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          Congress recently and quietly repealed the “consumptive demand exception” to the ban on importation of goods make with forced, child or indentured labor set out in Section 307 of the Tariff Act of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. 


Last year, U.S. Customs and Border Protection (CBP) caused quite a stir when it proposed amendments to Form 5106, the basic form typically filed by a Customhouse broker to provide basic information concerning an importer of record – name and address, type of entity and taxpayer ID/importer number. Stung by a number of identity thefts perpetrated with the use of CBP’s Automated Commercial System (ACS), CBP proposed a huge expansion of the information gathered on the CF 5106, requesting the names and titles of individuals within the company with knowledge of the company’s import operations and financial dealings – as well as these persons’ Social Security numbers or passport information.

Members of the trade community filed more than a score of comments with CBP, making it perfectly clear that under no circumstances did they want their individual identification information loaded into CBP’s notoriously insecure ACS system.

Now, CBP is back with another alteration of CF 5106, and is seeking public comments through August 27, 2015. But the proposed form still raises significant questions and problems.

Under the proposal, Customs Form 5106, would be renamed the Create/Update Importer Identity Form, and would still require greatly expanded information concerning importers, particularly corporate ones. The form still has a place for individuals Social Security Numbers or passport data, but Customs now says that providing this information is optional. But the importer would still need to provide the names of officers or employees having “importing and financial business knowledge of the company”.

The form 5106 would be required to be signed with a certification of accuracy, and an acknowledgment that submission of false information can subject the company to a felony under 28 U.S.C. §1001 for providing false statements to a government officials.

The requirement that an importer identify “officers” having “importing and financial business knowledge” of corporate operations is both vague and overbroad, because of the coupling of “importing” and “financial business” knowledge. In a large corporation, it is possible that an officer of the company may have a tangential knowledge of importing operations, but not an in-depth knowledge. At the same time, the officer may have extensive knowledge of the financial and business structure of the company. Linking “importing and financial business knowledge” together in this way is problematic.

Secondly, the document is required to be signed with a certification of truth, and that if the information is not accurate, the company could be liable for a felony under 28 U.S.C. §1001 (providing false statements to a government officer). There is clearly the concern that, if names of company officials are provided in the CF 5106 under the terms currently provided, they would become immediate “targets” in any Customs investigation of import violations, and could be used by Customs as leverage against the company.

Suppose, for example, an official says that he or she has knowledge of the “importing and financial business” of a company.  Assume, further that one afternoon, a Customs official stopped by to quiz this person on a particular Customs issue the importer is being investigated for. If the official says (honestly) “I have no idea what you’re talking about”, would  Customs take this as evidence that the importer made a false statement when it signed the CF 5106 and claimed the person had knowledge?  The proposed terms of the certification language are simply too broad for comfort.

It also seems likely that any individuals identified in the proposed form would be subject to interviews, depositions and potentially to liability in the event Customs investigates or even audits the importer.

Of course, in a dynamic company, as people change positions, the importer would be compelled to update the CF 5106 form more frequently than it does today.

Other questions on the proposed CF 5106 also appear to be unnecessary. This includes, for example, the requirement to provide “principal banking information”(Box 3G). Since Customs does not have a statutory lien on the company’s assets, there is no need for divulging the location of financial assets. Similar, information concerning articles of incorporation (Boxes 3H and 3I) are readily searchable public records.

The requirement for an entry self--filer to furnish its filer code (Box 3D) could be confusing if a company will both self-file and file under various broker codes. The requirement that the filer provide information regarding “related businesses” (Box 3F) would be incredibly unwieldy for many large, publicly-traded companies,  which may have hundreds of related entities, many of which may themselves file CF 5106, and would have to repeat the same information.

Customs is accepting public comments through August 26, 2015. We would be happy to prepare comments on behalf of interested parties. 

Update to Retroactive Renewal of the Generalized System of Preferences (GSP)

Effective July 29, 2015, Congress and President Obama reinstated the Generalized System of Preferences (GSP), which provides duty-free treatment for selected goods from “beneficiary developing countries.” 

H.R. 1295, The Trade Preferences Extension Act of 2015 (“the Act”), was introduced in the House on March 14, 2015, and extends the GSP, the African Growth and Opportunity Act (AGOA) and duty preferences for Haiti. The Act states that notwithstanding section 1514 (19 U.S.C. 1514) or any other provision of law, any entry of a covered article eligible for preferential treatment under title V of the Trade Act of 1974 that was made after July 31, 2013 and before the effective date of the Act which is July 29, 2015, shall be liquidated or reliquidated as though such entry occurred on the effective date of the Act.

The Act, as passed and signed by the President, reinstates GSP through December 31, 2017. U.S. Customs and Border Protection has recently provided for an application and automation process for retroactive renewal of GSP.  If an ABI entry summary was filed with payment of estimated duties using the Special Program Indicator (SPI) for GSP (with the letter "A," "A+," or "A*") as a prefix to the tariff number, no further action by the filer is required; filings with the SPI "A," "A+," or "A*" will be treated as confirming requests for refunds. If an ABI entry summary was filed with payment of estimated duties without the use of the SPI "A," "A+," or "A*" as a prefix to the tariff number, a refund of duties deposited must be requested in writing as described below for non-ABI entry summaries.

Non-ABI filers must request a refund in writing from the Port Director at the port of entry by December 28, 2015, regardless if they previously designated a refund on the Customs Form 7501 by using the SPI "A," "A+," or "A*" code. The request may cover either single entry summaries or all entry summaries filed by an individual filer at a single port. To expedite refunds, CBP recommends the following information be included in each letter:

1.     A statement requesting a refund, as provided by section 201 of Title II of the Trade Preferences Extension Act of 2015;

2.     An enumeration of the entry numbers and line items for which refunds are requested; and

3.     The amount requested to be refunded for each line item and the total amount owed (not including interest) for all entry summaries.

