Deemed Liquidation and Notice

[UPDATE: Sometimes, Congress fixes things. That is the case here. The Trade Facilitation and Trade Enforcement Act of 2015 includes, at § 911 a fix for the issue discussed in this post. The relevant amendment changes the existing law "by striking 'on which notice of the original liquidation is given or transmitted to the importer, his consignee or agent' and inserting 'of the original liquidation'.” This should make the relevant date the date on which the deemed liquidation occurs, not the date of notice, which is how it should be (if you ask me).]

The second recent case from the Court of International Trade involves the deemed liquidation of an entry. It is United States v. Great American Insurance Company of New York. This is a collection case in which the United States is seeking $50,000 from a surety for unpaid antidumping duties, plus pre-judgment and post-judgment interest.

For purposes of my own time management, I am just going to give you the take-aways. If you want more detail, read the decision.

The first question is whether Customs and Border Protection can reliquidate a deemed liquidation within the 90-day period set in 19 USC 1501. A deemed liquidation occurs when Customs fails to liquidate an entry within the time allotted by statute. In the ordinary case, this is one year from the date of entry. See § 1504(a). Under 1504(d), an entry that has been suspended is deemed liquidated if not liquidated within six months of the lifting of the suspension. In this case, the defendant argues that Customs cannot reliquidate an entry deemed liquidated under § 1504(d). The Court of International Trade disagreed, noting that since 2004, § 1501 has specifically referenced § 1504. That reference covers deemed liquidations under both § 1504(a) and § 1504(d).

The second question was when the 90-day clock starts to run for the voluntary reliquidation. The defendant asserted the entirely reasonable position that it starts to run on the date of the deemed liquidation. That would make the reliquidation in this case untimely, and therefore void. The Court found the statute specifies that the relevant date is the date of notice, not the date of liquidation. In this case, the notice was provided some 10 months after the liquidation date. Using the notice as the start date, the reliquidation was timely. Further, the 10-month delay was not unreasonable.

If you were in law school, taking notes on this decision, that is what you would write down.

One Protest Per Customer

I'm going to do this one quickly because I am busy and the case is straightforward, but still an important lesson.

In Design International Group v. United States, the Court of International Trade reaffirmed the rule that an importer may only file one protest contesting the liquidation of an entry. In the case, the importer made two entries of pencils. When Customs liquidated the entries, it allegedly miscalculated the quantity and, as a result, incorrectly assessed duty. The broker for the importer filed protests for each entry. That right there is one protest per entry. Customs denied both entries.

Subsequently, counsel for the importer filed a third protest challenging the denial of both prior protests. That is a second protest challenging the liquidation of each of the entries. When Customs and Border Protection denied that third protest, the importer filed suit in the Court of International Trade, using the third denied protest as the basis for jurisdiction.

What do you think? Discuss.

The issue here arises because of 19 USC 1514(c)(1)(d), which says:

Only one protest may be filed for each entry of merchandise, except that where the entry covers merchandise of different categories, a separate protest may be filed for each category. In addition, separate protests filed by different authorized persons with respect to any one category of merchandise . . . .

Under this law, a second protest is invalid unless an exception applies. An invalid protest does not give the Court of International Trade anything to review.

Here, the plaintiff argued that the exception applies. According to counsel, the first protest on each entry was filed by the customhouse broker, who is an authorized party. The third protest (which is really the second on each of the two prior entries) was filed by the lawyer, a different authorized party. Thus, the third protest was valid and its denial provides the Court with jurisdiction.

The Court rejected this argument. In doing so, it referenced a number of cases invoking the "one protest rule." All these cases repeat that only the first protest received is valid. The Court also noted that allowing a protest of the denial of a protest could lead to the absurd result of a never-ending series of protests of the denial of protests. Consequently, the Court dismissed the action for lack of subject matter jurisdiction.

There Court is, I think, correct. But, I think I can help explain the result by articulating what I perceive to be the unstated premise in the opinion. That premise is that a protest filed by a broker for the importer and a second protest filed by a lawyer for the importer ARE BOTH FOR THE IMPORTER. See that? Brokers and lawyers are agents for the importers, not separate "authorized persons."

The exception in the statute is there to permit, for example, the surety, who has a financial interest in the liquidation, to protest the liquidation. Other authorized parties include the person paying the duties and any person seeking delivery.

