India and Turkey to Be Terminated from GSP Program

The Trump Administration has announced that India, the largest beneficiary of trade benefits under the Generalized System of Preferences (GSP), will be terminated as a beneficiary of the program, along with Turkey. The termination should occur in a little over sixty (60) days. The President notified Congress of his determination on March 4, 2019. Once the foreign governments are notified and the 60-day waiting period elapses, the President will issue a Proclamation formally terminating the two countries as beneficiaries.

The termination of India as a GSP beneficiary is penal, with the Administration claiming that India is not providing “equitable and reasonable access to its markets in numerous sectors.” The Administration is acting in response to complaints about India raised by members of the medical device and dairy industries. GSP-eligible imports from India accounted for $5.6 billion in imports in 2018.

Turkey is being terminated because its per capita income has been found to exceed the maximum for beneficiary countries provided under the GSP statute. Turkish products valued at $1.7 billion received GSP treatment in the past year.

The GSP is a program designed to provide duty-free treatment for designated product of “beneficiary developing countries.” Eligible products are required to be produced in the designated country, meet a 35 percent value-content requirement, and be imported directly into the United States from the beneficiary country.

Please contact us if you have any questions regarding these terminations.

Omnibus Spending Bill Requires USTR to Set Up Section 301 Exclusion Procedure for “Tranche 3” Goods from China

The mini-omnibus spending bill which President Trump signed on February 15 contains a provision requiring the United States Trade Representative to create an exclusion process for the third tranche of retaliatory China tariffs imposed under Section 301 of the Trade Act of 1974. The Act requires the exclusion process to be in place by March 17, 2019.

USTR had previously established exclusion processes for the first two tranches of China tariffs, which were assessed at the rate of 25 percent ad valorem. However, USTR declined to establish an exclusion process for Tranche 3 tariffs, currently set at 10 percent ad valorem, until such time as they increase to 25 percent. The new bill countermands that position and requires establishment of an exclusion process.

Whether this will be an impactful measure remains to be seen. The President has indicated that progress is being made in trade talks with the Chinese, currently scheduled for a March 1 conclusion. The President has also indicated that if an acceptable agreement is not reached by March 1, 2019, or within a reasonable time thereafter, the Tranche 3 tariffs – affecting $200 billion of annual imports from China -- will increase to 25 percent ad valorem.

Also to be determined is how many resources USTR Robert Lighthizer will devote to processing exclusion requests. The USTR’s office has moved slowly on considering exemption requests to date.

Given the volume of requests which USTR received for the first two groups of China tariffs, we expect that importers will want to submit exclusion requests as soon as the new procedure is effective.

We stand ready to discuss this matter with interested companies.


Imagine being a patent owner whose patent claims are being litigated in Federal Court –but being barred from participating in the litigation. That’s precisely the position that Chamberlain Group, a manufacturer of garage door openers, recently found itself in at the United States Court of International Trade.

Chamberlain had filed and successfully prosecuted a claim in the United States International Trade Commission under Section 337 of the Tariff Act [19 U.S.C. §1337] charging a competitor, Ryobi, with importing garage door openers that infringed certain claims of its patent. The Commission issued a Section 337 Limited Exclusion Order (LEO), directing United States Customs and Border Protection to exclude infringing Ryobi garage door openers from entry into the United States.

In response, Ryobi undertook a re-design of its product which, it claimed, avoided the Chamberlain patent claims which were the subject of the Section 337 order. It sought a ruling from Customs to this effect, but Customs ruled that the redesign did avoid the patent claims embodies in the Section 337 LEO. Customs at the Port of Charleston then excluded from entry a shipment of Ryobi’s garage door openers, claiming violation of the Section 337 LEO. Ryobi protested the exclusion, and when its protest was denied, brought suit in the Court of International Trade challenging the exclusion.

In One World Technologies v. United States, Slip Op. 18-173 (December 14, 2018) Ryobi’s parent company asserted that its redesigned garage door openers were not barred by the Section 337 order, and that Customs should be directed to admit them. Chamberlain sought to intervene in the action, to defend his patent. The United States Trade Commission also sought to intervene, to protect the integrity of its Section 337 exclusion order. However, both parties were denied leave to intervene, based on a provision in the Customs Courts Act which prohibits intervention in protest cases, see 28 U.S.C. §2631(j)(1)(A). Chamberlain was forced to watch from the sidelines – not even allowed to file a brief amicus curie, as the CIT held that the redesigned garage door opener did not infringe the Chamberlain patent claims that were at the heart of the Section 337 order.

The Court went even further, granting a preliminary injunction directing Customs to release the excluded garage door openers. Usually, a court will not grant a preliminary injunction when the relief sought – in this case, admission of the merchandise at bar – is identical to the final relief sought in the protest. But the CIT did so in this case.

The statutory ban against intervention in Customs protest cases is based on a longstanding rule that the assessment of a duty – typically the subject of a protest case – is a matter only between the taxpayer/importer and the government. At the time the rule was promulgated, all protest cases had involved duty assessments. Congress did not likely imagine that protest cases would come to involve such issues as the litigation of patent claims. But that is in fact what has happened, in One World Technologies and a handful of other suits. And in those cases, the CIT has not only strictly enforced the ban against intervention as a party, but – more remarkably – even barred the patent owner from submitting an amicus brief to communicate its views to the court.

In banning intervention, the Court is merely following the dictates of the law. In preventing patent owners from even participating as amici, however, the Court is exercising its discretion in a way which further disenfranchises the patent owner, which not only has made substantial investments in its patents, but also in prosecuting the Section 337 Complaint.

The Court’s reaction probably is based, to some extent, on its experience in one of the first such cases involving protest exclusions under Section 337 orders. In Jazz Photo, Inc. v. United States, an importer challenged the exclusion of its goods for alleged violation of a Section 337 order. The patent holder, Fuji Photo Film, was denied permission to intervene, but granted permission to participate as amicus curiae. As amicus, however, Fuji repeatedly overstepped the bounds of its allowed participation in the suit, filing motion after motion, some quite frivolous.

After the Court ruled in the importer’s favor, Fuji even filed an appeal to the Court of Appeals for the Federal Circuit – a patently frivolous move, given that it was not a party to the underlying case.

That is not to say, however, that every patentee would be as reckless with its behavior as Fuji was in the Jazz Photo case. While participation as party is clearly prohibited by statute, refusing to hear a patentee’s arguments at all seems excessive. This is one of the many areas in which the jurisdiction and powers of the Court of International Trade – fixed since enactment of the Customs Courts Act of 1980 -- needs reconsideration by Congress.

It might be argued that the patent holder in this case invited this situation, by turning to the ITC for a Customs-enforced import ban. But the Court made clear that it was in no way interpreting the Section 337 Exclusion Order, only Customs’ ruling that Ryobi had successfully designed around that order. But for the Section 337 order, of course, Customs would never have been involved in patent enforcement at all.

While the case remains set for trial – perhaps a formality, since the subject goods have been released – the case poses a cautionary tale for patent holders who turn to the ITC and Customs to enforce their intellectual property rights.


Back in February, 2018, the Treasury Department bypassed a Congressional deadline for issuing regulations concerning how duty drawbacks should be calculated under the Trade Facilitation and Trade Enforcement Act (TFTEA).  Drawback claimants who had been promised a “transition year” in which they could claim drawback either under historical rules or TFTEA rules were at a loss concerning how they should structure and file duty drawback claims. In lieu of regulations, Customs and Border Protection issued an Interim Guidance Document setting out “guidelines” for calculating TFTEA drawback – guidelines which were changeable at will and which would govern the drawback program until Customs could complete and finalize regulations regarding drawback under TFTEA.

What’s worse, the agency indicated that it would not issue accelerated payments of drawback for TFTEA claims until final regulations were adopted. Mindful that CBP’s last major set of drawback regulations had taken nearly five (5) years to be finalized, and facing financial losses, a group of drawback claimants and drawback service providers brought suit, seeking to force Treasury to issue the calculation regulations which Congress had directed be in place by February 2018.

On June 29, 2018, the United States Court of International Trade ruled for the drawback claimants, holding that Treasury had “unlawfully withheld” required agency action, and that, under the Administrative Procedure Act, the Court was required to “compel agency action unlawfully withheld”. Tabacos de Wilson et al. v. United States, Slip Op. 18-81 (June 29, 2018).

Having ruled against the government, the Court asked the parties to the lawsuit to confer and try to determine the form of relief the Court should enter. The government noted that it was preparing a 450-page set of proposed regulations, which would include the TFTEA drawback rules, and urged the Court to take no action until the massive rules package could be proposed and finalized. The government suggested to a skeptical court that it could complete this massive rulemaking package by the end of 2018, leaving some time for drawback claimants to take advantage of the last few weeks of the “transition year”.  [The proposed regulations had been published in the Federal Register on August 2, 2018, and public comments solicited through September 17, 2018].

The plaintiffs, on the other hand, pointed to a small handful of rules which were necessary to calculation of TFTEA drawback, and urged the Court to order that only those be made effective immediately.

Concerned that drawback claimants were being deprived of important substantive rights, and noting the looming end of the “transition year”, the Court of International Trade on October 12, 2018 issued a judgment order directing Treasury and CBP to publish the entire drawback rulemaking package as a final regulation no later than December 17, 2018, and made effective on that day. [Controversial proposals concerning calculation of excise-tax drawback would have a 60-day delayed effective date]. Tabacos de Wilson et al v. United States, Slip Op 18-138 (October 12, 2018).

In making this ruling, the Court noted that it was Congress intent that drawback claimants have the right to make informed decisions during the “transition year”, and that drawback, including accelerated payments of drawback, be available during that time.

But the Court gave the government an important, if partial, “out”.  It held that the government could, at its discretion, delay making effective any proposed regulations other than those the plaintiffs had identified as necessary for TFTEA drawback. Thus, the government has the option to put in place a more limited package of rules by December 17, get TFTEA drawback claims and accelerated payments flowing, and take more time, if it wished, to wade through the large number of comments on the remaining proposed regulations.

This aspect of the ruling gives the government considerable flexibility in issuing the bulk of its regulations – and also limits the chances an appeals court would hold that the Court’s order is overreaching.

The Court’s ruling will ensure that drawback claimants at least have a couple of months of the “transition period” to determine how to structure their drawback claims, and will get the flow of accelerated drawback payments restored.  At this point, it’s hard to tell whether CBP will rush to complete the entire massive drawback rulemaking package by December 17th, or implement a more limited set of rules, but at least TFTEA will become operational by that date.

Better late than never, goes the saying. Drawback claimants will be working to get their claims in as soon after December 17 as possible, or will be counting that the final regulations will mirror the proposed ones (in the realm of drawback calculation, a pretty safe bet).

We’re happy to discuss the case and its implications in further detail.

Customs Laws Push State Unfair Trade Remedies Aside, Court Rules

When can State unfair trade practice laws be used to punish alleged importing violations? Not often, according to a recent decision from the United States District Court for the District of Connecticut.

Wind Corporation v. Wesko Locks, Ltd., No. 3: 18-cv-292 (D. Conn) was a lawsuit brought by a Connecticut distributor of furniture hardware (Wind) against a Canadian competitor (Wesko) under the broadly-couched Connecticut Unfair Trade Practices Act (CUTPA). Wind alleged that Wesko had claimed NAFTA-originating treatment for certain furniture locks which did not qualify for that status.  As a result, Wind claimed, Wesko was able to sell locks for less than it otherwise would have, constituting an unfair trade practice in violation of CUTPA.  It sued, seeking unspecified damages.

The case was based on the dubious proposition that an increase in Customs duty costs (or any other costs) automatically had to be passed on to Connecticut consumers, or an unfair trade practice would result. [This would come as a shock to the system of many importers who, currently struggling with 25% duty assessments on steel or aluminum products, or certain Chinese products, are finding out that these are not so easily passed along to consumers].