Customs also noted that GSP reauthorization provides retroactive benefits only to goods from a country that is a beneficiary of the GSP program as of July 29, 2015. Retroactive application of GSP does not apply to countries such as Bangladesh and Russia that lost eligibility between July 31, 2013 and July 29, 2015.

We recommend that your company identify any records which might be necessary for Customs to locate or reconstruct subject entries so that retroactive refunds can be claimed at once through a letter application if needed.  NPLLP would be happy to make these applications on your company’s behalf.

Please do not hesitate to contact us if you have any questions.



The CIT’s latest penalty decision is another headscratcher.

Call it the Mystery of the Missing Legal Doctrine – a whodunit worthy of Sherlock Holmes and John Watson.  And we’re talking the contemporary Benedict Cumberbatch/Martin Freeman Holmes and Watson. This missing doctrine was in plain sight during the time of Conan Doyle’s Victorian Holmes, and even when Basil Rathbone portrayed the great detective on film during the 1940s. But the doctrine – still on the legal books, basically unchanged in 2015 – seems to be disappearing in 2015.

One can almost hear the sleuths discussing it as Holmes reads the letter he’s received from his American correspondent:

“A missing legal doctrine, Sherlock?” Watson inquires, looking over his colleague’s shoulder at the email scrolling down the screen. “Surely something esoteric that’s maybe just hard to discern?”

“Elementary, John!” Holmes responds. “Perhaps the most elementary rule in American customs law, the one that affords importers the most protection from arbitrary government actions – the rule of finality of liquidation of entries! And it appears to have vanished!”

[Cue intro music and credits; the scene moves to the sandwich shop next to 221B Baker Street, while Holmes pores over a printout].

"It’s all here, John – Customs has one year to liquidate an entry of merchandise, making its final determination as to classification, rate and amount of duty. Once the entry is liquidated, it’s final as to both Customs and the importer. Unless, that is, Customs reliquidates the entry within 90 days, or the importer files a protest within 180 days.”

“No exceptions, then?”

"Just one. Section 592(d) of the Tariff Act says that if revenue was lost by means of a false and material statement or document, or by means of a material omission – which resulted from negligence, gross negligence or fraud – Customs can recoup “withheld duties” going back up to five years. But first Customs has to prove a violation of law, of Section 592(a) of the Tariff Act, occurred.”

"Sounds easy enough to remember. What’s the problem?”

“Well, John, liquidation of an entry is perhaps the most important action an American Customs officer can perform. Back about 25 years ago, however, U.S. Customs decided they were too busy to keep up with all their workload, so they decided to put most liquidations on “bypass” – meaning that most entries liquidated the way the importer presented them, without Customs actually looking at them.”

”Sounds daft!”

“Indeed. Customs decided they’d enforce the law through post-liquidation audits. Customs auditors would find errors in classification or appraisement, and tally up the amount owed.  But the auditors’ grins would turn to frowns when importers reminded them that, without a violation of Section 592, the duties claimed in respect of liquidated entries simply weren’t owed. Customs had changed the way it worked, but the law hadn’t changed. If Customs couldn’t make up a penalty claim, they were out of luck on collecting the duties. “

“Well, Sherlock, negligence doesn’t sound so hard to prove.”

“True enough, but the Customs Modernization Act indicates that if an importer can show it exercised “reasonable care” in making entry, that’s a defense to a penalty claim.”

“So when did the doctrine go missing?”

“It all seems to have come to a head Friday, June 24, 2015, at the Court of International Trade in New York City.”

[Cue flashback sequence; Holmes voiceover].

“The case of United States v. Horizon Products International Inc. was before the Bailey. Horizon had imported hardwood flooring. Some of the flooring had an outer layer which qualified it for duty free treatment. Most of the flooring, however, had an outer layer which attracted an 8% duty rate. Horizon and its Customhouse broker had entered all of the goods under the duty free provision.

“Customs timely liquidated some of the entries with a duty increase, which Horizon paid. But the agency then billed Horizon for a substantial amount of duty in respect of entries that had already been liquidated and made final, and demanded Section 592 penalties as well. Horizon declined to pay those. The case proceeded to Court, the government bringing suit for penalties and withheld duties.

“The government charged Horizon with negligence. But the company contested that, claiming that it had exercised ‘reasonable care’ by relying on the classification advice of a Customhouse broker. The government demanded summary judgment, but Judge Leo Gordon said no, there were triable issues of material facts concerning whether Horizon had been negligent. He bound the case over for trial, saying –

[Guest star Jeremy Irons voicing Judge Leo Gordon]:

“The Government would like the court to infer that all the responsibility for the erroneous entries rests on the shoulders of Horizon, but the court could just as easily infer that the customs broker shares a portion (if not all) of the responsibility. Customs brokers, after all, have statutory and regulatory responsibilities to classify merchandise correctly. E.g., 19 C.F.R. § 111.29 (requiring customs brokers to “exercise due diligence . . . in preparing or assisting in the preparation and filing of records relating to any customs business matter”); see also 19 C.F.R. § 152.11 (“Merchandise shall be classified in accordance with the [HTSUS] . . . .”); 19 U.S.C. § 1641(d) (allowing Customs to penalize a broker who “has violated any provision of any law enforced by [Customs] or the rules or regulations issued under any such provision”); United States v. Santos, 36 CIT ___, ___, 883 F. Supp. 2d 1322, 1327-30 (2012) (sustaining as reasonable a § 1641 penalty on a motion for default judgment against broker who allegedly misclassified imported goods).

“Drawing all reasonable inferences in Horizon’s favor, the court determines that genuine issues remain about whether Horizon exercised reasonable care in making its entries. Accordingly, the Government’s request for summary judgment on this issue is denied.”