Separate and apart from the importer, the statute permits "any authorized agent of" the importer to file a protest. Does that mean that each agent is a separate authorized person? Maybe. The statute can be read that way. But, that reading permits an importer to file a series of protests through a series of different authorized agents. That also seems like an absurd result. The more likely reading, based on zero research and five minutes of thought, is that each agent stands in the shoes of the importer for this purpose and the importer is limited to a single protest either on its own or through agents.

Do you agree with that analysis?

Finality of Liquidation and the Loss of Defenses

Most people assume that when sued by the United States for unpaid customs duties, taxes, fees, and interest, the defendant will have an opportunity to assert all available defenses to the claim against it. That is technically true. The question is which defenses are available. United States v. American Home Assurance Co., has made the answer to that question a bit clearer, but maybe not in a good way.

American Home ("AHAC") is the surety on a number of bonds covering the importation of mushroom and crawfish tail meat from China. Both of those products are subject to antidumping duty orders. Customs and Border Protection liquidated the entries and assessed antidumping duties. When the importer defaulted, the government tried to collect from AHAC and informed AHAC of its intent to seek post-judgment interest. AHAC protested the demands for payment of duties and interest. Customs denied the protests.  Therein lies the problem.

Section 1514 of the Tariff Act of 1930 (19 USC 1514) makes a liquidation final and conclusive on all parties including the United States, unless the someone files a valid protest. If the protest is denied, the importer or surety can file a summons in the Court of International Trade challenging the denial. Absent a summons, the denied protest renders Customs' decision final and conclusive. Finality is a bar to an importer's efforts to seek a refund of overpaid duties and also a bar to a duty recovery action by Customs. If there was a violation through fraud, gross negligence, or negligence, Customs can try to collect duties and interest going back five years, but that is the exception.

This case is a little different because the claim for interest was not asserted at liquidation. Rather, it came in the first demand for payment on the bond that CBP made to the surety, AHAC. AHAC attempted to defend the interest claim against it, but was shut down.

According to the Court, the interest assessment is a protestable charge or exaction. The decision to impose interest was not ministerial or automatic. Rather, Customs had to apply law and facts to determine whether AHAC might be held responsible for interest. Consequently, CBP made a protestable decision. The fact that the charge or exaction was first asserted after liquidation does not change the fact that it was protestable and, in fact, protested.

Because AHAC did not challenge the denied protests in the Court of International Trade, the denial became final and conclusive. As a result, according to the Court, AHAC must pay the interest claimed up to the value of the bonds.

This raises all kinds of hackles.

What this means is that an importer who is dissatisfied with a denied protest has no choice but to pay Customs or go to the Court of International Trade as a plaintiff. Normally, that is what one would expect and it is not a tremendous problem. However, there is a statute that requires that plaintiffs pay all of the disputed duties, taxes, and fees before commencing the action in the CIT. That means that if the protesting party cannot afford to pay the duties allegedly owed (as sometimes happens) and cannot file a lawsuit, the act of filing the unsuccessful protest will have waived any opportunity to assert defenses in the eventual collection action. That is a terrible result that hurts the importer coming and going.

In the long run, will this create a disincentive to file protests? It might. If my product is being improperly assessed at a high rate of duty but I don't have the money or wherewithal to litigate in the CIT, what is my best option? Previously, I might have filed a protest and then decided how to go forward if it were denied. Now, am I better off making entries at the lower rate of duty contrary to instructions from CBP, but with internal and external evidence of reasonable care? Eventually, CBP will make that into a penalty case in which I will be able to assert all of my defenses. Clearly, that is a risky strategy because the penalties will be more severe than the duties unless I have a rock-solid case of reasonable care. But, importers do disagree with Customs and Customs is not always right. In some (likely rare cases) that may be the best way to proceed.

One important final point: Although I am saying I don't like the result, I am not saying it is wrong. In fact, with a limited amount of time spent on research, I can't see why it might be wrong. I generally think that defendants have the right the right to assert all available defenses in civil actions brought by the United States. This case does not violate that principle. But, it limits the scope of available defenses where there is a denied protest. That seems like a big price to pay. But, the finality of liquidation is a shield as well as a sword. Often, an importer will seek refuge in the fact that the liquidation is final and cannot be revisited by Customs. This is the same principle, although it favors the U.S. There is a certain symmetry to that.