CUTPA applies to unfair acts in “trade or commerce”. It does not apply when the conduct in question is the subject of comprehensive substantive and procedural regulation by a State or Federal agency.  Wesko moved to dismiss the suit, claiming (1) that the filing of tax returns (including Customs entries) was not an activity in “trade or commerce” and (2) that NAFTA issues were already comprehensively regulated through the Customs laws.

The court granted Wesko’s Motion to Dismiss the case. It disagreed with Wesko that the acts complained of were not in the scope of “trade and commerce”, viewing the unfair act not as the filing of Customs entries, but rather as marketing locks whose provenance had not been correctly representative. But the Court agreed with Wesko that issues relating to import duties, including claims for NAFTA treatment, were already comprehensively regulated by the Federal government under the Customs laws.  In addition to reviewing the myriad of Custom laws which deal with entry, assessment of duties, penalties and claims for recovery of withheld duties, the Court noted that Section 337 of the Tariff Act [19 U.S.C. §1337] prohibits “unfair practices in import trade”.

The Court concluded that:

Thus, it appears that the process by which persons import foreign-made products into the United States is provided for by statute and that it is regulated expressly by a “pervasive statutory scheme” that “carefully balances both the procedural and substantive remedies.” City of Danbury, 249 Conn. at 20. Moreover, as in Connelly, “holding that a CUTPA remedy, lacking the procedural prerequisites and specifically tailored remedies” provided for under the Tariff Act of 1930, governs unlawful conduct relating to the import of foreign-manufactured goods would upset the carefully crafted equilibrium between the competing interests of the various people and entities involved in the importation of foreign-made goods into the United States.

Thus, a party aggrieved by a competitor’s import practices will generally need to look to the Federal Customs laws for its remedy.


John Peterson and Maria Celis of Neville Peterson LLP represented Wesko Locks in this action, together with Calvin Woo of Verrill Dana LLP, Westport CT.

USTR Issues Procedures for Seeking Product-Specific Exclusions From Section 301 Tariffs on Chinese-Origin Goods

Retaliatory tariffs of 25% ad valorem, imposed pursuant to Section 301 of the Trade ct of 1974, went into force against a wide range of imported Chinese goods on July 6, 2018. The United States Trade Representative (USTR) has announced procedures for a process whereby interested parties may seek product-specific exemptions from these tariffs.

Key aspects of the procedure are as follows:

  • There is a one-time, 90-day period for applying for product specific exclusions. The window for filing an exclusion petition closes October 9, 2018;
  • Exclusions, if granted, will be retroactive to July 6, 2018, paving the way for importers to obtain refunds of Section 301 tariffs paid on  the exempted products;
  • Product-specific exemptions will be effective for one (1) year. We assume there will be a procedure for extending this period, should the Section 301 tariffs be in effect longer than a year, but the enclosed notice does not speak to that.

The notice indicates the information to be provided on product exclusion petitions. In addition to basic petitioner and product identifying information, the applications should include information about whether the product is available from countries other than China, whether the tariffs are causing financial harm to the petitioner, and whether the  product in question is included in China’s “Made in China 2025” development program.

Once published for review, interested members of the public will have 14 days to comment on petitions, and a 7-day rebuttal comment period will be provided.


            USTR will provide a template for product exclusion applications, which should be submitted electronically on


            A similar product exclusion process for Section 232 national security tariffs on steel and aluminum products has attracted over 20,000 petition in a short period of time.


            We can perceive no downside to companies filing applications for exclusion of their specific products from the Section 301 tariffs.


            Neville Peterson LLP stands ready to discuss this matter in further detail at your convenience and provide such additional information or assistance as affected firms may require.



Presidential Proclamations 9704 and 9705, which entered into force on March 23, 2018 imposed additional tariffs of 10% ad valorem on a wide range of imported aluminum products, and 25% ad valorem tariffs on many imported steel products. The tariffs were imposed pursuant to Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862, which permits the President to “adjust imports” deemed a threat to national security.

The pronouncements sent shock waves through many international supply chains. Many manufacturers using imported steel and aluminum, and many traders, anticipated that they would be able to recover at least some of these tariffs using the duty drawback statute, when the imported goods, or products made therefrom, were exported.

But the President appeared to throw cold water on that idea when, on April 30, 2018 he issued additional proclamations which declared – for the first time – that the Section 232 tariffs are ineligible for refund as drawback. Thus, for example, paragraph 6 of the President’s April 30, 2018 steel proclamation, declares –

(6) No drawback shall be available with respect to the duties paid on any steel article pursuant to Proclamation 9705, as amended by paragraph 1 of this Proclamation.

A similar drawback restriction was issued in respect of aluminum products covered by Section 232 tariffs. Customs subsequently announced that the drawback restrictions would be retroactive, and would affect goods imported on and after March 23, 2018.

It had widely been expected that Section 232 tariffs would be eligible for duty drawback. A number of companies made contingency plans based on this expectation, now apparently dashed. This leads to the question – may the President lawfully deny drawback to goods subject to Section 232 tariffs?

While this is a close question, the President’s power under Section 232 is limited to “adjust[ing] imports.” It seems unlikely that the President can take action respecting exports, the activity which generally triggers claims for duty drawback.


Section 232: Delegation and Authority

The U.S. Constitution entrusts to the legislative branch the exclusive power to impose tariffs, and requires that such tariffs be uniform throughout the United States. The Constitution also prohibits the imposition of a duty or tax on exports. 

Section 232 represents a limited delegation of Congress’ power to the Executive, designed to allow the President to respond quickly to imports which may threaten the national security.

A national security clause was first enacted in the Trade Agreements Extension Act of 1955, but at that time it only constrained the President's authority to reduce tariffs, "if the President finds that such reduction [of tariffs] would threaten domestic production needed for projected national defense requirements.”  Shortly thereafter, the national security clause was amended to allow the President to raise tariffs. The power was expanded in the Trade Agreements Extensions Act of 1958,which allowed the President to take action against an imported article, and its derivatives, and allowed the “quantities” or “circumstances” of the article/derivatives to be considered.  Congress also directed the Executive Branch to consider certain factors. The Trade Agreements Expansion Act of 1962 further broadened the power to “adjust imports” to its current form.


Judicial Interpretation of Presidential Powers Under Section 232

The U.S. Supreme Court has considered the extent of the President’s authority to “adjust imports” under Section 232. In Federal Energy Commission v. Algonquin SNG, Inc., 426 U.S. 548 (1976), the President, acting pursuant to Section 232, had imposed “license fees” on certain oil imports, asserting that increased imports represented a threat to national security. An importer sued, alleging (1) that Section 232 represented an unconstitutional delegation of Congressional tariff-setting power, and (2) that the power to “adjust imports” only allowed the imposition of quotas and other quantitative measures, and did not allow for the imposition of a duty or charge on imported goods.

Justice Thurgood Marshall, writing for a unanimous court, first held that Section 232 was not an improper delegation of authority. Reviewing the text of the statute, he wrote that the statute satisfied the conditions for a proper delegation (emphasis added):

Section 232 … easily satisfies the test [for a valid delegation]. It establishes clear preconditions to Presidential action – inter alia, a finding by the Secretary of the Treasury that an “article is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security”. Moreover, the leeway that the statute gives the President in deciding what action to take in the event the preconditions are fulfilled is far from unbounded. The President can act only to the extent “he deems necessary to adjust the imports of such article and its derivatives so that such imports will not threaten to impair the national security.”

Turning to the question of the extent of the President’s delegated powers, the Court indicated that the language of Section 232 “seems clearly to grant him a measure of discretion in determining the method used to adjust imports”. The Court found no basis for the plaintiffs’ argument that “adjusting imports” was limited to “encompass only quantitative methods – i.e. quotas – as opposed to monetary methods – i.e. license fees – of effecting such adjustments.” The Court noted that the language of Section 232 anticipated adjustments when imports were being made “in such quantities or under such circumstances” as to threaten to impair the national security.” Examining the legislative history, the Court noted that Congress was concerned that imports could threaten national security not only based on their quantity, but also on “their character.”  The Court then examined, in great detail, the legislative history of national security measures to control imports, and concluded that both qualitative and quantitative measures were embraced to “adjust imports” under Section 232.

The question posed in the current circumstance, of course, is whether restricting drawback falls within the scope of the term “adjust imports.”


Possible Challenges to the Drawback Restriction

There are potentially at least three (3) grounds on which the President’s denial of drawback rights in respect of Section 232 duties might be challenged in the courts.

1.      Action in Excess of Delegated Authority

The first grounds for challenging the drawback restriction is that it is ultra vires, or beyond the President’s delegated power.  The simple formulation of this argument is that a restriction on drawback does nothing to “adjust imports”; Rather, it is focused entirely on exported or destroyed goods that are not imported for consumption. Drawback occurs long after goods have been imported and subjected to any “import adjusting” measures the President might elect to impose. While the President can act to restrain imports, once those restraints have been applied, he has no delegated authority to interfere with other Congressional measures, such as the drawback statute.

The Government might raise some argument that denying drawback restrains imports, since a person knowing that a Section 232 tariff cannot be refunded as drawback might be reluctant to import in the first place, but in our judgment, such an argument would be strained. The President might be hard-pressed to explain how curtailing an action which Congress has expressly authorized to promote domestic industry and employment is threatening national security.

2.      Unconstitutional Export Tax

Article I, Section 10, Clause 2 of the U.S. Constitution contains a very strong ban on the imposition of any tax or charge on exports.  The ban is equally applicable to the States and the Federal government, and it is very broad in scope. This clause was the basis of the Supreme Court’s 1998 decision in United States Shoe Corp. v. United States, 523 U.S. 360 (1998), which struck down as unconstitutional the Harbor Maintenance Tax as opposed to exports.

The only circumstance where a charge may constitutionally be placed on exports is if the charge is a proportional “user fee” for a defined service. There is no indication that the drawback restriction is imposed for any such purpose, and it is imposed discriminatorily, on steel and aluminum goods, and products made from same.

The argument would be that the denial of drawback operates as a “tax” on exports which would not otherwise exist. If the drawback denial could be so characterized, our judgment is that this is a potentially strong argument on which to challenge the drawback denial in the proclamation.

3.      Procedural Violation

While Courts are reluctant to review the merits of Presidential action where the President has been given discretion, they will review whether delegated Presidential authority has been exercised in accordance with statutory procedural requirements.

In this regard, we note that Section 232 requires that remedial action take effect no later than 15 days after the President determines to take the action in question. In this case, the President’s determination was made on March 8, and nothing was said in respect of drawback until April 15 – well more than 15 days later. The supposed “retroactive” application of the ban is a construct of CBP, not the President.  The drawback restriction would appear to be infirm on procedural grounds.

The longer the steel and aluminum tariffs remain in place, and imported steel and aluminum products are used in export production the more likely that this controversy will be landing in the courts in the foreseeable future.


Customs’ failure to provide an importer with a requested in-person conference to discuss a penalty claim being imposed under Section 592 of the Tariff Act invalidates the agency’s $4.5 million claim for penalties and withheld duties, according to recent decision of the United States Court of International Trade.

In United States v. Aegis Sec. Ins. Co, Slip Op. 18-29 (March 26th, 2018), Customs sued Tricots Liesse 1983 Inc., a Montreal area fabric producer, for withheld duties and penalties under Section 592. Tricots had made a “prior disclosure” to CBP that some fabric it imported into the United States did not qualify as “originating” goods, entitled to duty free entry under the North American Free Trade Agreement (NAFTA). However, Tricots claimed that the products did qualify for duty free entry under Tariff Preference Level (TPL) programs. The company tendered merchandise processing fees to Customs, but took the position that no duties had been underpaid or withheld.