 “Well, Sherlock” Watson interjected, “it would appear that the judge made the correct decision. If there are questions about whether Horizon was negligent – or its broker – then trial would appear to be appropriate!”

“True, Watson – except for what went before.”

 “What’s that?!”

 "The judge granted summary judgment against Horizon for the duties!”

 [Again, Jeremy Irons, voicing Judge Gordon]:        

"Horizon concedes that it misclassified the entries at issue in this action and that it is therefore liable to the Government for $70,254 in unpaid duties. Def.’s Resp. at 16; 19 U.S.C. § 1592(d) (“[I]f the United States has been deprived of lawful duties, taxes, or fees as a result of a violation of [§ 1592(a)], the Customs Service shall require that such lawful duties, taxes, and fees be restored, whether or not a monetary penalty is assessed.”). Accordingly, the court will order Horizon to pay the Government $70,254 in unpaid duties.”


[Holmes and Watson, back at the Baker Street flat]:

 “You see the problem, Watson?”

 “I’m not sure, Sherlock.”

“Horizon had not admitted to negligence, and thus had not admitted to a violation of Section 592 of the Tariff Act! The Court is going to hold a trial to determine if Horizon was negligent. Yet, the Court has already held Horizon liable for the duties!"

“But the duties are only recoverable if the United States was deprived of them as a result of a violation of §1592(a), and the Court has not yet decided whether there was a violation of that statute, or who, if anyone, was the violator! It’s going to hold a trial on that issue!”

 “But Sherlock, the Court said that Horizon had conceded that it was liable to the Government for unpaid duties . . .   .”

“No, Watson, Horizon conceded that the goods were misclassified, not that it had violated Section 592 of the Tariff Act – that remains to be seen, as the Court itself admits! The finding that the duties were owing was the Court’s!”

“But Sherlock, what if the Court holds a trial and finds that Horizon did exercise “reasonable care” – then there would be no basis to find a violation by Horizon!”

“And therefore no basis to collect the withheld duties! Exactly, John!”

“So the doctrine of finality of liquidation – “

"Seems to have vanished, John! Vanished in that courthouse on July 24, 2015! The Court seems to have uncoupled Customs’ ability to overcome finality of liquidation from the requirement to prove a violation of Section 592(a)!”

[Mrs. Stubbs, Holmes’ landlady, appears at the doorway with a serving of tea]

“I’m told you boys are wrestling with the disappearance of an American legal doctrine! I thought you might want some tea!”

“Thank you, Mrs. Stubbs” says Sherlock. “Very thoughtful!”

“Why don’t the Americans just take it up with their courts, then? Why call in British detectives?!”

“That’s the problem. It appears the Americans’ courts are complicit in the disappearance!”

[Closing credits. Resolving this disappearance must wait for another day, and perhaps another court. But importers across the United States should be very worried.]


Recent court decisions have made an already scary importing environment even scarier. Companies may be well-advised to consider protecting their import personnel.

Your company’s long-serving import manager edges nervously into your office with an unusual request; she would like the company to provide her with an indemnity and hold harmless agreement. She also wants the company to agree to pay for her legal fees to defend Customs penalty claims.

“Is there a specific problem you’re concerned with?” you ask.

“No, I just don’t want to be held liable for penalties or Customs duties that might arise if the company is found to be negligent in importing.”

“Why would that happen?” you ask. “The corporation is the importer of record, wouldn’t Customs look to the company to pay duties and penalties?”

Well, yes. But that might not be the end of the story.  By law, Customs duties are the personal debt of the “importer of record” of imported merchandise, who must be the “owner” or “purchaser” of the goods. In virtually all commercial transactions, the importer of record is a corporation. Moreover, the importer of record is tasked with the legal duty to exercise “reasonable care” to ensure that information  appearing on Customs entries is not only factually accurate, but legally correct as well. Indeed, your corporation probably hired its import manager as part of its effort to exercise “reasonable care”, and protect the company from penalty and duty liability.

So why does your import manager need a personal indemnity when she only works on corporate transactions? The answer lies in a recent, controversial decision of the United States Court of Appeals for the Federal Circuit – one which the U.S. Supreme Court recently declined to review.


The Trek Leather/Shadadpuri Case – Expanding Liability for Civil Customs Penalties

The controversial en banc decision of the Federal Circuit in United States v. Trek Leather, Inc., held that employees and officers of corporate importer may be held liable, either individually or “jointly and severally” with their corporate employers, for penalties arising under Section 592 of the Tariff Act of 1930 [19 U.S.C. §1592] resulting from corporate negligence or gross negligence in importing transactions. No intent is required on the part of the employee or the corporation. Nor, the Federal Circuit held, was there any need to “pierce the corporate veil” before proceeding against the individual.

Since Customs penalties under Section 592 are among the harshest provided in American law – with penalties being set at multiples of the duties allegedly withheld from the government or even the value of the merchandise itself – the Trek Leather case has been keeping import managers awake at night for some time now.

Trek Leather could be the poster child for the old saying “bad facts make made law”.  It started simply enough, as an undeclared “assists” case, before metamorphosing into a procedural mess. Trek Leather, a New York corporation, ordered mens’ suits from a foreign manufacturer. It provided the manufacture, free of charge, with the fabric used to make the suits. By law, the value of the fabric “assist” thus provided was required to be included in the dutiable value of the imported suits. Trek failed to do this, declaring to Customs only the charges shown on the “cut, make & trim” (CMT) invoice from the manufacturer, thereby understating the amount of duties owed to the government.

Customs charged both Trek Leather and its President, Harish Shadadpuri, with violating Section 592 of the Tariff Act by entering goods by means of false statements or material omissions. The defendants were charged with violating the law, in the alternative, by negligence, gross negligence and intentional fraud. Before the Court of International Trade, Trek Leather agreed to be held liable for gross negligence; Shadadpuri did not. The Court, however, held both company and individual liable “jointly and severally” for hundreds of thousands of dollars in gross negligence penalties.

