International Trade Update (October 2016) - GRVR Attorneys

Miscellaneous Tariff Bills (MTBs) allow importers to save on customs duties. MTBs are not new, but how to apply for and get them is new. Importers previously had to work directly through Congress to get an MTB, but that process ended several years ago when Congress curtailed its reliance on earmarks and porkbarrel. MTBs are back thanks to the American Manufacturing Competitiveness Act of 2016 which President Obama signed into law on May 20 of this year. Importers must petition the International Trade Commission (ITC) instead of Congress, but Congress still has the final word. Petitioners must prove that there is no or insufficient domestic availability of the merchandise at issue and that the US Government will not lose more than $500,000 in duties per year if the duty suspension is allowed. There is only a short window of opportunity to apply for MTBs. The ITC starts accepting MTB petitions on October 15, 2016 and stops sixty days later on December 14, 2016. Our law firm can help you prepare and file an MTB petition. Please contact us for further information. Customs brokers may have been lulled into dangerous complacency when in 2009 the United States Court of Appeals for the Federal Circuit vacated penalties by US Customs and Border Protection against UPS for misclassifying merchandise. The court's decision was widely seen as a victory for customs brokers at the time, but that impression was premature and inaccurate. The court in no way reduced a customs broker’s obligation to use reasonable care when classifying imported merchandise, but instead instructed CBP to perform a more complete review of those obligations. Recent enforcement actions reveal that customs brokers continue to face significant risks and liabilities. Alejandro Santos, a customs broker in Laredo, kept the money for himself that his importer clients gave him to pay as the customs duties they owed. Instead of paying CBP, Mr. Santos claimed duty-free NAFTA preference. Mr. Santos was sentenced to twenty-eight months in federal prison and forced to pay $140,000 in restitution. In another case, Gerardo Chavez, the President of the San Diego Customs Brokers Association, was sentenced to thirty-seven months in federal prison and his brokerage firm put on five years probation. Mr. Chavez, with other parties, reported to CBP that the foreign merchandise they purchased would not be entered for consumption but instead consisted of in-bond shipments for which no duties were owed. Without CBP's knowledge, Mr. Chavez and his co-conspirators unloaded the items from the cargo ships to be sold domestically and more cheaply than their competitors. In August of this year, the U.S. Department of Justice filed a lawsuit in the U.S. Court of International Trade against Kenneth Chow, a customs broker, to collect $3.6 million, mostly in penalties. The Government claims Mr. Chow intentionally and fraudulently misclassified and declared the wrong value on imported merchandise. Many see this case as an alarming precedent. The Government is invoking 19 U.S.C. § 1592 against Mr. Chow, a statute that that the Government usually reserves for importers, not customs brokers. Customs brokers must shoulder a new burden and face new liability thanks to the Trade Facilitation Act that President Obama signed earlier this year. The Act created 19 USC 1641(i), a provision that requires customs brokers to verify the identity of the importers that hire them and to make sure that the importers supply their brokers with authentic, verifiable information. CBP will later issue regulations, but it is already established that customs brokers will be fined $10,000 per violation and risk losing their customs broker license. I do not trust Post-Entry Amendments or, in ACE lingo, Post-Summary Corrections (PEAs and PSCs), and my attitude seems to set me apart from some lawyers in other firms. But I'm right. Lawyers are obligated to defend their clients zealously within the bounds of the law. We are paid to take the side of our clients and yes, surprise, surprise, there are always sides in legal matters. We work within an adversarial system of justice and our professional, ethical obligations to our clients are built around that framework. Discharging our duties to our clients does not require us to be impolite, shrill, or condescending (those characteristics are self-defeating), but we cannot let our guard down before adversaries, potential or real. Through the Miranda Warning, the US Supreme Court requires the police to warn people whom they arrest that their statements can and will be used against them in a court of law. The logic is unassailable. Enforcement officials are built to enforce and like the carpenter wielding a hammer, everything looks like a nail. When you hire me and my law firm, our goal is to prevent you from being bopped in the head. Prior disclosures are a safer alternative to PEAs/PSCs when reporting errors to CBP. Almost all federal agencies have a similar procedure for reporting errors. CBP cannot penalize an importer if the importer files a truthful prior disclosure before CBP starts an investigation. PEAs and PSCs do not have that protection. The danger is not hypothetical. CBP has been known to penalize importers after they file PEAs or PSCs. CBP may disown the connection or attribute it to coincidence, but, again, a lawyer's duty to anticipate and avoid minefields. I do not suggest that importers never file PEAs and PSCs. That would be impractical, but the filing of PEAs or PSCs should not be unthinking or automatic. Importers would careful weigh the risks and should always ask whether a prior disclosure is a wiser alternative. Which brings us to statute of limitations waivers. CBP often asks importers to sign statute of limitations waivers (usually for a period of two years) in penalty and liquidated damages cases or when importers file prior disclosures. Without a signed waiver, CBP loses its right to sue an importer before the statute of limitations runs out. Should importers sign these waivers? As with PEAs and PSCs, I am wary of statute of limitations waivers, and for the same reasons, plus more. CBP does not need nor has done anything to deserve more than five years, the statute of limitations, to sue. How accommodating would the agency be if you asked CBP for a two year extension on any of your deadlines? What if conditioned your continued cooperation on CBP giving you the extension you seek or need? W hy give anyone more rope to hang you with? Do you really want to be in litigation with CBP ten or fifteen years from now, a common occurrence for those signing statute of limitations waivers? There are real dangers if you do not sign a statute of limitations waiver, however. CBP can shorten the time you have to respond to any pre-penalty or penalty notice and deny your ability to file a supplemental petition. What CBP cannot do is refuse to mitigate a penalty because you didn't signed a waiver. CBP sometimes will use the old "signing will demonstrate that you are willing to cooperate with us." This is an empty ploy. If CBP wanted to play nice, it would not have issued a penalty. Moreover, there is a reason that the agency will not reduce its barely veiled threats to writing. The courts will not tolerate them. The US Court of International Trade in US v. Jean Roberts (2006) issued the following warning, “The demand by Customs that defendant waive the applicable statute of limitations for a two-year period in return for any consideration of these two claims for relief was neither justified under the applicable statute and regulations nor consistent with principles of equity and fairness”. Statute of limitations waivers are a game of poker. You must decide whether to call the Government’s bluff. It might help to remember that the U.S. Department of Justice, not CBP, sues to collect a penalty. How inviting is your case to overworked DOJ attorneys who are either trying to make names for themselves or who have bigger fish to fry? subscribe to our newsletter ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