Customs rejected the importer’s tender, asserting that a claim for TPL treatment had to be made prior to the time the import entries were liquidated, and told Tricots Liesse that it would need to pay withheld duties to perfect its prior disclosure and avoid the imposition of penalties. Tricots continued to argue that no loss of revenue had occurred. After efforts to resolve the matter with an offer in compromise failed, Customs sued the company for Section 592 withheld duties and penalties. This case was consolidated with another, related, case, previously brought to recover withheld duties from Tricots’ Customs bond surety.

Tricots moved to dismiss the Government’s complaint for failure to state a claim. Tricots argued that it had requested an in-person conference with Customs officials to discuss the penalty claim, and had not received it. Since the Customs regulations gave the importer the right to such a conference, Tricots claimed, the government by failing to provide the conference, had failed to exhaust its administrative remedies.

The Court of International Trade agreed. After holding that telephone calls between Tricots officials and Customs officers did not constitute the requested and required conference, Senior Judge Richard Eaton held that Customs had failed to exhaust its administrative remedies which were necessary to undertake in order to perfect its cause of action. The legislative history to Section 592, he held, provided importers with the right to a hearing, which was an expected part of the process. Finding the oral conference to be an essential part of the section 592 administrative process, and having determined that CBP failed to exhaust this remedy, the Court held that the government had failed to state a cause of action, and dismissed the government’s penalty case.   The court further held that the defendant did not need to show substantial prejudice to itself to secure the dismissal.

The case is a surprising one, and a pleasant surprise for importers. The decision will undoubtedly be appealed by the government to the Federal Circuit in an  appeal that will bear watching.


Drawback Strikes Back

We recently noted the dismay of duty drawback filers when Customs and Border Protection failed to publish regulations needed to process refunds under the new duty drawback rules of the Trade Facilitation and Trade Enforcement Act (TFTEA), which entered into force on February 24, 2018.  Dismay turned to anger when, in lieu of the regulations, Customs posted a “Guidance Document” to its website, announcing interim rules that would be in place until some unspecified date – possibly years in the future – when CBP issues final new drawback regulations.

Under the agency’s Guidance Document, CBP announced that it would not make accelerated payments of drawback for TFTEA drawback claims, even if the claimant had been issued accelerated payment privileges and posted bonds to secure the revenue. In addition, the Guidance Document contained controversial “First Filed” and “Mixed Use” rules, which declared some duty-paid imports ineligible for TFTEA drawback if merchandise from the same import entry line item had previously been designated as the basis for a drawback claim.

If Treasury does not issue final regulations by February 23, 2019, the end of the TFTEA “transition year”, drawback payments and claim liquidations will completely cease.

Stung by the prospect of being denied hundreds of millions of dollars a year in drawback revenues they rely upon, a group of drawback claimants and brokers on March 23, 2018 filed a lawsuit in the United States Court of International Trade, seeking to enjoin application of the new restrictions in the Guidance Document and have them declared unlawful. The suit also asks the Court to order the Treasury Department to issue the Congressionally-prescribed refund calculation regulation within a “reasonable time”.

The suit is grounded in the Administrative Procedure Act, which requires formal “notice and comment” rulemaking before an agency may issue substantive, “legislative” type rules. CBP did not follow these procedures before publishing the edicts in its Guidance Document.

The lawsuit, titled Tabacos de Wilson, Inc. et al. , v. United States, seeks a preliminary injunction which would (1) require CBP to continue making “accelerated payments” of drawback on TFTEA claims and (2) prohibit CBP from enforcing its “First Filed” and “Mixed Use” restrictions on TFTEA claims, pending the publication of properly issued final regulations.

The plaintiffs are represented by John Peterson, and Russ Semmel of Neville Peterson’s New York City office and Richard O’Neill of Neville Peterson LLP’s Seattle office.

Section 232 Tariffs on Imported Steel and Aluminum: What You Need to Know (Part I)

Last week, the President unexpectedly announced that, acting under authority of Section 232 of the Trade Expansion Act of 1962, as amended [19 U.S.C. §1862], he would impose significant new tariffs on a wide range of steel and aluminum imports from all foreign countries.  He indicated that there would be a 25% ad valorem tariff imposed on imported steel articles, and a 10% ad valorem tariff imposed on imported aluminum.  The White House indicated that the new tariffs would be proclaimed by March 8, 2018, although no proclamation has apparently yet been drafted.

The announcement came as a shock not only to the public, but to Administration officials who were conducting, and had not concluded, a review of the Section 232 reports and recommendations issued by Commerce Secretary Wilbur Ross.

The proposed tariffs were higher than those proposed by the Commerce Department. Despite outcries and threats of retaliation from trading partners – including many with whom the United States has free trade agreements – White House officials have suggested that no countries would be excluded from the scope of the new tariffs. The President also suggested that, if other nations retaliated against the United States for the new tariffs, he would raise the stakes in a global trade war, and mentioned imposing high tariffs on automobiles from the European Union. The European Union (EU) has suggested that it will retaliate against U.S. bourbon, motorcycles and blue jeans, while China has suggested that American soybean exports could be targeted.

While the situation is evolving, this memorandum attempts to provide some information regarding Section 232 tariffs and how international traders might deal with them.


What are Section 232 Tariffs?

Section 232 of the Trade Expansion Act of 1962 is a little-used provision of law which empowers the President to impose measures to limit imports which threaten national security interests. Remedies available under Section 232 include the imposition of increased tariffs, import quotas, “tariff-rate quotas” and the provision of special assistance to the domestic industries concerned.  Section 232 does not require that the imports be traded by means of unfair practices[1], nor does it require that there be a current threat to the national security or to any domestic industry.

Section 232 measures are imposed by the President, following receipt of a “comprehensive report” from the Secretary of Commerce. 

Section 232 has been invoked sparingly, and before the current investigations of steel and aluminum, not since 1988.  Measures imposed under Section 232 have typically been short-lived, and rarely successful. More often than not, they injure industries which consume the products in question, rather than helping the producing industries.

The Commerce Secretary’s report in the Section 232 investigation of steel unsurprisingly concluded that steel imports posed a threat to national security (the Secretary of Defense apparently does not agree). He set out three recommendations, each designed with the goal of having the United States steel industry operate at 80% capacity utilization. The Secretary offered three options:

1.       A 24% across-the-board additional tariff on steel products;

2.       A rollback quota allowing 63% of current imports to be entered; or

3.       A 53% additional import tariff on steel products from certain countries (Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia, and Costa Rica.

With respect to aluminum, the Secretary recommended imposition of a 7.7% ad valorem tariff.  Thus, in both cases, the remedy selected by the President exceeded the measures recommended by the Secretary.


[1] Unfair trade practices are addressed through the antidumping and countervailing duty laws. There are currently over 100 antidumping and countervailing duty orders in place against steel products, including many from China. Recently, antidumping and countervailing duties were imposed on imports of Aluminum Foil from China. The Section 232 Tariffs are expected to be in addition to other existing tariffs.



February 24, 2018 was supposed to be a red letter day for importers and exporters. Two years earlier, Congress, in enacting the Trade Facilitation and Trade Enforcement Act (TFTEA), announced a historic expansion of the duty drawback statute, Section 313 of the Tariff Act. Substitution for drawback purposes, long governed by amorphous tests of “commercial interchangeability” or “same kind and quality”, was to be replaced by a straightforward test based on eight-digit tariff classifications. The time period for claiming drawback was to be expanded, in many cases, from three to five years.  International traders looked forward to reaping what promised to be hundreds of millions of dollars in additional duty refunds.

All the Treasury Department had to do – and it was given two years to do it – was to enact a regulation setting out the method for calculating drawback refunds. And Congress gave Treasury a very detailed blueprint of what it expected that calculation rule to look like. Customs and Border Protection repeatedly told the trade community it would be ready to go with the new drawback rules by February 24, 2018: “Trust us!”

Needless to say, Treasury did not publish its regulation by the appointed date. Instead, it recently released a bizarre “Guidance Document” called Drawback: Interim Guidance for Filing TFTEA Drawback Claims, which, in effect, mothballs large parts of the drawback program for an indefinite period – possibly years.

CBP’s excuse was that it didn’t have time to issue the required refund calculation rule. In fact, the Guidance Document contains a whole bunch of rules – Customs just couldn’t be bothered to follow the requirements of the Administrative Procedure Act (APA) to issue them.


Good News, Bad News, Worse News

The “good news” – Customs will begin accepting drawback claims filed under the new TFTEA rules beginning February 24, using its new Automated Commercial Environment (ACE) portal. The “bad news” – Customs won’t be processing any of those claims for a long time – not until it has issued proposed new drawback regulations, received and analyzed public comment on them, and issued them in final form – a process that typically takes years to complete.

Wait, there’s “worse news” – Customs will not be issuing accelerated payments of drawback refunds, as the Customs Regulations require [19 C.F.R. §191.92], until its regulations are finished and it starts reviewing TFTEA drawback claims. That’s true even if your company has qualified for accelerated drawback and has posted a bond to secure the government for repayment.

“No Time to Make Rules – So Here are Some Rules”

While Treasury claims it hasn’t had time to issue a drawback refund calculation rule, the Guidance Document in effect contains such a rule – the one Congress hinted at under TFTEA. In filing claims under the new law, claimants are to calculate their refund as the lesser of (1) the weighted average value per unit of goods on the entry line item, and (2) the drawback that would have been paid if the designated exported merchandise had been imported.  So, if the average drawback per imported unit would be $3.20, and the drawback on the exported unit would have been $3.00, the claimant gets the lesser number -- $3.00.

Only not for a long, long time, apparently.

And the Guidance Document contains other rules – none of them issued using legal process, none of them vetted for public comment – but apparently immediately effective and binding. Two of the more notable:

  • The “First Filed” Rule – if you previously designated any merchandise on an entry line item for direct identification drawback [19 U.S.C. §1313(j)(1)], the remaining drawback-eligible merchandise cannot be designated on a claim filed using the TFTEA rules – ever.  If you try to designate such merchandise, your claim will be rejected.
  • The “Mixed Use” Rule – if you designated an import entry for substitution unused merchandise under the pre-TFTEA standard, you need to advise Customs what line item the goods came from. And then that line item’s ineligible for a claim under TFTEA rules. If you don’t provide CBP with the copious additional information the agency asks for, your claim will be denied. This rule is in effect only for the February 24, 2018-February 2019 “transition year”, during which claimants can select to have their claims processed under old rules or TFTEA rules.

And there are other goodies. If you hold a manufacturing drawback ruling, you’ll need to modify it during the “transition year”, or Customs will revoke it as “void” at the end of the year.

Funny, for an agency that claims not to have had time to make a rule, CBP surely seems to have made quite a number of rules. It just didn’t bother following the legal requirements for making them.


Why Have One Set of Regulations When You Can Have Two?

How did this state of affairs come to pass?  Well, even though Congress told CBP to make a single regulation about calculating refunds, the agency seems to have gotten it into its bureaucratic head that it needs an entire second set of drawback regulations, and has drawn up a proposed 19 C.F.R. Part 190, which presumably will deal with “TFTEA” drawback claims.  Never mind that the current regulations, 19 C.F.R. Part 191, expressly deal with “all” claims for drawback. It sounds like Customs intends to have two largely duplicate sets of regulations, one of which will slowly ride into the sunset over the next decade as pre-TFTEA claims (which Customs has taken to calling “core” drawback claims) run their course, and a second title governing TFTEA claims. [CBP must not have gotten the Administration’s memo about curtailing unnecessary regulations].


Rulemaking Takes Time – Lots of It

This has all the makings of tragedy for drawback claimants and those who service them, particularly if CBP takes years to finalize its new regulations. By way of comparison, the last comparable change to the drawback law was enacted in 1993. Customs didn’t stop processing claims, and only conformed its drawback regulations, instead of proposing a whole new set – but its final regulations weren’t issued for 5 years, until 1998. [And CBP didn’t update most of its drawback forms to reflect the 1993 changes until 2001].