Shadapuri appealed, arguing that since Trek Leather was the corporate importer, the government could not hold him liable as an owner of officer without first “piercing the corporate veil”, which the CIT had not done. A divided 2-1 panel of the Federal Circuit agreed, dismissing the charges against Shadapuri.

Not so fast, said the full Federal Circuit. The Court vacated the panel’s decision, and indicated that it would hear the appeal en banc (with all active Circuit judges participating), without a hearing.  The court solicited briefs on three issues – none of which, as it turned out, featured at all ‘’ in the decision the en banc court finally issued.

In its en banc decision, the Federal Circuit artfully ducked the issues of “piercing the corporate veil”,by deciding the case on a basis nobody had suggested or argued.  It held that, while Trek Leather had “entered” the goods by means of false statements or material omissions, Shadadpuri was separately and individually liable for “introducing” the merchandise by means of false statements. The act constituting the unlawful “introduction”? He had provided Trek’s Customhouse broker with the negligently incomplete invoices.

Therein lies the reason for your import manager’s concern. “I provide documents to our Customs broker ever day”, she is probably thinking. It is not unusual for Section 592 penalties to total hundreds of thousands or millions of dollars for a single violation. “If I provide an invoice that’s incorrect or incomplete – unintentionally – could I be held personally liable for penalties and duties on the company’s imports?”

According to the Federal Circuit, the answer is “yes”. And since was decided, the government has filed at least one penalty suit against a corporate importer, indicating that, while it investigated two of the company’s officers, it is – for now – electing not to name them as defendants, but reserves the right to do so.

Setting aside the questionable wisdom of holding corporate employees individually liable for negligence committed in a corporate tax return (Customs entry) filed by the corporation and involving corporate property, the Trek Leather/Shadadpuri decision puts both corporations and employees in a difficult position. A corporate import manager or Customs compliance director knows all the strengths and weaknesses of a company’s import activities. It is not difficult to imagine a situation where the government might use the thread of a personal assessment against a corporate employee as an incentive for the employee to testify against its employer. An employee who is uncertain whether the corporation will support her, financially and otherwise, might be more tempted to testify against her employer.


The Explosion in Customs-Related Whistleblower Litigation

Another trend which makes the world of importing a scary place is the dramatic increase in “whistleblower” litigation involving Customs and trade issues. Corporate insiders and outsiders have been filing qui tam cases under the “reverse false claims” provisions of the Federal False Claims Act, charging companies with evading Customs duties – both ordinary and special (antidumping and countervailing) duties.

In some cases, the claims are filed by competitors – for example a claim against Toyo Ink Corporation, alleging that the company had evaded antidumping duties on imports of a dye chemical, resulted in a $45 million settlement – with over $7 million of that recovery going to the whistleblower. In other cases, corporate insiders have initiated these cases. For example, in 2014, the former import manager of Colorado-based Otter Products LLC., upset that the company refused to disclose to Customs some dutiable “assists”, initiated a whistleblower case that the company settled for approximately $4 million. In another recent case, a company called Customs Fraud Investigations, Inc. – apparently formed solely to hunt out Customs violations – failed in an effort to have Victaulic, Inc., penalized for the alleged failure to mark imported pipe fittings. But no doubt, the importer’s costs of defending the case were substantial.

Customs-related whistleblower cases will not stop soon. Virtually every industry which has petitioned for the imposition of antidumping or countervailing duty duties has a heartfelt belief that Customs is not collecting the proper amount of such duties. Many domestic companies believe that their importing competitors are evading duties or engaged in other unlawful actions. Whistleblower suits have been filed, all under seal, at least initially. The government has the choice to prosecute each case itself, or to decline to take the case, and let the relator unseal its complaint and prosecute the case itself. In either case, the relator – the whistleblower – receives a share of any amounts recovered.

This brings us back to your corporate import manager or Customs compliance director, who needs to operate in this strange and scary new environment. He or she is privy to all of the company’s Customs and trade secrets and risks, and now has reason to be concerned about personal liability for corporate Customs penalties. If the employee has the benefit of a corporate indemnity, he or she is less likely to be subject to Customs threats. And he or she is less likely to become the whistleblower many companies fear.


Elements of an Indemnity Agreement

Importing companies who elect to provide key employees with indemnity against Section 592 penalties and withheld duty claims will need to give careful consideration to the terms of any such indemnity. Will it cover only penalties and duties, or will it cover the employee’s legal costs? The possibility of “joint and several” liability places companies and their importing employees in a position of potential conflict of interest should Customs initiate a Section 592 investigation. What duties of cooperation will be placed on the employee? If the corporation is found guilty of an intentional violation of Section 592, will it cover the employee if the employee is found to have “aided and abetted” such violation?  [In light of the Trek Leather decision, there would seem little need for Customs to pursue “aiding and abetting” claims if it can hold employees directly liable for violating the “introduction” provisions of Section 592].

An indemnity must also be structured in such a way that the corporation retains the right to terminate the employee if she is not performing her duties correctly. A corporation can only act through its agents and employees, and there will certainly be cases where a claim that Section 592 was violated by means of negligence or gross negligence will be based on improper or incorrect behavior by particular corporate employees.

Some in-house Customs compliance employees are also licensed Customhouse brokers. Where the conduct of these employees come under scrutiny, there may be additional concerns that Customs will take action to suspend or revoke the employee’s license – another issue which indemnity agreements need to address.

