United States Court of International Trade
CIT Orders Customs to Move Quickly on Drawback Regulations
United States Customs and Border Protection needs to move quickly to issue regulations implementing the drawback provisions of the Trade Facilitation and Trade Enforcement Act of 2015, the Court of International Trade recently held.
In Tabacos de Wilson v. United States, Slip Op. 18-81 (June 29, 2018), a group of duty drawback claimants and drawback brokers brought suit to challenge CBP’s failure to promulgate regulations for calculating duty drawback under the TFTEA. Congress had set a date of February 24, 2018 for the regulations to become effective, but Customs failed to even propose a regulation by that date. Instead, the agency issued “Interim Guidance” for filing TFTEA claims, while indicating that no such claims would be processed, and no accelerated payment of drawback made, until final regulations are issued – which could take years.
At the same time, CBP revealed that it had embedded the TFTEA calculation drawback regulation in a mammoth, 450-page collection of comprehensive new drawback regulations. The plaintiffs charged that Customs’ failure to publish the TFTEA regulation constituted agency action “unlawfully withheld”, and sought immediate publication of the regulation. The court agreed.
Rather than demanding the agency publish the final regulation immediately, the Court said it would wait to see if the proposed regulatory package was published for comment at the end of the ongoing OMB review – on or about July 5, 2018. If the regulations are not proposed at that time – and it seems unlikely they will be – the Court directed the parties to confer, and identify those portions of the proposed regulations which could be separated out and enacted immediately to satisfy the TFTEA requirements. The parties are to report to the Court by July 27th.
CIT Claims Jurisdiction Over Suits to Collect Federal Excise Taxes Paid on Imports
In a decision that may raise some controversy, the Court of International Trade recently held that it had subject matter jurisdiction over a government suit seeking to collect Federal Excise Taxes (FET) on imported tobacco. It also suggested that liability for such taxes might be imposed on a wide range of persons other than the importer of record.
In United States v. Gateway Import Management et al., Slip Op. 18-83 (July 3, 2018), the government sued an importer, Gateway, and a second company, Good Times, seeking to recover FET on imported tobacco products. The complaint alleged that Gateway and Good Times had conspired to undervalue the imported tobacco products, thereby underpaying the FET that was due with the import entry. This constituted the introduction of merchandise into the United States under 19 U.S.C. §1592(a). The government claimed that the FETs were owed as withheld duties, taxes or fees pursuant to 19 U.S.C. §1592(d). The government made clear that it was not seeking Section 592 penalties, when it brought suit against Gateway, Good Times, and Hanover Insurance, the Customs bond surety for Gateway. [Hanover cross-claimed against Gateway and its principals].
Gateway and Good Times moved to dismiss the case for failure to state a claim on which relief could be granted. The Court, sua sponte, asked the parties to brief the issue of whether it had jurisdiction to hear the case under 28 U.S.C. §1582, which allows it to entertain cases under Section 592 to collect “duties” or “penalties”, but makes no mention of excise taxes. This raised the possibility that, while the CIT might have jurisdiction over the government’s case against the surety, it would not have jurisdiction over the claims against the bond principal, Gateway.
The CIT determined that since the liability for FET arose from a violation of Section 592(a), it had jurisdiction over the claim for the taxes. Even though 19 U.S.C. §1528 provides that a tax shall not be construed as a Customs duty in the absence of clear Congressional intent, the Court held that this statute was designed to prevent companies from claiming Customs preferences in the income and excise tax realm, and did not limit the jurisdiction of the CIT.
Turning to the motions to dismiss, the Court held that the government’s Complaint had stated the fundamental facts to make out a claim against Gateway and Good Times. What is somewhat chilling is that the court suggested that Good Times could be liable for “introducing” the goods by means of false statements even through relatively passive connections with the import transactions. The Complaint alleged that Good Times used Gateway as a “front” company to make entry, and that Gateway’s failure to disclose its contractual arrangements with Good Times constituted a “material omission” in violation of Section 592(a). The Court also noted that Good Times might be liable because it financed the transactions, and controlled the trademarks for the products concerned, and thus the importations.
The Court reached an essentially identical result in a similar action, United States v. Maverick Marketing Inc., Slip Op. 18-84 (July 3, 2018).
No Cross-Ownership; Commerce Determination Sustained
In Nantong Uniphos Chemical Co. Ltd., et. al. v. United States et. al., Slip Op. 18-78, Court No. 17-00150 (June 25, 2018) the Court reviewed arguments regarding Commerce’s determinations in a countervailing duty investigation of 1-Hydoxythylidene-1, 1-Disphosphonic Acid (“HEDP”) from China. Plaintiff, Nanjing University of Chemical Technology Changzhou Wujin Water Quality Stabilizer Factory (“Wujin”), was named a mandatory respondent to the countervailing duty investigation. Wujin disclosed that Nantong Uniphos Chemicals Co., Ltd. (“Nantong”) was an affiliate. Commerce ultimately determined Wujin and Nantong were not crossed owned, and could not share the same rate. As a result, Wujin received a de minimis rate and Nantong received the all other rate of 2.40%. Plaintiffs jointly challenged Commerce’s determination the companies are not jointly owned. For the following reasons, the Court sustains Commerce’s determinations in full.
Plaintiffs argued that by “failing to find cross-ownership between Nantong and Wujin, Commerce failed to properly apply 19 C.F.R. § 351.525(b)(6)(vi).” Id. at 5. The regulation provides “cross-ownership does not require one corporation to own 100 percent of the other corporation,” rather “cross-ownership will exist where there is a majority voting ownership interest between two corporations or through common ownership of two (or more) corporations.” Id. at 5. Commerce had found that Wujin acquired its shares in Nantong in 2014, and held that at the same level throughout the period of investigation. The agency also found Wujin was the second largest of three shareholders and held the same number of directors as the largest shareholder. In addition, despite its large number of shares, Commerce determined Wujin could not exercise exclusive control because any action would require two out of the three shareholders to consent. The Court found Commerce’s determinations were based on substantial evidence and sustained the determinations.