Unlike other types of duty refunds, drawback is not paid with interest. So if a refund is delayed several years, the drawback claimant loses the use of money for that period – a situation the accelerated payment regulation [which remains in effect and a perfectly good device for processing TFTEA claims] – was designed to address.  Plus, companies that count on drawback could suffer reduced cash flow, and diminished profitability in the interim.

And once the final regulations are set, CBP’s four regional Drawback Processing Centers will presumably take a while to dig through years’ worth of unprocessed claims.

It’s a bizarre situation. And one which, as executed by CBP, is patently unlawful.

Getting Trade Data Reports Admitted Into Evidence In Court: A Primer (as featured in Datamyne Blog)

Descartes Datamyne subscribers use trade data reports for a variety of purposes – to monitor competitors’ importing activities, to detect intellectual property infringements, to spot contract breaches, and to detect wrongdoing in a variety of circumstances. In some cases, some parties may wish to use trade data reports in litigation – and that can pose problems.

The Problem With Summaries

The federal rules of evidence place a great emphasis on presenting original information, which can be authenticated through testimony based on personal knowledge. Hearsay – out of court statements by persons not present – are disfavored. This presents substantial challenges for parties wishing to introduce trade data reports; they are summaries of inward vessel manifest data (rather than the manifests themselves), they are reported by publishers such as Descartes Datamyne, and the party offering the report will generally not have personal knowledge of the facts set out therein. Can the reports be received into evidence, for the truth of their contents?

This issue recently came up in a Lanham Act lawsuit in Federal District Court, where the defendant was charged with falsely marking its goods as “Made in USA”. The plaintiff had reports of vessel manifest data showing that, over a period of many years, the defendant had in fact been importing the goods in question from Taiwan on multiple vessels and at several different ports of entry. Obtaining the individual manifests, and the testimony of the shippers, vessel captains and other knowledgeable parties would have been a massive, prohibitively expensive task; could the reports be admitted into evidence to prove that the defendants had been importing?

The Hearsay Exception” – Federal Rules of Evidence

As it turns out, vessel manifest reports are often admissible under Federal Rule of Evidence 803(17), which provides an exception to the hearsay rule for:

(17) Market reports, commercial publications. Market quotations, tabulations, lists, directories, or other published compilations, regularly used and relied upon by the public or by persons in particular occupations.

Descartes Datamyne reports are compilations of official government records, namely inward foreign vessel manifests submitted to United States Customs and Border Protection. Section 4.7(a) of the Customs Regulations [19 C.F.R. §4.7(a)] requires vessel masters to submit these manifests to CBP, typically by electronic filing in advance of entry via the agency’s Advance Manifest System (AMS). See id., §4.7(b). Such manifests are submitted under penalty of civil and criminal sanctions for false statements or failure to provide truthful statements. See 19 C.F.R. §4.3a.

CBP makes these reports available for copying and reporting by members of the press, pursuant to Section 101.31(a) of the Customs Regulations – a rule which reflects a decades-old settlement of a Freedom of Information Act lawsuit over access to manifests. Publishers such as Descartes Datamyne obtain the manifest data from CBP electronically, and make it available to their subscribers in word-and-field searchable forms. [The practice of publishing manifest information from vessels dates back to the 19th century, when reporters from the Wall Street Journal and the Journal of Commerce would row out to ships awaiting entry into New York Harbor, copy their manifests, and publish the information to let merchants know what goods would soon be available for purchase in the port.]

The courts have held that these manifest data publishers are members of the press and that their reports are public records.1

Vessel manifest reports have been ruled admissible into evidence based on a number of indications of their reliability. This was best demonstrated in a case from the Texas state courts, whose rules of evidence are patterned on, and are substantially identical to the Federal Rules of Evidence. In Daimler-Benz Aktiengesellschaft v. Olson2, the court admitted a statement by the manager for a trade data publisher, attesting to the accuracy of a manifest data report. The Court noted:

The Freedom of Information Act in conjunction with the U.S. Customs regulations authorizes press documents to copy certain official shipping documents, such as manifests and bills of lading and make them available to the public. The [] reporters mentioned in [the publisher’s] affidavit collect import and export information from all U.S. ports of as contained on bills of lading, vessel manifests, and other official documents, submitted by steamship companies to the U.S. Customs Service. Additionally, [the publisher] has access to U.S. Customs Service Automated Manifest System data tapes. These official documents are made at or near the time by (or from information transmitted by) a person with knowledge and are kept in the course of regularly conducted shipping activity. It is the regular practice of the shipping industry to keep such records and information.

The court found the reports admissible both as business records under Texas R. Evid. 803(6) and as “publications of market prices or statistical compilations that a proven to be generally recognized as reliable and regularly used in a trade or specialized activity by persons so engaged” and thus “admissible for the truth of the matter published” in accordance with Tex. R. Evid. 803 (17). The Court noted that these databases are “relied upon by the public, U.S. Customs Service, U.S. Trade Development Offices, and other U.S. agencies, in addition to commercial offices of foreign governments, commercial banks and currency dealers, port authorities, consultants, equipment manufacturers, freight forwarders, importers and exporters, law firms and manufacturers.3”

Vessel manifest data summaries are similar to the kind of records as those found admissible under FRE 803(17) by Third Circuit under FRE 803(17) in United States v. Woods4, where the Circuit Court found that a database used by the National Insurance Crime Bureau, showing the location where vehicles, identified by Vehicle Identification Number (VIN) were manufactured, could be used to show that a vehicle had been moved in interstate commerce for purposes of proving a federal carjacking offense. While expressing doubt that the database was admissible as a business record under FRE 803(6), the Third Circuit noted that it was admissible under FRE 803(17). The court indicated that the hearsay exception of FRE 803(17) was predicated on the two factors of necessity and reliability. “Necessity lies in the fact that if this evidence is to be obtained, it must come from the compilation, since the task of finding every person who had a hand in making the report would be impossible. Reliability is assured because the compilers know that their work will be consulted; if it is inaccurate, the public or the trade will cease consulting their product”5.

Getting A Trade Data Report Into Evidence

Getting vessel manifest reports admitted into evidence may be a key to proving or defending a case in litigation. However, most courts are not familiar with these reports, their provenance, or how they are compiled. If the party offering the report is not prepared to give a clear explanation of what the report is, and why it should be admitted, the court may not admit it.

A litigant seeking to have a manifest report admitted should be prepared to have a clear and concise explanation for the court of what the records purport to show, and why they should be admitted as an exception to the rule against hearsay, under Federal Rule of Evidence 803(17). A statement from the publisher explaining how the reports are generated – the source material, the methods in which the data is gathered and presented – can also be helpful. But the effort is more than worthwhile; it can save considerable cost and effort, and may often help the litigant carry the day.


About John M. Peterson

John M. Peterson is a Partner at Neville Peterson LLP, New York City, Washington D.C. and Seattle. He can be reached at (212) 635-2730 or at

The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.


1 See United States ex rel. Doe v. Staples, 774 F.3d 83 (D.C. Cir. 2014)(vessel manifest records covered by publication bar to False Claims Act).
2 21 S.W. 3d 707 (Tx. App. 2000).
3 21 S.W. 3d at 716.
4 321 F.3d 361 (3d Cir. 2002).
5 321 F.3d 361, 364, citing 5 Weinstein’s Federal Evidence §803.19[1](2002).


The United States Court of International Trade recently surprised many by indicating that it will take a look of the controversial practice whereby certain domestic petitioners in antidumping and countervailing duty cases seek “settlement payments” from foreign companies in exchange for excluding them from annual Commerce Department reviews of outstanding antidumping and countervailing duty orders.  In Itochu Building Materials Inc. v. United States, Slip Op. 17-73 (June 21, 2017), Senior Judge Jane A. Restani ordered a domestic petitioner to furnish the Commerce Department (and by, extension, the Court) with information concerning the circumstances under which the producer requested Commerce to review a large number of foreign producers, but then withdrew its request as to most of those entities. In directing submission of the information, the Court expressed concern that the process of extracting settlement payments might injure the integrity of the antidumping and countervailing duty review process. 

Settlement payments have been controversial for some time, particularly since the 2007 repeal of the so-called “Byrd Amendment”, which distributed antidumping and countervailing duty collections to domestic producers who had supported the petitions seeking imposition of the special duties.   

While importers subject to antidumping or countervailing duties deposit estimated duties when they enter goods into the United States, their final liability is not determined until the CommerceDepartment conducts an annual review of the antidumping or countervailing duty order involved. Commerce reviews foreign producers and shippers of these goods only if requested to do so by a domestic producer, or by the foreign producer or shipper itself.  Final duty margins determined in these reviews often vary significantly – up or down – from the cash deposits collected at entry.  If no review is requested, entries liquidated “as entered”

The practice of soliciting “settlement payments” in antidumping review proceedings received some prominence a few years ago in connection with the antidumping order against Wooden Bedroom Furniture from China.  In hearings before the US International Trade Commission, it became known that some law firms representing domestic interests would request Commerce Department reviews of a large number of foreign entities, and then agree to withdraw their request to review given producers based on “settlement payments” by those producers. At the time, some ITC Commissioners expressed doubts over the legality of the practice. 

Proponents of “settlement payments” compare them to settlements in civil litigation between private parties. But there is one important difference: while trade remedy proceedings can sometimes take on an adversarial tone, they are not litigations, but “investigations” by government bodies.

In the Itochu case, the domestic producer had requested the Commerce Department review some 222 producers and exporters of Steel Nails from the People’s Republic of China.  On the last day for withdrawing requests, the petitioner withdrew its request for review in respect of 159 producers, including one which had been selected as a “mandatory respondent” in the case (and which, on the same day, withdrew its own petition for review).  Judge Restani, apparently acting on her own initiative, expressed some suspicion over the sequence of events.  Remanding the case to the Commerce Department for correction of various errors in the calculation of margins, the Court also directed the domestic petitioner to provide Commerce with information concerning the circumstances under which the review request for 222 firms was made, and then retracted in respect of 159 firms.  The Court indicated that Commerce could, if it wished, reopen the administrative record to solicit comments from other affected parties. 

In making this unprecedented request, the Court noted that settlement payments might undermine the integrity of the antidumping law’s administration and result in shifting into private pockets of monies which otherwise might have been paid to the government as antidumping duties. 

If settlement payments were solicited and received, and the Court concludes that such payments were improperly solicited, the conduct of antidumping and countervailing proceedings could be significantly changed.  There could be other consequences, particularly in cases where competing domestic producers have collaborated to seek the imposition of special duties on goods made by foreign competitors. Such joint anticompetitive action is generally frowned upon under the antitrust laws. But petitioners who file a meritorious request for governmental relief receive a limited Noerr-Pennington antitrust immunity, based on the fact that they are invoking a legal procedure.  If domestic producers are determined to instead be using the trade laws to exact payments from competitors, conceivably this immunity could be lost, and domestic petitioners might find themselves subject to suit.

Trade observers, buckle up. It could be a wild ride.

Analyzing Trump Administration Threats and Proposals Regarding Trade With Mexico

The fledgling Trump Administration sowed confusion and alarm in its first week with a series of Presidential and staff statements involving trade with Mexico. First, the President signed an Executive Order directing construction of a wall along the United States’ border with Mexico (although Congress would need to approve and fund any such project). Second, a few days later, the President reiterated his campaign pledge that Mexico would pay for the wall, causing Mexican President Pena Nieto to cancel a planned visit to Washington to discuss trade issues.

Following the cancellation, Administration spokespersons indicated that the President was considering imposition of a 20% tariff on all goods imported from Mexico, with a goal of funding construction of the border wall. Later, this morphed into a proposal to levy a 20% tariff on all imports, before Press Secretary Sean Spicer “walked back” this talk, suggesting that the 20% levy was but one of the options the Administration was considering.