MTBs are back thanks to the American Manufacturing Competitiveness Act of 2016 which President Obama signed into law on May 20 of this year. Importers must petition the International Trade Commission (ITC) instead of Congress, but Congress still has the final word. Petitioners must prove that there is no or insufficient domestic availability of the merchandise at issue and that the US Government will not lose more than $500,000 in duties per year if the duty suspension is allowed.

There is only a short window of opportunity to apply for MTBs. The ITC starts accepting MTB petitions on October 15, 2016 and stops sixty days later on December 14, 2016.

Our law firm can help you prepare and file an MTB petition. Please contact us for further information.

Customs brokers may have been lulled into dangerous complacency when in 2009 the United States Court of Appeals for the Federal Circuit vacated penalties by US Customs and Border Protection against UPS for misclassifying merchandise. The court's decision was widely seen as a victory for customs brokers at the time, but that impression was premature and inaccurate. The court in no way reduced a customs broker’s obligation to use reasonable care when classifying imported merchandise, but instead instructed CBP to perform a more complete review of those obligations.

Recent enforcement actions reveal that customs brokers continue to face significant risks and liabilities.

Alejandro Santos, a customs broker in Laredo, kept the money for himself that his importer clients gave him to pay as the customs duties they owed. Instead of paying CBP, Mr. Santos claimed duty-free NAFTA preference. Mr. Santos was sentenced to twenty-eight months in federal prison and forced to pay $140,000 in restitution.

In another case, Gerardo Chavez, the President of the San Diego Customs Brokers Association, was sentenced to thirty-seven months in federal prison and his brokerage firm put on five years probation. Mr. Chavez, with other parties, reported to CBP that the foreign merchandise they purchased would not be entered for consumption but instead consisted of in-bond shipments for which no duties were owed. Without CBP's knowledge, Mr. Chavez and his co-conspirators unloaded the items from the cargo ships to be sold domestically and more cheaply than their competitors.