And of course, a corporation’s retained outside Customs brokers also have a duty to exercise “reasonable care” with respect to a client’s imports. Brokers submit corporate documents to Customs all the time, without being able to verify the accuracy of the documents beforehand. They are just as subject to a Section 592 assessment as is the importer or the importer’s in-house import manager. Brokers using the National Customs Brokers and Forwarders Association of America (NCBFAA) standard terms and conditions of service have already placed indemnity clauses in their contracts.

Customs officials may publicly promise restraint in bringing Section 592 cases against corporate employees or agents, but they are better judged by the statements the agency made to the courts in the Trek Leather/Shadapuri litigation, where the agency took the position that individual liability is direct, not subject to corporate veil-piercing and absolute.

Corporate employees working in import operations are increasingly subject to external pressures and liability concerns. Their employers ignore these conditions at their peril. The next few years are likely to see a significant redefinition of employer-employee and principal-agent relations in these circumstances.  

Retroactive Renewal of the Generalized System of Preferences (GSP)

On June 29, 2015, Congress and President Obama reinstated the Generalized System of Preferences (GSP), which provides duty-free treatment for selected goods from “beneficiary developing countries.”  The GSP had previously expired on July 31, 2013.

The new legislation provides for retroactive refunds of duties paid on GSP-eligible goods for the two years the program had lapsed.  

H.R. 1295, the Trade Preferences Extension Act of 2015 (“the Act”), renews GSP through December 31, 2017 and also extends the African Growth and Opportunity Act (AGOA) and duty preferences for Haiti[1].

Retroactive Refund Provisions

The Act states that notwithstanding section 1514 (19 U.S.C. 1514) or any other provision of law, any entry of a covered article eligible for preferential treatment under title V of the Trade Act of 1974 that was made after July 31, 2013 and before the effective date of the Act which is July 29, 2015, shall be liquidated or reliquidated as though such entry occurred on the effective date of the Act. The enactment date for purposes of the Act is June 29, 2015 and the effective date is 30 days after which is July 29, 2015[2]

Section 201(b)(B) of the act indicates that  a specific written request must be made for retroactive GSP refunds within 180 days after the effective date of the act, i.e., on or before December 26, 2015.  The request must contain sufficient information to enable Customs –

(i)              To locate the entry; or

(ii)            To reconstruct the entry if it cannot be located.

As of this date, Customs has not issued a directive or procedure for making such refund claims. In previous administrative messages, (CSMS 14-326 and 14-286)  Customs has indicated that importers could continue to use Special Program Indicator (SPI) “A” to claim GSP on their entries,  so that in the event of a retroactive renewal, CBP could process refunds automatically.  However, it is not yet known what procedure will be used for refund claims.  We will alert clients when the new procedure is known.

The law provides that refunds of duty deposits will be paid, without interest, within 90 days after liquidation or reliquidation of GSP-eligible entries, so an entry-by-entry liquidation or reliquidation scheme is clearly contemplated.

Amendments to GSP

The Acts also  amends GSP to allow the designation of certain cotton articles as eligible articles, but only if made in “least developed developing countries” (LDDCs). The affected provisions are HTSUS Subheadings 5201.00.18, 5201.00.28, 5201.00.38, 5202.99.30, or 5203.00.30, as GSP eligible, but only if made in “least developed developing countries” (LDDCs). 

Moreover, the law authorizes the President to designate certain luggage and travel articles as GSP-eligible, specifically items classified under HTSUS Subheadings 4202.11.00, 4202.12.40, 4202.21.60, 4202.21.90, 4202.22.15, 4202.22.45, 4202.31.60, 4202.32.40, 4202.32.80, 4202.92.15, 4202.92.20, 4202.92.45, or 4202.99.90, and articles classifiable under statistical reporting number 4202.12.2020, 4202.12.2050, 4202.12.8030, 4202.12.8070, 4202.22.8050, 4202.32.9550, 4202.32.9560, 4202.91.0030, 4202.91.0090, 4202.92.3020, 4202.92.3031, 4202.92.3091, 4202.92.9026, or 4202.92.9060. As of this writing, no such designations have been made.

GSP Reviews

As a consequence of reinstatement of the GSP, the United States Trade Representative (USTR) will need to undertake an expedited review of “competitive need limitation” removals and waivers for the GSP, with results due by October 1, 2015. The competitive need limit provides for articles to lose GSP eligibility when certain import volumes are reached. The President has power to waive these limitations, and allow products to continue as GSP eligible, under certain conditions.

USTR will also undertake its statutory annual review of GSP, accepting petitions to designate new articles as eligible, or remove articles from eligibility. The final results of this review will be due on July 1, 2016.


Pending receipt of Customs’ instructions on how retroactive refunds should be applied for, companies  will want to identify any records which might be necessary for Customs to locate or reconstruct subject entries so that retroactive refunds can be claimed once the GSP re-authorization takes effect.  Our firm will be happy to make these applications on your company’s behalf.

Please do not hesitate to contact us if you have any questions.


[1] The law also reauthorizes Trade Adjustment Assistance programs, and makes technical changes to the antidumping and countervailing duty laws.

[2] This means that Customs will not accept duty free entries for GSP-eligible items until July 29, 2015. 

Possible Retroactive Renewal of the Generalized System of Preferences (GSP)

After a nearly two-year hiatus, Congress appears ready to reinstate the Generalized System of Preferences (GSP), which provides duty-free treatment for selected goods from “beneficiary developing countries”.  Moreover, Congress appears ready to make the renewal retroactive to July 31, 2013, when it expired, and to provide a mechanism for importers to receive retroactive refunds of duty deposits.

H.R. 1891, introduced by House Ways and Means Committee Chairman Paul Ryan (R-WI), would extend the GSP, the African Growth and Opportunity Act (AGOA) and duty preferences for Haiti. It is expected to be joined with legislation providing the Administration with “fast track” trade negotiating authority, and forwarded to the President for signing.