Combined with the President’s repeated demands for renegotiation of the North American Free Trade Agreement (NAFTA) – with one Presidential adviser claiming that Canada has nothing to fear from the renegotiation – the new Administration’s first week in office left many dazed and confused about what might be in store for U.S. – Mexico economic relations under the Trump Administration. This was further complicated by the Administration’s conflating of the border wall, posited as an immigration issue, and the tariff financing regime, claimed to be justified by the $50 billion annual merchandise trade deficit between the countries.

This Memorandum briefly describes the remedies available to the President to address U.S. – Mexico trade issues. While it also offers an assessment of the likelihood that these powers will be used, the quixotic, shoot-from-the-cuff style the Trump Administration has thus far exhibited makes predictions a tricky matter.


Can the President Proclaim Increased Tariffs on Mexican Goods?

While tariff-setting and regulation of international trade is Constitutionally the province of the Congress, over the years the Congress has delegated to the President some of its powers in the regard, particularly to allow him quickly to address international economic emergencies.  At least three statutes – the Trading With the Enemy Act (TWEA), the International Emergency Economic Powers Act (IEEPA) and the Trade Expansion Act of 1962 – authorize the President to impose additional duties and other measures, on a temporary basis, if he first proclaims that an “economic emergency” exists.

These powers were most notably exercised in 1971, when President Nixon, confronted with rising inflation and a rather alarming drain of cash reserves to support the United States dollar, invoked the TWEA to impose a 10% ad valorem surcharge on all imported goods. The surcharge was stated to be “temporary”; it did not apply to goods which were unconditionally duty free, and if a 10% surcharge would cause the duty rate for a good to exceed the Column 2 rate, then the rate was limited to the Column 2 rate. As a result, the net impact of the surcharge was closer to 6% ad valorem. President Nixon’s surcharge (which was combined with a wage and price freeze) did little to improve economic conditions, and was lifted after 5 months.

Many importers who were assessed with the surcharge sued for refunds in the Customs courts, challenging the legality and Constitutionality of the executive order which imposed it. Ultimately, in the case of United States v. YoshidaInt'l,  Inc.,  526F.2d560,  572(C.C.P.A.  1975), the Court of Customs and Patent Appeals upheld the surcharge proclamation.

The Yoshida court noted that courts would generally not question a President’s determination that an “economic emergency” existed, but would look at the remedy selected to decide if it was reasonably designed to address the emergency identified. In this regard, the court noted that the relief would need to be temporary in nature. The President has no inherent foreign trade or tariff-setting powers, and cannot substitute his judgment for that of the Congress. Thus, it would be difficult for the President to impose tariffs or surcharges on goods which Congress has deemed to be unconditionally duty free. Because the Nixon surcharge steered around these pitfalls, the Federal Circuit upheld it.

It would be difficult to reasonably discern an “economic emergency” arising out of the U.S – Mexico trade relationship or even the U.S.’s $50 billion annual trade “deficit” with Mexico. The two countries enjoy a $582 billion two-way trade relationship. Against that figure, a $50 billion deficit is not hugely significant. The countries have robust two-way trade, and do not impose barriers to each other’s goods. Considering the population disparity between the United States and Mexico, it is clear that Mexico’s purchases of U.S. goods on a per capita basis is much greater than the United States’ per capita purchases of Mexican goods.

When United States imports of Mexican petroleum products are factored out, the trade deficit disappears. When one takes into account that 40% of the value of goods the United States purchases from Mexico represents returning American content, a case can be made that the United States runs a practical trade surplus with Mexico.

Even if the objective were to address a $50 billion trade deficit, a 20% tariff surcharge on Mexican goods would be a wildly excessive response.


What Would Happen if the United States Imposed a Surcharge or Tariff on Mexican Goods?

The result of a United States tariff surcharge on Mexican goods would be to trigger a trade war that would have grave consequences for both countries.

The United States and Mexico are both members of the World Trade Organization (WTO), and they have “bound” their most-favored nation tariffs. Any derogation from those bound tariffs – even if to address economic emergencies – would constitute a “nullification and impairment” of those bound tariff commitments. The nation raising tariffs – the United States – would need to offer Mexico “compensation” in the form of equivalent tariff reductions on other goods. Since most United States “bound” tariff rates are very low, it would be impossible, as a practical matter, for the United States to adequately compensate Mexico for a 20% tariff surcharge.

In that case, the WTO would authorize Mexico to retaliate against American goods by increasing tariffs in a dollar amount (not a rate) equal to the damage done to Mexico by the breach of WTO commitments.  Mexico could use that power to effectively destroy numerous U.S. industries with large markets in Mexico. For example a 100% retaliatory tariff on soy products, corn products and beef, would cause U.S. prices for those commodities to collapse, resulting in many grower and rancher bankruptcies.

Article 302 of NAFTA also prohibits a signatory country from erecting new tariffs. A tariff surcharge would breach that obligation, and allow Mexico to withdraw NAFTA treatment from United States goods.

Numerous voices in Congress and business have cautioned against taking the rash steps which could lead to such a destructive trade and tariff war.


Could the President Withdraw the United States from NAFTA?

Yes he could. Article 2205 of the NAFTA allows the President to withdraw the United States from NAFTA by providing a six (6) month notice to the other parties. If this were to happen, the United States and Mexico would, at the conclusion of the 6 month period, impose Column 1 Normal Trade Relations (NTR) tariffs on each other’s products. Things like the NAFTA Marking Rules would cease to apply, and binational dispute resolution procedures would no longer be available to the two countries. 

A number of Mexican agricultural products would likely become subject to tariff-rate quotas.

As for the U.S. – Canada trading relationship, if NAFTA were terminated, the United States-Canada Free Trade Agreement, the forerunner to NAFTA, would resume in effect between the two nations.

Fortunately, there appears to be virtually no appetite in Congress for withdrawal from NAFTA, and many influential legislators, including many in the President’s party, have urged the President not to consider withdrawal.

One of the Trump Administration’s first official acts was to withdraw the United States – foolishly, by most estimations – from the Trans Pacific Partnership (TPP) trade agreement negotiations. Mexico is of course a party to the TPP agreement, whose final text has been concluded.  Rather than bringing his supposedly great “deal making” powers to bear on the TTP, the President has simply jettisoned the agreement entirely. Mexico and the other remaining signatories have indicated a willingness to move forward without the United States, and possibility that China will join (and by virtue of its economy’s size, lead) the modular TPP agreement.  While NAFTA would still create an important U.S. – Mexican trade relationship, Mexico could in the future look elsewhere for trade expansion.


What About the President’s Pledge to Re-Negotiate NAFTA?

President Trump has indicated an eagerness to re-negotiate the NAFTA, and both Canada and Mexico have expressed a willingness to do this. However, Canada and Mexico have both made it clear that they expect to emerge from such negotiations with gains.

How, precisely, the Trump Administration would want to renegotiate NAFTA is unclear. Rules of Origin are a likely focus of any renegotiation. The President has made repeated references to the automotive sector, so a renegotiation of NAFTA’s highly complex origin rules for automotive goods is likely. That being said, it is hard to see how any renegotiation could result in a stricter rule of origin than the one currently in place, which effectively requires a 62.5% regional value content for qualifying vehicles.

Of equal importance is who will speak for the United States in any NAFTA renegotiation. As of this writing, President Trump’s designate for United States Trade Representative, Robert Lighthizer, has not been confirmed by the Senate and is not yet on the job. Lighthizer is a knowledgeable trade professional, and his department has the expertise to handle a renegotiation in a highly competent manner. But Trump has also indicated that his Commerce Secretary designee, Wilbur Ross, will have a hand in trade negotiations. He has also formed a Trade Advisory Council and appointed one of his lawyers as “Chief Negotiator”.  In all likelihood, Mexico and Canada will insist that Lighthizer’s USTR office head up any negotiations for the United States.

USTR exercises trade responsibility delegated by Congress to the President. Some legislators are concerned about the Trump Administration’s wild pronouncements, and legislation is pending in Congress which, if enacted, would return some of these delegated powers to the Congress.

As that trade specialist Bette Davis might have said, “Fasten your seatbelts! It’s going to be a bumpy night!”


What Should My Company Be Doing as this Situation Unfolds?

More than 8 million jobs in the United States alone depend on trade with Mexico. Companies trading with Mexico have a stewardship obligation regarding these jobs – and their own investment and profits. Confronted with an erratic administration, companies can still do a lot to protect themselves.


  •   Strengthen Your NAFTA and Trade Compliance Activities.  In the current environment, any major scandal or penalty involving failure to comply with NAFTA rules or other international trade rules could give NAFTA opponents the ammunition they need to try and torpedo the Agreement.  Companies should review their NAFTA operations, ensure they are in compliance with applicable rules, and take corrective actions, if necessary.
  •   Engage Your Representatives in Congress.  Make sure your elected representatives understand how many jobs in their district depend on NAFTA and a smoothly-working U.S. – Mexico trade relationship.
  •   Engage Your Communities.  Make sure the people living and working in the communities you serve understand the importance of the U.S. – Mexico trade relationship to their economic health. While this is obvious to folks working directly in international businesses, it is often not so obvious to shopkeepers, teachers, service workers and others whose focus may be more localized.


Our firm stands ready to furnish any additional information or assistance that may be required to address these thorny issues.

Supreme Court to Consider “International Patent Exhaustion” Issue

In a matter of tremendous importance to the international trade community, the United States Supreme Court last week agreed to consider the question of whether the sale of a patented article abroad “exhausts” a U.S. patent owner’s rights in the product. The issue will determine when patent owners may use the patent law to restrain the importation of patented goods on the “gray market” or used patented goods for refurbishing.

Court also agreed to determine whether and when patent owners canretain patent rights in goods by making “conditional sales” of those goods.

The case, Impression Products Inc. v. Lexmark involves a West Virginia company which refurbished and refilled used Lexmark toner cartridge “shells”. It acquired some of the shells domestically and others abroad.  Some of the domestic shells had been part of Lexmark’s “return” program under which the sold cartridges to customers at a lower price if they agreed to use the cartridge only once and return it to Lexmark.

The Federal Circuit, in a 10-2 en banc ruling, upheld a patent infringement judgment against Impression Products, holding that Impression had infringed Lexmark’s patents by refurbishing and selling (1) cartridges from the Lexmark return program, and (2) cartridges obtained abroad. Lexmark charged Impression with patent infringement in respect of both types of cartridges.

As to the “return program” cartridges, the Federal Circuit, citing its 1992 decision inMallincrodt v Medipart,  ruled that Lexmark could retain patent rights over the cartridges it sold by making the sale “conditional” upon the buyer’s using the cartridge only once.

As to cartridges refurbished abroad, the Federal Circuit relied upon its mysterious 2001 decision in Jazz Photov. United States International Trade Commission, recev held that only the sale of a patented article in the United States “exhausts” a patent owner’s rights in the article. This is so, the Federal Circuit said, even though the patent owners voluntarily sold its product abroad and received payment for the patented features.

Judges Timothy Dyk and Todd Hughes filed a strong dissent from the en banc majority opinion, arguing that “conditional” sales were abhorrent to common law principles, and that – as in the case of trademarks and copyrights – the authorized sale of a patented article anywhere in the world should exhaust the seller’s ability to use the patent law to further restrain sales.

The case will be briefed and argued in the coming months, and the Court should rule before its term ends in June 2017.


The Issues Before the Supreme Court

1.     The “Conditional Sale” Question

Precedents dating back to 17th Century English common law indicate that the law abhors “partial alienations” of personal property. The general rule is that when a seller has parted with its property through sale, and received payment for it, he has lost all rights in the good – including the right to control its resale or use.

