Court of International Trade Rules Against CBP Limits on Seeking Preferential Tariff Status by Protest; “Rejected” Protests are Still Alive and Pending
In a decision with potentially far-reaching ramifications, the United States Court of International Trade (CIT) has ruled that Customs may not prevent importers from raising certain claims for duty free treatment in protests filed to challenge the liquidation of their Customs entries. In so ruling, the Court effectively struck down a 2014 CBP Guidance Memorandum, which asserted that duty-free treatment claims could not be raised in the first instance by protest.
The decision also indicated that protests which Customs has “rejected as non-protestable” in fact remain pending, and that the protesting importer can take steps to receive a decision on its protest.
In Zojirushi America Corp. v. United States, Slip Op. 16-78 (August 4, 2016), Customs liquidated an importer’s entries of beverage containers and cookware from Thailand as dutiable. Thereafter, the importer protested the assessments, asserting that the goods qualified for duty-free entry under the Generalized System of Preferences (GSP). Customs, using a preprinted box on the Customs Form 19 Protest, “rejected” the protest as “non-protestable”, indicating that the agency did not intend either to allow or deny it.
CBP’s rejection was based on a 2014 Guidance Memorandum which the agency issued, directing Customs officers nationwide to reject protests which asserted claims for duty-free treatment for the first time. The Guidance Memorandum claimed that, if duty-free treatment was not claimed at the time of entry, the exclusive way for the importer to claim such treatment after entry was to submit a petition under Section 520(d) of the Tariff Act [in the case of trade programs such as NAFTA, which allow for such petitions], or to submit a Post-Entry Amendment (PEA) or Post-Summary Correction (PSC) in other cases.
After its protest seeking GSP treatment was “rejected as non-protestable”, Zojirushi brought suit in the Court of International Trade, seeking a court order directing Customs to act on its protest – either allowing or denying it. The government moved to dismiss, claiming that Zojirushi had failed to state a claim on which relief could be granted. According to Customs, the importer’s claim for GSP treatment could not be brought for the first time in a protest.
The Court, per Chief Judge Timothy Stanceu, rejected the government’s position, finding that GSP claims could validly be raised in a protest. He examined the history of the GSP and its implementing regulations, which clearly anticipated that claims for duty-free GSP treatment could be made after entry. He also noted that a protest could challenge the rate and amount of duty chargeable on goods, and that Section 10.112 of the Customs Regulations [19 U.S.C. §10.112] provided that proof of entitlement to duty-free entry may be presented at any time before the liquidation of an entry becomes final – even in court proceedings.
While some free trade regimes, such as the North American Free Trade Agreement (NAFTA), require post-entry claims for free treatment to be made in a specific time (within one year from the date of entry) and manner (by a 19 U.S.C. §1520(d) petition for reliquidation), the Court held that other programs, such as the GSP, did not. Claims for free treatment under these programs may be made by protest.
The programs affected by the CIT’s decision are:
- Generalized System of Preferences
- Dominican Republic-Central American Free Trade Agreement (DR-CAFTA);
- Caribbean Basin Trade Partnership Act;
- Caribbean Basin Economic Recovery Act;
- U.S. – Israel Free Trade Agreement;
- African Growth and Opportunity Act (AGOA);
- Bilateral Free Trade Agreements with:
Status of “Rejected” Protests
The Court also clarified the status of protests which Customs has “rejected”. Section 515(a) of the Tariff Act requires that Customs officials review a protest, and either “allow” or “deny” it. No provision is made for “rejecting” a protest, even though CBP recently added a “rejected” box to the decision area on the Customs Form 19 protest. According to the Zojirushi decision, a“rejected” protest is in fact still pending with Customs. If the agency refuses to “allow” or “deny” the protest, the importer can compel a decision by filing an application for accelerated disposition of the protest, pursuant to Section 515(b) of the Tariff Act. By law, if Customs fails to act on a protest within 30 days after receipt of a request for accelerated disposition, the protest is deemed denied, and the importer may challenge the denial in court.
What the Decision Means for You:
According to the Zojirushi decision, protests which Customs has “rejected” are actually still pending with the agency. If you are an importer whose protest has been “rejected”, either as “non-protestable” or for any other reason, your protest is still pending. You may request Customs to “allow” or “deny” it, and, if Customs refuses or fails to act, you can compel action by filing a request for accelerated disposition of the protest.
Thus, if you were seeking duty refunds and your protest was “rejected”, you may still have the opportunity to pursue the refunds in question.
For additional information concerning the Zojirushi decision, and its implications for your firm, please feel free to contact us at (212) 635-2730 or (202) 861-2959.