The bill would reinstate GSP through December 31, 2017.  It would also provide retroactive application for certain entries liquidated and/or reliquidated without GSP treatment.  Retroactive GSP treatment may be granted only if a request for GSP treatment is filed with U.S. Customs and Border Protection (CBP) within 180 days after the effective date of the act.  The request must contain sufficient information to enable Customs –

(i)              To locate the entry; or

(ii)            To reconstruct the entry if it cannot be located.

Upon approval of an application, Customs will liquidate or reliquidate the entry with duty free GSP treatment. Refunds of duty deposits would be paid, without interest, within 90 days after such liquidation or reliquidation.

The bill would also amend GSP to allow the designation of certain cotton articles as GSP eligible, but only if made in “least developed developing countries” (LDDCs).

We will monitor the progress of the bill and report. In the meantime, your company may want to identify any records which might be necessary for Customs to locate or reconstruct subject entries so that retroactive refunds can be claimed once the GSP re-authorization takes effect.

Please do not hesitate to contact us if you have any questions. 

Customs Centers of Excellence and Expertise (CEEs): Program Directives and Evolution of Responsibilities

I.                INTRODUCTION 

Numerous importers have recently raised questions concerning Customs’ initiative regarding the establishment of Centers of Excellence and Expertise (CEEs) to handle transactions in discrete industry-defined areas of responsibilities. This memorandum provides background information on CEEs and their current operational status.

CEEs are an attempt by Customs to centralize decision-making, on an industry-specific basis, regardless of the ports of entry at which imports are made. The intent is to harmonize and centralize decisions concerning the admissibility, classification, appraisement and regulation of goods on an “industry-specific” basis, rather than on a “port-by-port” basis, as has historically been the case.

For now, the CEE program is supposedly voluntary and account-based, and is being implemented on a “test” basis. Assuming the test is successful, however, Customs intends to make the CEEs a model for future processing of commercial transactions by large accounts, and, possibly, all importers.

II.              BACKGROUND 

Historically, the Tariff Act of 1930 has distributed decisionmaking to local Customs officials at the port of entry where goods are imported. Entry documents must be filed at the port where the goods arrived, or are being entered for consumption. Port officials control decisions relating to release of the merchandise, as well as determining the classification, appraisement, and rate and amount of duty owing on individual entries of goods at the port of entry.

Similarly, protests against liquidation of merchandise are filed with, and typically decided by, Customs officials at the individual port(s) of entry.  Import Specialist teams at dozens of service ports divide responsibility for the classification and appraisement of various categories of goods (and often exhibit different levels of expertise in the commodities for which they are responsible).

Although the Constitution mandates that duties be assessed uniformly throughout the United States, the result of the “port-specific” processing system has been anything but. It is not uncommon for identical or similar goods, being imported through different ports of entry, to be classified or appraised differently, or for Import Specialists to make inconsistent decisions at the time entries are liquidated, or when protests are submitted.

The automation of Customs processes has provided an opportunity to for the agency to de-couple entry processing from geography.  Remote location filing has largely eliminated the need for importers to retain Customs brokers in each port where they make entry, and electronic platforms allow Customs to distribute work among officials in various locations.

The idea behind the Centers for Excellence and Expertise (CEEs) is to centralize post-entry, and ultimately entry, work, for industry groups, in a single team of specialists. At present, the teams are “headquartered” in various locations, but Customs officials at ports of entry are “detailed” to work with various CEEs.  The Existing CEEs are as follows:

Agriculture & Prepared Products, coordinated from Miami, specializes in agriculture, aquaculture, animal products, vegetable products, prepared foods, beverages, alcohol, tobacco or similar industries.

Apparel, Footwear & Textiles, coordinated from San Francisco, specializes in wearing apparel, footwear, textile mill, textile mill products, or similar industries.

Automotive & Aerospace, coordinated from Detroit, specializes in automotive, aerospace, or other transportation equipment and related parts industries.

Base Metals, coordinated from Chicago, specializes in steel, steel mill products, ferrous and nonferrous metal, or similar industries.

Consumer Products & Mass Merchandising, coordinated from Atlanta, specializes in household goods, consumer products, or similar industries and mass merchandisers of products typically sold for home use.

Electronics, coordinated from Los Angeles, specializes in information technology, integrated circuits, automated data processing equipment, and consumer electronics.

Industrial & Manufacturing Materials, coordinated from Buffalo, specializes in plastics, polymers, rubber, leather, wood, paper, stone, glass, precious stones and precious metals, or similar industries.

Machinery, coordinated from Laredo, specializes in tools, machine tools, production equipment, instruments, or similar industries.

Petroleum, Natural Gas & Minerals, coordinated from Houston, specializes in petroleum, natural gas, petroleum related products, minerals, and mining industries.

Pharmaceuticals, Health & Chemicals, coordinated from New York, specializes in pharmaceuticals, health-related equipment, and products of the chemical and allied industries.

For now, participation in the CEE program is voluntary, and is done on an account basis. Each importer can associate only with one CEE.  Thus, for example, if a petroleum importer were associated with the Petroleum, Gas and Minerals CEE in Houston, but imported t-shirts, the post-entry work associated with the t-shirts would be handled by the Petroleum, Gas & Minerals CEE.

There are no laws or regulations governing the operation of CEEs. For the time being, the work of the CEEs is probably exempt from rulemaking, since it involves Customs’ internal allocation of work among its employees. However, if CEEs become the principal mode for Customs operations, changes to the Tariff Act and implementing regulations are likely to be required.



Customs is phasing in the operation of CEEs over time. At present, CEE participants continue to file entries at individual ports of entry, and release decisions are made by local Customs officials at the ports. Post-entry work, such as the liquidation of entries, and issuance of Form 28 requests for information and Form 29 Notices of Action, is being handled by the industry-specific CEEs.