The U.S. Government, which has filed briefs in the case, has argued against the idea of a “conditional sale”, and has argued that the Federal Circuit’s Mallinkrodt v. Medipart decision was wrongly decided.  This position has been supported by a number of business groups which have embraced the concepts of “owners’ rights”, and have pointed to a number of prior Supreme Court decisions suggesting that a valid sale and purchase of a patented device extinguishes the owner’s ability to use patent law to control further resale or disposition of the item.


2.     The “Foreign Exhaustion” Question

The notion that a foreign sale does not exhaust a U.S. patent holder’s rights in a product stems from a very brief, and not very well-supported, statement in the Federal Circuit’s 2001 Jazz Photo v. ITC decision.  Since that time, the Federal Circuit has reiterated that position in several cases; but many have questioned the rather thin basis for the Federal Circuit’s rule, In its 2008 decision in Quanta Computer v. LG Electronics Inc., the Supreme Court appeared to indicate that a foreign sale of a product could exhaust a patent owner’s rights, if the good in question was “practicing” the patent. Despite this, the Federal Circuit has continued to hold to the position that only a domestic sale exhausts patent rights.

In its 2013 decision in Kirtsaeng v. Wiley, the Supreme Court held that the authorized sale of a copyrighted work abroad exhausted the copyright owner’s rights to use copyright law to restrain resale or use of the work. The Supreme Court first noted that, under common law, the sale of a product exhausted the seller’s rights, and then examined a provision in the Trademark Act, concluding that it did not abrogate the common law rule.

Now, the Supreme Court appears ready to determine squarely whether, in the case of patents, a foreign sale exhausts the patent owner’s rights.  There is no statute explicitly governing patent exhaustion, so observers believe that the “common law” rule may be applied to patents, yielding a determination that all sales of a patented product, whether domestic or foreign, exhaust the patent holder’s rights.

The Impression Products case, when decided, will have a major impact on the importing community, and all firms dealing in patented goods. 

Repeal of the “Consumptive Demand Exception” to 19 U.S.C. §1307 Could Lead to Headaches for Importers

          Congress recently and quietly repealed the “consumptive demand exception” to the ban on importation of goods make with forced, child or indentured labor set out in Section 307 of the Tariff Act of 1930, as amended [19 U.S.C. §1307].  The little-noticed changed could have serious consequences for United States importers.

Section 307 and the History of the Exemption:

Section 307 of the Tariff Act of 1930 prohibits the importation of goods made using prison or indentured labor[1]. Prison labor has been interpreted to include any labor performed by workers in custodial conditions.[2]  However, the “consumptive demand exception” in Section 307 has authorized Customs to allow the import of goods made with forced or indentured labor if the goods are not produced in the United States in such quantities as to meet domestic “consumptive demand”.

            Because of the consumptive demand exception, although Section 307 has been in force for nearly 85 years, Customs authorities have effected only 39 exclusions during that time.[3] Following the repeal of the consumptive demand exception, additional exclusions are expected.

            Goods produced by convict labor are prohibited from entry under all circumstances. The “consumptive demand exception” applies only to goods produced by forced and indentured labor. China Diesel Imports v. United States, 855 F.2d 380 (Ct. Int’l Tr. 1994).

            Section 910 of the Trade Facilitation and Trade Enforcement Act of 2015, enacted February 24, 2016, eliminated the consumptive demand exception. The elimination became effective with respect to goods imported on and after 15 days from the enactment of the act, i.e., March 11, 2016.


Actions Triggering an Exclusion of Goods Under Section 307

             Section 12.42(a) of the Customs Regulations provides that any Customs officer with reason to believe or suspect that goods imported are being made with prison or forced labor are to forward their information to the Commissioner of Customs, who will make a finding whether goods should be excluded. Section 12.42(b) of the regulations contains a provision for private parties to make such allegations. Specific requirements appear in the regulations, including a now-moot requirement that petitions address the consumptive demand exception.

            If the Commissioner of Customs determines that the evidence shows a likelihood that goods are produced with prison or forced labor, he will notify port directors of Customs not to release such goods when imported.  Findings that classes or kinds of goods are made with forced labor are published in the Customs Bulletin and Federal Register. As of this writing, only a single such determination is in effect, involving furniture, clothes hampers and palm leaf bags made in Ciudad Victoria, Mexico.


Private Party Petitions to Have Goods Excluded Based on 19 U.S.C. §1307

            On rare occasions, domestic groups have brought suit in the United States Court of International Trade, challenging Customs’ denial of petitions to exclude prison- or forced-labor goods from entry. These cases have generally been dismissed by the court, for lack of standing and/or failure to address the consumptive demand exception

            In  International Labor Rights Fund v. United States, Slip Op. 05-110 (Ct. Int’l Tr. 2005), several labor and fair trade non-government organizations (NGO) sued Customs under the Administrative Procedure Act, contending that Customs had improperly denied their petition to exclude cocoa from Cote d’Ivorie from entry on the ground that it was harvested with child labor. The Chocolate Manufacturers Association, as intervenor, presented evidence that the United States produces miniscule amounts of cocoa, mainly in Hawaii, and could not meet domestic demand. The Court held that the “consumptive demand exception” deprived the plaintiffs of the ability to show “injury in fact” and thus deprived them of standing under the APA:

            This domestic consumptive demand exception provided for in the latter half of [§1307] is crucial given the facts of this case.  The parties agree that no domestic cocoa production industry exists in the United States sufficient to meet domestic consumptive demand. In such instances, the statute expressly prohibits application of any of the provisions found within it.  As a result, the regulations promulgated pursuant to the statute, which merely direct how Customs will implement the directives of the statute, can neither be invoked nor relied upon by plaintiffs in this case.  Therefore, any injury relying on 19 C.F.R. 12.24 cannot be redressed by this court where the consumptive demand exception applies.

          In McKinney v. Department of the Treasury, 799 F.2d 1544 (Fed. Cir. 1986), a Congressman and several NGOs sued to compel the exclusion from entry of various goods produced in the former Soviet Union, allegedly from prison and forced labor. The Federal Circuit indicated that the plaintiffs lacked prudential standing to bring the case (in which the consumptive demand exception was not considered).

            In light of the elimination of the consumptive demand exception, it can be expected that petitioners will have a greater claim to standing to challenge a Customs decision not to investigate a prison or forced labor claim under Section 307.

            It is likely that Customs will also self-initiate more exclusions. As of this writing the U.S. Department of Labor maintains an index of prison/child labor allegations. Many of these are likely to generate petitions to ban imports.


Importer Remedies Under Section 307

            If Customs excludes imports from entry under Section 307, the importer may file a protest against the exclusion. If its protest is denied, the importer may commence suit in the Court of International Trade to seek review of the protest denial.

            In the CIT, Customs’ liquidation decisions are entitled to a statutory presumption of correctness. The burden of coming forward with proof to defeat the presumption rests with the importer. Once the presumption is overcome, the Court must decide the case on the basis of the preponderance of the evidence.

            In China Diesel Imports v. United States, 855 F. Supp. 380 (Ct. Int’l Tr. 1994), an importer challenged the exclusion of certain small diesel engines made in China from entry into the United States. The engines had been produced in a Ministry of Justice factory under a program known various as “Reform through Labor” or “Education through Labor”. The CIT concluded that there was insufficient domestic production of competitive engines, but held that since the engines in question were made from convict labor, they were absolutely excluded.


Elements of a Compliance Policy

            Customs is expected to propose revisions to its regulations to reflect the elimination of the consumptive demand exception. Importers will need to adopt policies to reflect the change – not only examining their own direct imports, but also the supply chain for imported goods they may purchase on a “domestic duty paid” basis.

            Even if a company is not the importer of materials facing a forced or child labor accusation, such an accusation can cause serious damage to the company’s brand equity. Companies need to take action now.


[1] Prior to its amendment, Section 307 read:

Sec. 1307. Convict-made goods; importation prohibited

All goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in any foreign country by convict labor or/and forced labor or/and indentured labor under penal sanctions shall not be entitled to entry at any of the ports of the United States, and the importation thereof is hereby prohibited, and the Secretary of the Treasury is authorized and directed to prescribe such regulations as may be necessary for the enforcement of this provision. The provisions of this section relating to goods, wares, articles, and merchandise mined, produced, or manufactured by forced labor or/and indentured labor, shall take effect on January 1, 1932; but in no case shall such provisions be applicable to goods, wares, articles, or merchandise so mined, produced, or manufactured which are not mined, produced, or manufactured in such quantities in the United States as to meet the consumptive demands of the United States.

"Forced labor", as herein used, shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily. For purposes of this section, the term "forced labor or/and indentured labor" includes forced or indentured child labor.

The highlighted language has now been deleted from the provision.

[2] Thus, some years ago, we prevailed upon Customs to bar the importation of certain custom windows being made in Canada by prisoners in a “work release” program. Since the workers were required to return to prisons or jails for the evening, the program was viewed as prison labor for purposes of Section 307.

[3] One exclusion of note involved gloves, made by a prison workshop in Alabama, which were exported to Mexico for finishing and packing. CBP blocked the gloves from returning to the United States, citing the prison labor performed domestically. 


Congress is preparing to give away money – millions of dollars’ worth – and qualifying importers need only step forward to ask for theirs.

Earlier this year, President Obama signed into law the American Manufacturing Competitiveness Act of 2016 (“AMCA”), which creates a new administrative procedure whereby importers and other interested parties may petition for temporary duty suspensions on imported goods.  Under this new procedure the United States International Trade Commission (ITC) will begin soliciting applications for temporary duty suspensions beginning October 15, 2016, and continuing 60 days thereafter.

Congress historically has acted to temporarily suspend or reduce Customs duties on a wide range of imported goods – products for which no domestic counterparts are available, and goods used in value-added manufacturing in the United States.  However, the last set of temporary duty suspensions and reductions expired at the end of 2012, after some in Congress asserted that they were “earmarks” and declined to enact any new measures.

The AMAC – also known colloquially as the “Miscellaneous Tariff Bill” (MTB) -- seeks to address this problem by creating a new administrative process for considering duty suspensions and reductions. The ITC will collect applications for tariff suspensions and reductions, evaluate them, and report a package of suspension/reduction measures to Congress for consideration. Members of Congress may delete individual items from the package, but may not add new items. The surviving duty suspension or reduction measures will then be voted on by Congress.

The AMAC formalizes an agency process for pursuing duty suspensions, which many firms may find easier than the old procedure of simply approaching individual members of Congress to sponsor suspension or reduction measures. There will be a single intake mechanism for potential temporary tariff measures; political elements will be removed, and advocates seeking to pursue tariff measures for clients will no longer be required to register as lobbyists.


Qualifying for a Temporary Tariff Break

To receive favorable consideration, duty suspension/reduction measures must be non-controversial. If a domestic manufacturer objects, a suspension or reduction bill is not likely to be enacted. In addition, they must have a limited revenue impact – no more than $500,000 in reduced duty revenues per year.

The ACMA creates a process by which importers may seek tariff relief.  No later than October 15, 2016 (with a second round of applications due October 15, 2019), the ITC must publish in the Federal Register a notice soliciting potential duty suspension measures from potential beneficiaries of such measures. Petitions must be filed within 60 days of such notice. 

No later than thirty (30) days after the petition period expires, the ITC will publish a list of petitions received and accompanying disclosure forms, and will also solicit public comments for 45 days.

No later than 90 days after the date of publication of the petitions, the Department of Commerce (“Commerce”) will submit to the ITC and appropriate Congressional committees a report on each petition for duty suspension or reduction.  For each petition submitted, Commerce will make a determination as to whether or not domestic production of the article in question exists, and, if such production does exist, whether or not a domestic producer of such article objects to the duty suspension or reduction.

The ITC will publish a Preliminary Report for review by Congressional Committees, and a final report 60 days thereafter.  Included in the Final Report will be conclusions as to whether the duty suspension or reduction proposed can likely be administered by Customs and Border Protection (CBP), the estimated loss of revenue to the United States from the suspension or reduction, and the conclusion as to whether that amount not exceed $500,000 in a calendar year.

