiction - 1581(a). The IBM case relied on 1581(i) or residual jurisdiction. The granting of a protest
allows the award of interest pre-judgment. 21 plaintiffs who received their refunds relying on the IBM case, recently sought to amend those judgments to include an award relying on the
Swisher case. The court denied their motions saying the cases have to come to finality. If the plaintiffs wanted to keep open the option of recovering interest, they should not have signed
the judgments and accepted the benefits. While Swisher allows for an award of interest back to date of filing, HMT payments date all the way back to 1987. Interest back to date of HMT payment
is not likely to be allowed absent further litigation.
MORE HMT LITIGATION
12/00
I.B.M. has file an appeal to the U.S. Supreme Court over the question of whether
exporters are entitled to recover interest on HMT refunds. The Court of Appeals for the Federal Circuit said no.
HARBOR MAINTENANCE TAX UPDATE
12/00
In Swisher
International, Inc. v. United States, No. 99-1227 (February 28, 2000), the Court of Appeals for the Federal Circuit confirmed that there is no statute of limitations which applies to harbor
maintenance tax refunds. The case was appealed to the U.S. Supreme Court which refused to hear it.
In an attempt to deal with the lack of a time limit, the Customs Service has now
proposed a one year limitations period which would start to run from the date of the quarterly payment to Customs. The proposed change has no effect on HMT payments made on imports. Exporters
are, therefore, advised to file their refund claims as quickly as possible.
HMT UPDATE
03/00
There was unexpected good news for exporters in late February when the
Court of Appeals for the Federal Circuit ruled that all harbor maintenance tax (HMT) payments made since 1986 (when the law was enacted) are subject to refund, even those outside the two (2)
year statute of limitations generally governing the jurisdiction of the Court of International Trade (C.I.T.). The court reached its decision because there is no time limit governing when an
HMT refund request has to be filed. The case has been returned to the C.I.T. to calculate the amounts due the exporter. Once that judgment is entered, it is expected the case will again be
appealed.
If finally upheld on appeal, an administrative procedure is likely to be established (possibly through Customs) allowing claims for additional HMT refunds. Whether it will
literally extend to all HMT payments not previously refunded remains to be seen.
Now we hear that the question of replacing the HMT monies with some other funding source is turning to
earmarking certain monies collected by Customs, a decidedly unpleasant turn of events given the inability to find the $1.4 billion needed to fund Customs' new computer system.
HMT INTEREST OVERTURNED
3/00
The Court of Appeals for the Federal Circuit has overturned a CIT decision finding that exporters are entitled to be paid interest for any harbor
maintenance taxes refunded, instead finding the U.S. was immune from interest payment because there was no law authorizing it.
CHALLENGING CUSTOMS
1/00
©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.
HMT UPDATE
10/99
Even after the finding that the harbor maintenance tax (HMT) an unconstitutional tax on exports, a number of outstanding issues remained. IBM is prosecuting a case
questioning the government's liability to pay interest and how it is to be calculated. Stone Container deals with the question of the applicable statute of limitations. Is it two years under
the law's general provisions or is the HMT void from inception?
Thomson and Amoco challenged the HMT on imports. Thomson just argued the law's general two (2) year statutory provision.
Amoco made the same argument but raised it via a protest. In both cases, the basic argument was the HMT on imports is not severable and so, if invalid on exports, is equally invalid on
imports. Further, assessing the HMT solely on imports violates the Uniformity and Port Preference Clauses of the Constitution.
The focus of the non-severability argument is that
Congress would not have enacted the HMT on imports alone. An additional argument is that assessing the HMT on only imports violates international treaty obligations. Also, the argument was
made that not all ports are water ports thereby excluding cargo loaded in 20 states. The tax is also not assessed on domestic movements. As a result, because it is not geographically uniform,
the HMT violates the Uniformity and Port Preference Clauses.
As of late August/early September 1999, Customs had refunded about $732 million to about 3,4000 exporters. Both the Thomson
and Amoco claims were recently dismissed. Thomson's on the technical ground that no protest was first filed. In the Amoco case, the court rejected all the arguments mentioned above. At the
same time, the European Union is threatening a WTO complaint about the continuing imposition of the HMT strictly on imports.
Additionally, the Court of International Trade has now
decided the BMW case. BMW sought a finding the HMT was not applicable to shipments entered into a foreign trade zone (FTZ). The CIT found the HMT applied because there was no exception in the
law. The court also found the HMT is not a duty so the provisions of the FTZ law did not bar its application.
HMF REPLACEMENT PROPOSED
8/98
The Clinton
Administration finally rolled out its proposal to replace the Harbor Maintenance Fee (HMF). (Challenge of the fee against imports is being considered at the WTO.) The HMF was previously
assessed against importers and exporters based on the value of their goods. The fee against exporters was overturned by the courts. The Harbor Services User Fee will be assessed against
carriers, who are expected to pass the cost on to their customers. It will be calculated based on a ship's net tonnage with an adjustment for cargo space not otherwise included. Bulk ships
and tankers will be taxed per port of call, while container and cruise ships will be taxed per voyage.