Over time, entry and post-entry work will likely be migrated to CEEs. If the project is successful, it will likely become the principal model for Customs’ handling of commercial transactions.

In this regard, two recent developments affect CEEs, particularly three of them --  Electronics in Los Angeles, Pharmaceuticals and Chemicals in New York, and Petroleum and Minerals in Houston.

On September 11, 2014, CBP Commissioner Kerlikowske issued a Delegation Order [Exhibit A] which gave the directors of the CEEs the same powers as Port Directors of Customs, with certain exceptions. The CEE Directors and Port Directors will exercise this authority concurrently. While decisions relating to the control, movement, examination and release of merchandise will remain with the Port Director at the port where goods were imported, authority for post-entry functions – such as issuing demands for redelivery, handling post-entry processing, decisions regarding country of origin marking, stamping, packing, classification and appraisement of merchandise, and the processing of petitions, protests, post-entry amendments, recordkeeping matters, financial matters and the like.

On January 28, 2015, Customs announced its “Phase I accelerated rollout” under which the CEE Directors of the Electronics, Pharmaceuticals and Petroleum CEEs were given the trade authority over subject entries previously handled by port directors at various ports listed in Exhibit B.


IV.             CEEs: WHO’S DOING WHAT?

The transition of port activities to CEEs is confusing. Customs prepared a March 2014 Centers of Excellence and Expertise Trade Process Document, which summarizes the tasks currently being conducted by CEEs, as opposed to ports.  The document can be summarized as follows:


Port Responsibilities

CEE Responsibilities

Entry and Release Processes

Receives and processes CF 3461 entry, makes release decisions


Entry Summary Processes

Handled by CEEs for participating accounts. Entry summaries filed by ACS or ACE; will issue “docs required” message and process electronically (email)

Duty Payment

Receives duty payment, together with cashier copy of CF 7501

Processes entry summaries with no duty due

Quota entries

Processed by ports

Census warnings

Processed by CEE

CF 28 Request for Information

Issued by CEE, response to CEEs

CF 29 Notice of Action

Issued by CEE

AD/CVD Entries

Entry summaries processed by CEE, along with non-reimbursement statements

FTZ Entries

Responsible for physical supervision of zones

Process all FTZ entry summaries after account is accepted into CEE

TIB Entries

Processed by CEE. If entry filed before CEE account accepted, CEE will still handle post-entry work

Trade Fair Entry Summaries

Processed by CEE

Liquidation of Entries

Performed by port. Bulletin notice of liquidation at port

Post-Summary Corrections

If payment being made, copy of amended 7501 and payment to port of entry

Processes the PSC

Internal Advice Requests

Transmitted electronically to the CEE

Protests and Petitions

If filed in paper, file with the port, scanned copy to the CEE

If filed electronically, note port of entry and CEE, and will be processed by CEE

Reconciliation Entries

Continue to file with reconciliation port

Enforcement processes (seizures, penalties, etc.)

Handled by the ports, who will coordinate with the CEEs

Prior disclosures

May be filed with port

May be filed with CEE


File with one of the 4 drawback processing centers

Bear in mind that these processes apply for now, only to companies which have started CEE accounts and are participating voluntarily in the program.

That being said, we have noted cases where post-entry work for companies not enrolled in the CEE program is being handled by CEE teams. Decisions are rendered through the ports, so that there is no visibility of this to the importer.

Transactions for industries which do not have CEEs, and for non-participating companies, will continue to be handled by the ports where the entries are filed.

Please do not hesitate to contact us if there are any questions concerning CEEs or their operation.

NEW CIT Decision Eliminates "Liberal Reading" of Protests

Liberal treatment of communications with Customs as constituting a “protest” may be a thing of the past, for in Ovan International Limited v. United States, Slip. Op. 15-17 (February 23, 2015), the CIT held that, in order to be considered a valid protest, a document must be labeled as such, and must contain all the information required by the Customs laws and regulations.

At a Georgetown Law School conference last week, Customs Headquarters officials  gleefully embraced the new decision and indicated that they will begin applying it aggressively.

Historically, the courts have ruled that protests do not require detailed precision, but merely need to advise Customs of the nature of the importer’s objection, such that the Customs officer can undertake an inquiry and correct any errors made in liquidation of an entry.

Importers wishing to protest a Customs decision will need to pay special attention to ensure that protests are complete and valid, and should consider using only the Customs and Border Protection (CBP) Form 19 Protest, or its electronic equivalent.

One Entry, One Article, One Claim – What Wasn’t Clear?

Carriage House Motor Cars, the owner of a 1958 Rolls Royce Silver Sea Cloud automobile, exported the vehicle to Europe for sale at an auction.  When the vehicle failed to sell, the company re-imported the vehicle, claiming duty-free entry under Harmonized Tariff Schedule (HTS) subheading 9801.00.25.  After seeking information from the vehicle importer and its broker, Customs on February 22, 2013 liquidated the entry, classifying the car under HTS Subheading 8703.23.00, and assessing duties at the rate of 2.5% ad valorem.  

On April 9, 2013—46 days after liquidation –  Carriage House submitted to Customs an Affidavit of its owner, together with a number of exhibits, clearly contesting the assessment of duty.  When Customs did not respond to this filing (surprise!), the importer filed a protest on CBP form 19, albeit 189 days after liquidation.  This protest was denied as untimely.

Before the CIT, the importer alleged that its April 9, 2013 Affidavit and exhibits should be treated as a “protest”.  In this regard, the importer noted that the Courts have long employed a rule of liberally construing filings as protests, requiring “only that the protest be distinct and specific enough to show that the objection was taken… was at the time of filing the protest in the mind of the importer and sufficient to notify the collector of its true nature and character to the end that he might then ascertain the precise facts and have adequate opportunity to correct mistakes and cure defects”.  [citing United States v. M. Rice & Co., 257 U.S. 536, 539-40 (1922)]. There was one car, one Customs entry, one issue – how could Customs not understand that the duty assessment was being protested?