Within the 90 day period after the Commission submits its final report, the Congress must consider the proposed duty legislation and determine whether or not to enact the measure. Individual members of Congress may remove items from the legislation, but may not add new measures to it.

It is anticipated that Congress will render its determinations in late 2017, with approved duty suspensions taking effect for imports entered on and after January 1, 2018.  The ACMA also provides for a second three-year round of duty suspensions, with petitions being submitted in 2019.


Now is the Time to Prepare

The economic impact resulting from the expiration of past duty suspension measures is estimated at more than $1.8 billion. Duty suspensions under the ACMA may save importers several hundred millions of dollars in duty each year. For firms interested in these savings, the time to begin preparing petitions is now.

Our firm is involved in the ACMA petition process, and stand ready to assist firms interested in pursuing duty suspensions or reductions under the new statute.


Treasury, Customs Publish Interim “ENFORCE/PROTECT ACT” Regulations

Hard on the heels of a General Accountability Office (GAO) report showing that the Federal Government is owed some $2.3 billion in uncollected antidumping duties and countervailing duties, the Treasury Department and United States Customs and Border Protection have published interim final regulations implementing the “ENFORCE/PROTECT ACT” provisions of the recently enacted Trade Facilitation and Trade Enforcement Act of 2016 (TFTEA). The new regulations, effective immediately, set out procedures whereby interested parties may formally petition CBP to conduct investigations of suspected antidumping and countervailing duty evasion, and take both interim and final measures to combat it. 

Both domestic producers of goods subject to antidumping and countervailing duty orders, and competing importers have long complained that competitors are unlawfully evading special duties – for instance, by mis-describing goods on invoices and Customs entry forms, or by transshipping goods through third countries to misrepresent their origin. The ‘ENFORCE AND PROTECT ACT” (EAPA) gives these entities a new mechanism to formally petition CBP to investigate suspected evasion, as well as an opportunity to seek judicial review of CBP’s decisions. 

Background of the “ENFORCE/PROTECT ACT”

While the United States’ “retrospective” system of assessing antidumping and countervailing duties has yielded the $2.3 billion deficit noted by the GAO, there are concerns that even more special duties are being evaded by illicit practices. Recent years have seen a number of high-profile fraud cases prosecuted by the government, as well as a rise in private “whistleblower” suits brought under the Federal False Claims Act, in which competitors or opportunists have charged importers with evading these duties, and have secured large judgments or settlements. 

Section 421 of the TFTEA establishes a new Section 517 of the Tariff Act of 1930, dealing with Procedures for Investigating Claims of Evasion of Antidumping and Countervailing Duty Orders. Known colloquially as the ‘ENFORCE/PROTECT ACT” or EAPA, Section 517 provides a procedure whereby “interested parties”, including domestic producers or competing importers may submit to CBP evidence of claimed antidumping or countervailing duty evasion. 

Under EAPA within 15 business days of receiving a properly filed “request for investigation” (or referral from another Federal agency) which “reasonably suggests” that merchandise covered by an AD/CVD order “has entered the customs territory of the United States through evasion”, CBP will formally initiate an investigation of the allegations.  Upon initiating an investigation, CBP will have 300 days (360 in “extraordinarily complicated” cases) to complete its investigation and determine whether, on the basis of the record before the agency,  “whether there is substantial evidence that merchandise covered by an AD/CVD order was entered into the customs territory of the United States through evasion”.  If CBP makes an affirmative determination, it will extend liquidation of entries of suspected merchandise, suspend liquidation of current and future entries of such merchandise, and may require single entry bonds or cash deposits of estimated antidumping or countervailing duties.  In addition, CBP may take other action, including the initiation of civil penalty actions under Section 592 of the Tariff Act of 1930 [19 U.S.C. §1592] or the referral of the matter to Immigration and Customs Enforcement (ICE) for the institution of civil or criminal investigations.

If, during the course of the investigation, CBP makes an interim determination whether there “exists reasonable suspicion that covered merchandise subject to an allegation was entered through evasion”, the agency can take interim action, including the suspension of liquidation of entries, and the imposition of single bonding or cash deposit requirements.

EAPA authorizes CBP to investigate allegations of dumping evasion by any means possible, including the issuance of questionnaires to importers, foreign manufacturers and exporters, and to draw “adverse inferences” if any of those parties are deemed not to be complying with the requests to the best of their abilities. 

Investigations will be carried out by CBP’s new Trade Remedy Law Enforcement Directorate (TRLED).

Key dates in an EAPA proceeding are as follows:



Potential Remedies


Initiation of investigation (15 business days after acceptance of request for determination


Preliminary determination of whether a "reasonable suspicion" exists that merchandise was entered through evasion

Suspension/extension of liquidation of entries; single entry bonding and/or cash deposits of estimated AD/CVD required


Notification of preliminary determination to interested parties

300 (360 in extraordinarily complicated cases)

Final determination of whether “substantial evidence” exists that covered merchandise was entered into United States through evasion

Suspension/extension of liquidation of entries; notification to Commerce Department; single entry bond or cash deposit requirements; possible referral for 19 USC §1592 investigation, referral to ICE for civil, criminal investigations

330 (390 in extraordinarily complicated cases)

Interested party that sought investigation or subject of investigation may seek de novo administrative review of determination

390 (420 in extraordinarily complicated cases)

CBP must issue final determination of de novo administrative review

Final determination in EAPA investigation

420 (450 in extraordinarily complicated cases)

Deadline for seeking review of final determination in United States Court of International Trade

CIT procedures for initiation of suit still being developed.

Summary of the EAPA Regulations

Who Can File an EAPA Request for Investigation?

The regulations define the various “interested parties” who may submit a request for investigation [19 C.F.R. §165.1]:

    (1) A foreign manufacturer, producer, or exporter, or any importer (not limited to importers of record and including the party against whom the allegation is brought), of covered merchandise or a trade or business association a majority of the members of which are producers, exporters, or importers of such merchandise;

    (2) A manufacturer, producer, or wholesaler in the United States of a domestic like product;

    (3) A certified union or recognized union or group of workers that is representative of an industry engaged in the manufacture, production, or wholesale in the United States of a domestic like product;

    (4) A trade or business association a majority of the members of which manufacture,produce, or wholesale a domestic like product in the United States;

    (5) An association a majority of the members of which is composed of interested parties described in paragraphs (2), (3), and (4) of this definition with respect to a domestic like product;


    (6) If the covered merchandise is a processed agricultural product, as defined in 19 U.S.C. 1677(4)(E), a coalition or trade association that is representative of any of the following: processors; processors and producers; or processors and growers.

The definition of “interested party” is broader than that used in the antidumping and countervailing duty statutes, and includes competing importers.

Petitions may be filed by a principal of an interested party, or by an attorney at law engaged to act for the party. Petitions may also be filed by non-attorney agents of an interested party, provided such agents are appointed through a Power of Attorney. The POA may either give the agent power to file, sign and submit the request for investigation, or grant the agent unlimited authority [19 C.F.R. §165.3]

What Entries are Subject to a Request for Investigation?

A request for investigation must cover Customs entries made within one year prior to the date a request for investigation is submitted. [19 C.F.R. §165.2]. The purpose of the “one year” requirement is to ensure that allegations are not stale, and involve current entries on which CBP may act. However, Customs reserves the authority to investigate other entries, and Section 592 of the Tariff Act [19 U.S.C. §1592] allows Customs to pursue entries made up to 5 years earlier, in most cases.

Is Confidential Information Protected in an EAPA Investigation?

Interested parties making submissions in connection with EAPA investigations may request confidential treatment for business and proprietary information which, if released, might cause them competitive harm. Submitters are also required to provide public versions or all submissions for the public file. However, certain categories of information may not be designated as confidential, specifically:

    (1) Name of the party to the investigation providing the information and identification of the agent filing on its behalf, if any, and e-mail address for communication and service purposes;

    (2) Specification as to the basis upon which the party making the allegation qualifies as an interested party as defined in § 165.1;

    (3) Name and address of importer against whom the allegation is brought;

    (4) Description of covered merchandise; and

    (5) Applicable AD/CVD orders.

Parties must also submit Certifications that the information they provide in connection with an investigation is true and correct.

Information placed on the investigative record by CBP will either be public data, or if confidential, will be accompanied where possible by a non-confidential summary.

Role of “Adverse Inferences” in EAPA Investigations

An important aspect of EAPA investigations will be “adverse inferences”. Under the interim regulations [19 C.F.R. §165.5] if any party to the investigation – whether the person who filed an allegation, the importer, or the foreign producer or exporter of goods – fails to “cooperate and comply to be best of its ability” with a CBP request for information, such as a questionnaire, CBP may draw an “adverse inference” based on that failure. An adverse inference could, depending on whom it is drawn against, result in a negative determination on an allegation, or the imposition of interim or final remedies against an importer. 

How Are EAPA Allegations Brought?
Interested parties may file allegations of AD/CVD evasion electronically through a portal on CBP’s on-line e-Allegations system, or through any other method designated by CBP. Each allegation must be limited to a single importer, but an interested party may file multiple allegations. Each allegation must contain, at a minimum, the following information:

    (1) Name of the interested party making the allegation and identification of the agent filing on its behalf, if any, and the e-mail address for communication and service purposes;

    (2) An explanation as to how the interested party qualifies as an interested partypursuant to § 165.1;

    (3) Name and address of importer against whom the allegation is brought;

    (4) Description of the covered merchandise;

    (5) Applicable AD/CVD orders; and

    (6) Information reasonably available to the interested party to support its allegation that the importer with respect to whom the allegation is filed is engaged in evasion.

19 C.F.R. §165.11. The submission must be signed and certified. An allegation is considered to be “received” by CBP when the agency provides acknowledgment of receipt of a properly-filed allegation, and assigns a control number to it. CBP has 15 days from receipt and assignment of a number ot decide whether to initiate an investigation under the EAPA. 19 C.F.R. §165.12. 

Multiple allegations against a one or more importers may be consolidated into a single investigation at CBP’s discretion. 19 C.F.R. §165.13. 

Other Federal agencies may also request an investigation be conducted under EAPA by filing with CBP allegations containing substantially identical information. 19 C.F.R. §165.14. 

Initiation of Investigations
CBP will determine whether to initiate an investigation within 15 business days after a properly filed allegation is received, or a request is received from another Federal agency. If CBP lacks information sufficient to determine whether goods in question are covered by an AD/CVD order, it may refer the matter to the Commerce Department for a determation. EAPA investigative time limits are tolled while Commerce makes its determination [19 C.F.R. §§165.15, 165.16.]

CBP will notify interested parties of its decision to initiate an investigation no later than 95 calendar days after the determination is made. 

What Record Will be Maintained in an EAPA Investigation?

CBP will maintain an admistrative record of investigations, and the record will include materials obtained by CBP in the course of its investigation, factual information submitted by interested parties, information resulting from any verification performed by the agency, materials received from other agencies during the investigation, written arguments submitted by interested parties, and summaries of oral discussions with interested parties. [19 C.F.R. §165.21]. 

CBP will complete its investigation within 300 days after initiating it, except in extraordinarily complicated cases where the deadline may be extended by 60 days. Factors included in determining whether an investigation is “extraordinarily complicated” include the number and complexity of the transactions to be investigated, the novelty of the issues presented, and the number of entities to be investigation [19 C.F.R. §165.22]. 

During the course of the investigation, CBP may request information from interested parties, which must be submitted within deadlines set by the agency. If CBP places new factual information on the record after the 200th calendar day following initiation of an investigation interested parties have ten calendar days to provide new rebuttal information.  Voluntary submission of information may be made within the first 200 calendar days of the investigation. 

What Interim Measures May be Imposed?