In August of this year, the U.S. Department of Justice filed a lawsuit in the U.S. Court of International Trade against Kenneth Chow, a customs broker, to collect $3.6 million, mostly in penalties. The Government claims Mr. Chow intentionally and fraudulently misclassified and declared the wrong value on imported merchandise. Many see this case as an alarming precedent. The Government is invoking 19 U.S.C. § 1592 against Mr. Chow, a statute that that the Government usually reserves for importers, not customs brokers.

Customs brokers must shoulder a new burden and face new liability thanks to the Trade Facilitation Act that President Obama signed earlier this year. The Act created 19 USC 1641(i), a provision that requires customs brokers to verify the identity of the importers that hire them and to make sure that the importers supply their brokers with authentic, verifiable information. CBP will later issue regulations, but it is already established that customs brokers will be fined $10,000 per violation and risk losing their customs broker license.

I do not trust Post-Entry Amendments or, in ACE lingo, Post-Summary Corrections (PEAs and PSCs), and my attitude seems to set me apart from some lawyers in other firms. But I'm right. Lawyers are obligated to defend their clients zealously within the bounds of the law. We are paid to take the side of our clients and yes, surprise, surprise, there are always sides in legal matters. We work within an adversarial system of justice and our professional, ethical obligations to our clients are built around that framework. Discharging our duties to our clients does not require us to be impolite, shrill, or condescending (those characteristics are self-defeating), but we cannot let our guard down before adversaries, potential or real. Through the Miranda Warning, the US Supreme Court requires the police to warn people whom they arrest that their statements can and will be used against them in a court of law. The logic is unassailable. Enforcement officials are built to enforce and like the carpenter wielding a hammer, everything looks like a nail. When you hire me and my law firm, our goal is to prevent you from being bopped in the head.

Prior disclosures are a safer alternative to PEAs/PSCs when reporting errors to CBP. Almost all federal agencies have a similar procedure for reporting errors. CBP cannot penalize an importer if the importer files a truthful prior disclosure before CBP starts an investigation. PEAs and PSCs do not have that protection. The danger is not hypothetical. CBP has been known to penalize importers after they file PEAs or PSCs. CBP may disown the connection or attribute it to coincidence, but, again, a lawyer's duty to anticipate and avoid minefields. I do not suggest that importers never file PEAs and PSCs. That would be impractical, but the filing of PEAs or PSCs should not be unthinking or automatic. Importers would careful weigh the risks and should always ask whether a prior disclosure is a wiser alternative.

Which brings us to statute of limitations waivers. CBP often asks importers to sign statute of limitations waivers (usually for a period of two years) in penalty and liquidated damages cases or when importers file prior disclosures. Without a signed waiver, CBP loses its right to sue an importer before the statute of limitations runs out.

Should importers sign these waivers?

As with PEAs and PSCs, I am wary of statute of limitations waivers, and for the same reasons, plus more.

CBP does not need nor has done anything to deserve more than five years, the statute of limitations, to sue. How accommodating would the agency be if you asked CBP for a two year extension on any of your deadlines? What if conditioned your continued cooperation on CBP giving you the extension you seek or need? Why give anyone more rope to hang you with? Do you really want to be in litigation with CBP ten or fifteen years from now, a common occurrence for those signing statute of limitations waivers?

There are real dangers if you do not sign a statute of limitations waiver, however. CBP can shorten the time you have to respond to any pre-penalty or penalty notice and deny your ability to file a supplemental petition.

What CBP cannot do is refuse to mitigate a penalty because you didn't signed a waiver. CBP sometimes will use the old "signing will demonstrate that you are willing to cooperate with us." This is an empty ploy. If CBP wanted to play nice, it would not have issued a penalty. Moreover, there is a reason that the agency will not reduce its barely veiled threats to writing. The courts will not tolerate them. The US Court of International Trade in US v. Jean Roberts (2006) issued the following warning, “The demand by Customs that defendant waive the applicable statute of limitations for a two-year period in return for any consideration of these two claims for relief was neither justified under the applicable statute and regulations nor consistent with principles of equity and fairness”.

Statute of limitations waivers are a game of poker. You must decide whether to call the Government’s bluff. It might help to remember that the U.S. Department of Justice, not CBP, sues to collect a penalty. How inviting is your case to overworked DOJ attorneys who are either trying to make names for themselves or who have bigger fish to fry?

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