As announced, it appears container ships will be taxed at twice the rate for
tankers, five times the rate for dry bulk ships and seven times the rate for cruise ships. Justification for the disparity is given as a response certain ships operating across the largest
number of ports with time-sensitive movements. Assuming some form of this new tax is adopted, its validity remains in doubt because the largest amount of money would be raised from West Coast
ports which have the least need for dredging. As a result, the new fee does not closely match where the expenditures are being made. Will it withstand a court's scrutiny?
HMF REFUND STATUS
7/98
The question of when exporters can expect their Harbor Maintenance Fee (HMF) refunds remains open. The government contends it should not be required to
calculate and pay any refunds until all the legal issues are decided. The government also arbitrarily selected a handful of HMF claims in order to determine whether its own records could be
used to confirm those claims. It was successful only 50% of the time. Therefore, it is expected the government's proposed claim form will soon be approved for distribution to litigants.
The major issues under review are interest and whether there is a time bar to claims' filing. The government contends interest is not due but lost before the trial court. It also claims
that a two year statute of limitations applies. Exporters argue because the HMF is an illegal tax, it is void from its date of enactment, so exporters should be able to obtain refunds
regardless of when their HMF was paid. The lower court has yet to rule about the statute of limitations. Appeals are expected on both issues.
Another challenge to the HMF as applied
to imports is being mounted on the grounds it is illegal as 1) not severable from the import tax, 2) a violation of the equal protection and port preference clause of the U.S. Constitution,
and 3) a violation of U.S. WTO obligations. In the meantime, Customs has announced it will not accept HMF protests for domestic movements, commercial vessel passengers and admission into
foreign trade zones.
HMF FOUND UNCONSTITUTIONAL
4/98
In a decision amazing for its speed and its unanimity, the U.S. Supreme Court has declared the harbor
maintenance fee (HMF) an unconstitutional tax on exports by a vote of 9 - 0 . As a result, any exporter who filed a claim with the Court of International Trade (CIT) under the two year
jurisdictional statute can expect refunds - maybe!
The CIT has issued an order stating the government is to develop a claim form. The refunds will be issued with interest. The claim
form is to be completed within thirty (30) days and the bulk of the refund claims are to be processed within 18 months. The claims will be processed even if there are issues on appeal
regarding the statute of limitations, interest or any other issue.
It is expected the claim form the government develops may also be applied to those who have protests pending. When
the claim form is finalized and the requirements to prove a claim are issued, those details will be published in the Customs Bulletin.
SUPREME COURT TO HEAR HMF CASE
11/97
The U.S. Supreme Court has agreed to hear the government's appeal of the harbor maintenance tax case. A decision is expected by early next summer. In the meantime, exporters should
continue to pay the tax, seek refunds from Customs and file court action. Up to now the courts have uniformly held any exporter has two years from date of payment in which to file an action
seeking refund of all sums paid. However, until the decision is final (and it is not yet), all options should be kept open by seeking refunds from Customs, too.
HMF REFUNDS
8/97
Depending on the source, Customs either has already filed or is about to file a Notice of Appeal with the U.S. Supreme Court seeking a hearing on the case involving the harbor
maintenance fee (HMF) on exports. Exporters have won before both lower courts which have held the HMF is an illegal tax on exports. A similar case was filed regarding imports: Sarne Corp. vs.
U.S.. It was dismissed with a finding that Sarne could point to no specific harm caused to it by the way in which the Harbor Maintenance Trust Fund is administered. It is not clear whether
the import case will be appealed. On the export side, it is not clear the Supreme Court will agree to hear the case because it recently decided U.S. vs. Int'l Business Machines Corp. and
found a non-discriminatory federal tax on exports to be unconstitutional.
HMF LOSES AGAIN
6/97
Late last week the appellate court issued its ruling confirming the
lower court decision that the harbor maintenance fee (HMF) is an unconstitutional tax on exports. The court also found there is no discretion for Customs to exercise, so exporters wishing to
receive HMF refunds need not protest first. All exporters need do is file complaints at the Court of International Trade (CIT) within two (2) years of having made their payments.
It is
expected the government will appeal the decision, although it is not clear whether the Supreme Court will agree to hear the case, having recently ruled regarding unconstitutional taxes on
exports in another matter. In the meantime, exporters should continue to file both protests with Customs and complaints at the CIT.
The HMF challenge to imports failed with the judge
finding that relief from the HMF on imports must come from Congress and not the court.
HARBOR MAINTENANCE FEE UPDATE
It was originally thought that oral argument on the
harbor maintenance fee (hmf) case (U.S. Shoe) would take place before the end of 1996. Now it seems likely the time frame is February 1997. Even once argued, it is unclear how long the Court
of Appeals for the Federal Circuit will take to reach the decision whether or not it agrees with the lower court that the hmf on exports is unconstitutional. Individual exporters should
continue to file their protests at time of payment while also seeking relief directly from the Court of International Trade for these same payments.
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