Within 90 days after initiating an investigation, CBP will take interim measures if there is a “reasonable suspeicion that the importer entered covered merchandise into the Customs terroritory of the United States through evasion”. 19 C.F.R. §165.24. Interim measures may include suspension of liquidation of unliquidated entries, extension of liquidation periods for unliquidated entries, requiring single entry bonds for imports, or requiring cash deposits of estimated antidumping or countervailing duties. Id. 

CBP may, in its discretion, conduct verifications in the United States or abroad of information submitted in the course of an EAPA investigation, and will place the results of the verification on the record. 19 C.F.R. §165.25.

What Rights Do Interested Parties Have to Comment?

Interested parties may submit written arguments to CBP regarding the determination of possible evasion based solely on information already on the administrative record in the proceeding. Other parties may respond. Arguments and responses must be served on all parties to the investigation. 19 C.F.R. §165.26.

How Does CBP Make Final Determintions as to Evasion?

Within 300 days after initiating an investigation (360 days in more complex cases), CBP will make a final determination concerning whether “substantial evidence” shows that covered merchandise was entered into the Customs Territory of the United States by evasion. Notice of the decision and a public version will be circulated within 5 days thereafter.  If the determination is affirmative, the agency can impose remedial measures, or continue interim measures already in effect. If the determination is negative, interim measures will be discontinued. [19 C.F.R. §161.27].

Customs will also notify the Department of Commerce of its determination, and seek information concerning the appropriate antidumping or countervailing duty rates to apply. 19 C.F.R. §161.28.

May Parties Seek Administrative Review of CBP’s Final Determination?

Within 30 business days after issuance of CBP’s evasion determination, interested parties may file a request for CBP review of that decision. The request for review must be based solely upon the facts on record, must contain a statement of reasons why the determination should be reversed or affirmed, must be properly certified, and must be served on other interested parties. CBP will have 60 business days to complete its review, measured from the date a properly submitted request is submitted. 19 C.F.R. §165.41. Interested partied will be permitted to respond to review requests and provide reasons in opposition of the request. 19 C.F.R. §165.42.

Requests for review, and responses thereto, will remain part of the administrative record and cannot be withdrawn. 19 C.F.R. §165.43. CBP may request additional information from the parties during the course of a review, and will render its final determination based on whether substantial evidence on the record supports its determination. 19 C.F.R. §165.45. CBP will take any action consistent with its final determination. 

CBP’s final determination is subject to review in the United States Court of International Trade. 

Regardless of the ourcome of an EAPA proceeding, CBP reserves the right to seek penalties and take other enforcement actions. 19 C.F.R. §161.47.

Additional information and assistance regarding the EAPA is available from our offices. Please contact us at (212) 635-2730 or (202) 861-2959 if you have questions.

Customs Outsmarts Itself – Possibly – In Section 592 Penalty Case

Having sought civil Customs penalties against an importer under Section 592 of the Tariff Act on grounds of fraud, the government could not, in suing to recover those penalties in the United States Court of International Trade, allege in the alternative that the violations occurred by means of gross-negligence or negligence, the Court recently held.  The decision at least raises the possibility that the government may have outsmarted itself in pursuing the penalty.

The defendant in United States v. Toth, Slip Op. 06-61 (June 20, 2016) was charged with evading antidumping duties on imported crawfish tail meat by misclassifying it as langostino. Customs brought administrative proceedings against the defendant and his company under Section 592 of the Tariff Act of 1930, as amended [19 U.S.C. §1592], charging them with evading duties by means of fraud. After administrative proceedings failed to produce a result, the government brought suit to collect the Section 592 penalties, charging fraud, and in the alternative, alleging that the violations occurred by means of gross negligence, or simple negligence.

The defendants moved to dismiss the counts of the complaint claiming gross negligence and negligence, citing the Federal Circuit’s 2015 decision in United States v. Nitek Electronics, Inc. In Nitek, the Federal Circuit ruled, in a surprising but welcome decision for importers, that Customs was limited, in bringing suit, to pursuing penalties for the level of culpability charged administratively. Since the government had charged Toth with fraud administratively, and since Toth’s defense before the agency had been addressed to a fraud charge, Customs was limited to pursuing judicial relief based on the fraud allegations. The agency had not exhausted administrative remedies as to gross negligence or negligence claims.

The Court’s ruling in the Toth case left the government with a heavy burden to meet in order to collect a penalty.

Section 592 of the Tariff Act provides for the imposition of civil penalties on persons who, by means of fraud, gross negligence or negligence, enter or attempt to enter merchandise into the United States by means of false and material statements or acts, or by means of material omissions. The maximum penalty depends on the loss of revenue and the level of culpability. In cases of simple negligence, the maximum penalty is twice the loss of revenue; in gross negligence cases, four times the loss of revenue; and in cases of fraud, an amount equal to the domestic value of the merchandise concerned. In no case, however, may a Section 592 civil penalty exceed the domestic value of the merchandise.

In cases to collect a Section 592 penalty, the Court of International Trade does not simply enforce the agency’s claim. Instead, it makes findings de novo, on the basis of the record before the court, concerning whether the violation and claimed level of culpability has been proven, and what, if anything, the amount of the penalty should be.

In addition to a sliding scale of penalties, Section 592 also provides different allocations of the burden of proof in CIT cases to collect a penalty. Where simple negligence is alleged, the government need only establish the facts claimed to constitute the violation; the burden rests on the person charged to show that the violation did not result from negligence – a failure to use the level of care expected of a reasonably prudent person.  In cases claiming gross negligence – a “wanton disregard” for one’s obligations under the Customs laws – the government has the burden of proving the violation, and the gross negligence by a preponderance of the evidence.

Fraud cases confront the government with the most difficult road to secure a penalty. Fraud claims must generally be pleaded “with particularity”, and the government bears the burden of proving the fraud through “clear and convincing evidence”.

Following the CIT’s Toth decision, the government now faces the hefty burden of pleading and proving fraud. It runs the risk that, if the evidence only shows a grossly negligent violation, it will walk away empty-handed. It might be unable to recover any penalties, nor establish the predicate for forcing to importer to repay any “withheld duties”.

Typically, the government’s motivation for charging fraud is to seek a higher penalty, especially in cases where the conduct is egregious, or undermines an important trade policy, such as enforcement of antidumping orders. But the “greater culpability = higher penalty” rationale does not always hold true in cases involving antidumping duties, which are frequently set at 100% ad valorem or higher.  When a duty rate is 100%, for example, the greatest penalty which could be collected under Section 592 is one time the loss of revenue – less than the maximum penalty for cases arising out of simple negligence.  So charging a greater level of culpability in such cases would not bring the government a higher penalty.

The government might therefore have outsmarted itself in the Toth case – charging a higher level of culpability and assuming a greater burden of proof than it might have needed to in order to secure the maximum penalty and recovery of withheld duties.

Perhaps the government will carry the day with its fraud charge in the Toth case. Had the government merely charged simple negligence, they might have been exposed to a defense of “it wasn’t negligence, it was intentional fraud”, but this seems unlikely. But facing a higher burden of proof – and with a claim of misclassification, which is often a matter of negligence – the government has exposed itself to the possibility that the defendant in Toth might walk away scot-free.

Apparently realizing this possibility, the government asked the Court to remand the Toth case to Customs, presumably so the agency could conduct administrative proceedings to charge a penalty at a lesser level of negligence or gross negligence. Saying the request “showed great chutzpah”, the court denied the request, pointing out that there was no final agency decision respecting negligence to remand.

Before the Federal Circuit’s Nitek decision, the government assumed it could sue for penalties, asserting the different levels of culpability in the alternative. That is no longer the case, and as a consequence, the stakes for the government to charge a violator carefully have increased dramatically.


Negotiators Agree on Trans-Pacific Partnership (TPP Agreement)

This week in Atlanta, the United States and 11 of its trading partners around the Pacific Rim – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam – announced that they had reached agreement on the Trans-Pacific Partnership (TPP), a plurilateral agreement which, if adopted, will eliminate tariffs and service trade barriers in trade between nations accounting for as much as 40% of the world’s economic output.

There is much work to do before TPP actually becomes law. The United States will need to have Congress adopt implementing legislation, which promises a bruising political battle, and the other member countries will need to ratify the agreement as well. A Congressional vote on TPP will not occur until 2016, and implementation in 2017 appears realistic.

The text of the Agreement will not be available for several weeks, and its negotiation was accompanied by unusual (and controversial) secrecy. There are a few things we do know about the deal, however, as it applies to trade in goods.


When will we see the text of the Agreement?

President Obama has indicated that the text of the TPP will remain confidential for at least 30 days after it is presented to Congress, so that “corrections” can be made. The text of the agreement must be available to the public for at least 60 days before Congress is allowed to vote on it.  Members of Congress have indicated that the most recent version of TPP they have seen is dated, and the final text probably differs greatly.


What rules of origin will be used to qualify goods for duty-free treatment?

TPP will include a uniform set of rules of origin, which will be based on “tariff-shift” principles. In addition, some goods will be subject to a “regional value content” requirement, based on the “build down” method of appraisement.

There was considerable debate concerning preference rules of origin for textile and apparel products, with a “yarn forward” rule of origin ultimately being selected. [Vietnam had pressed for a “fabric forward” rule, but was rebuffed].

Reportedly, the parties have agreed on a rule of origin for automobiles which will include a 45% regional value content requirement – less than the 62.5% requirement currently provided in NAFTA. Japan had argued for a more liberal rule of origin, so it can continue to source parts from China and other non-agreement countries in its supply chain.


How will origin claims be verified?

Certifications of “originating” status will be accepted not only from exporters (as is the case with NAFTA), but also from producers and importers of goods. Origin claims will be subject to verification by governments of the exporting and importing companies?


What is the schedule for tariff eliminations?

Duties will likely be eliminated immediately, in the case of countries with which the United States already has a free trade agreement. Schedules for other duty eliminations remain to be determined. It is likely that some tariffs for sensitive goods (rice and beef imported into Japan, dairy and poultry goods imported into Canada) will be eliminated more slowly. In some cases, duty-free access will be quota-limited. Canadian officials have indicated, for example, that the TPP gives foreign countries access to 3.25% of its dairy market and 2.1% of its poultry market.


What’s going to happen to NAFTA?         

If TPP is ratified and adopted, it will replace NAFTA. While broadly based on NAFTA, the TPP is likely to be different in many respects. For instance, we can expect the controversial “NAFTA Marking Rules”, which apply for non-preferential purposes, to become a thing of the past. Hopefully, some of the restrictions on duty drawback imposed under NAFTA, which have hurt American importers, will be eliminated.

We can also expect TPP to replace a number of United States FTAs currently in effect with other TPP countries, including the agreements with Australia, Chile, New Zealand, Peru, and Singapore.


Will TPP affect government procurement rules?

According to the United States Trade Representative (USTR), the answer is no. The United States will continue to handle government procurement issues using the rules of the World Trade Organization (WTO) Agreement on Government Procurement. Eight of the other signatories to TPP are members of the procurement agreement as well.


What’s NOT in TPP?

While some legislators wanted rules on currency manipulation, these are not a feature of the TPP.  In addition, while the Agreement contains an investor-state dispute settlement (ISDS) mechanism, there will be a “tobacco carve out” to prevent tobacco companies from using it to sue governments over tobacco policy, as has occurred with a number of other trade agreements.


What has to be done to implement TPP in the United States?

TPP is a trade agreement, not a treaty, so it does not become law upon adoption or ratification. Congress will need to enact implementing legislation to reflect TPP’s provisions in United States law. Because the President has been granted “fast track” trade negotiating authority, Congress must approve or disapprove the TPP package, but cannot make changes to it.

Once implementing legislation is done, Customs and other agencies will need to draft implementing regulations.

This information is necessarily preliminary, but TPP will make for a very busy 2016 in the Customs and trade field.