But the CIT had other ideas. 

Protesting Parties Will be Held to the Rules

The CIT, per Senior Judge R. Kenton Musgrave, held that compliance with the Customs laws and regulations regarding protests was mandatory for a written submission to be treated as a valid protest.

The Court first noted that the governing statute, §514(c)(1)(2006) of the Tariff Act,  requires that a protest must set forth, distinctly and specifically:

(A).  Each decision described in subsection A of this section as to which protest is made;

(B).  Each category of merchandise effected by each decision set forth under paragraph (1);

(C).  The nature of each objection and the reasons therefore; and

(D).  Any other matter required by the secretary by regulation. [emphasis added]

The Court then went on to note the detailed requirements for protests established by Section 174.13(a) of the Customs Regulations, which require among other things, that a protest be captioned as such, provide the name and address of the protesting party, the importer number, the date of entry and liquidation of the entry, the existence of prior protests, and a declaration as to whether the merchandise has been the subject of a drawback claim [regulation reproduced below].

Holding that the requirements of the regulation are mandatory and binding, the Court noted the various failings of the protestant’s “Affidavit and exhibits” when compared to the requirements of the regulations.  It did not matter, the Court said, that the importer’s various discussions and interactions with Customs made it clear that the Customs officials knew what entry was involved, and the nature of the claim.  Setting out a strict new rule, the CIT concluded:

“In the past, the Court could have readily concluded that the . . . Affidavit constituted a valid protest, but at present, in order for it to be a valid protest the . . . Affidavit must have met all of the “straightforward” and “not difficult to satisfy” mandatory and regulatory requirements governing the validity of a protest, which it did not.”

Thus, despite the fact that only one entry, one article of commerce, one importer and one claim was at stake, and the fact that the Affidavit undoubtedly communicated to Customs the nature of the importer’s contention, the Court held that because this filing did not meet all regulatory requirements for protests, it could not be entertained as such.  The Court dismissed the lawsuit for lack of jurisdiction.

The Bottom Line: Use CBP Form 19

The lesson for importers is that the age of raising protests by means of letters, memos, and other submissions that do not meet the formal requirements of the Customs laws and regulations is over.  To have a submission treated as a valid protest, all of the numerous regulatory requirements must be satisfied.  

Customs Form 19, whether in paper form or electronic, contains fields for all of the required information.  If this form is used,  the only possible issues could be the clarity with which the claim is stated.  Trade practitioners should counsel their clients to set creativity aside when challenging decisions and just “use the form”. 

The Regulatory Requirements

The requirements for filing a valid protest are set out in Section 174.13(a) of the Customs Regulations, which provides:

§ 174.13   Contents of protest.

      (a) Contents, in general. A protest shall contain the following information:

(1) The name and address of the protestant, i.e. , the importer of record or consignee, and the name and address of his agent or attorney if signed by one of these;

(2) The importer number of the protestant. If the protestant is represented by an agent having power of attorney, the importer number of the agent shall also be shown;

(3) The number and date of the entry;

(4) The date of liquidation of the entry, or the date of a decision not involving a liquidation or reliquidation;

(5) A specific description of the merchandise affected by the decision as to which protest is made;

(6) The nature of, and justification for the objection set forth distinctly and specifically with respect to each category, payment, claim, decision, or refusal;

(7) The date of receipt and protest number of any protest previously filed that is the subject of a pending application for further review pursuant to subpart C of this part and that is alleged to involve the same merchandise and the same issues, if the protesting party requests disposition in accordance with the action taken on such previously filed protest;

(8) If another party has not filed a timely protest, the surety's protest shall certify that the protest is not being filed collusively to extend another authorized person's time to protest; and

(9) A declaration, to the best of the protestant's knowledge, as to whether the entry is the subject of drawback, or whether the entry has been referenced on a certificate of delivery or certificate of manufacture and delivery so as to enable a party to make such entry the subject of drawback (see §§181.50(b) and 191.81(b) of this chapter).

Best Key Textiles Co. v. United States

In Best Key Textiles Co. v. United States, No. 2014-1327 (February 3, 2015), the recipient of a ruling concerning the tariff classification of metalized yarn challenged Customs decision to revoke the ruling as being Arbitrary, capricious, an abuse of discretion, and not otherwise in accordance with law, in violation of the Administrative Procedure Act. The plaintiff contended that it had lost $200 million in customer orders as a result of the revocation, and asked the court to review both the substance of the ruling and the process by which it was revoked. The ruling recipient could not file a protest on the classification of its yarn, since the revocation ruling assigned it a lower rate of duty than applied to metalized yarn. The plaintiff=s damage was not in the payment of Customs duties, but in the loss of business, it contended.

After initially dismissing the case for lack of subject matter jurisdiction, the CIT reconsidered and reinstated the case, and upheld the revocation ruling. Best Key appealed to the Federal Circuit.

In its decision, the Federal Circuit ignored the merits of the plaintiffs claim altogether, and told the CIT to reinstate its earlier ruling dismissing the action for lack of subject matter jurisdiction. The plaintiff was not trying to vindicate its own rights, the appellate court said, but the rights of its customers who would be assessed with higher duties on garments made with the yarn. The plaintiff's remedy, the Court held, would be to go into the garment business, import garments and pay the higher duty, and then slog through the traditional protest procedure B a years-long undertaking which, in any event, would not lead to review of the contested ruling. The plaintiff did not have a case which could be heard under the CIT's 28 U.S.C. '1581(I) residual jurisdiction which, the Court indicated, must be strictly construed.The decision should be alarming to the trade community, since it suggests that Customs rulings, and their revocation or modification, are not judicially reviewable or perhaps reviewable only in the Federal District Courts.