INTERNATIONAL TRADE AND CUSTOMS LAW NEWSLETTER PREPARED FOR THE CLIENTS AND FRIENDS OF THE FIRM, FOR VIEWING ON THE WORLD WIDE WEB.

Volume XII, Number 3
April/May, 1998

EXPORTERS LINE UP FOR HMT REFUNDS
FOLLOWING SUPREME COURT DECISION

As reported in earlier memoranda, the Neville Peterson LLP website (www.npwtradelaw.com) and the business press, the U.S. Supreme Court has ruled, by a unanimous 9-0 vote, that the Harbor Maintenance Tax (HMT) is unconstitutional as applied to waterborne exports.

Writing for the Court in United v. United States Shoe Corp., No. 97-372, Justice Ruth Bader Ginsburg held that the ad valorem HMT did not accurately measure exporters' use of port and harbor facilities, and thus could not be upheld as a valid "user fee". Rather, she wrote, the export HMT -- currently charged at the rate of 0.125% of the value of all commercial cargo exported by water -- is a tax or duty on exported goods, prohibited under the Export Clause of the Constitution.

As a result of the Supreme Court's decision, up to 94,000 exporters may be eligible to secure HMT refunds in a total amount which could approach $1 billion, plus interest.

Here's the immediate fallout from the Supreme Court's decision:

• Customs has stopped collecting the HMT on exports;
  
  
• Customs has announced that it will not process protests and refund applications filed with the agency's National Finance Center, as directed in Treasury Decision 94-91:
  
  
• Exporters must file suits in the U.S. Court of International Trade in order to secure refunds of the tax. Some 6,000 cases have already been filed -- nearly 1,000 of them in just a two day period [May 6-7, 1998], in an effort to take advantage of a hoped-for "tolling" of the statute of limitations resulting from the CIT's 1996 refusal to establish a class action of exporters seeking to recover the tax;
  
  
• The Court of International Trade has directed the government to propose a "claim form", to be used to resolve exporters' pending lawsuits, and is working with counsel in the case to devise procedures for resolving disputes regarding payment of interest, statutes of limitations, and proof of claims.
  
  

It is not too late for exporters to file lawsuits seeking HMT refunds. Exporters who file suits should, at a minimum, receive refunds of all export HMTs paid within two years prior to filing, and under several theories of jurisdiction currently being explored, may be able to obtain refunds for a longer period.

Copies of the following HMT-related documents are available from our offices:

• GTR # 98-301 - The Supreme Court's United States Shoe decision;
  
  
• GTR # 98-302 - Our firm's memoranda analyzing the decision and discussing issues remaining to be resolved;
  
  
• GTR # 98-303 - Our firm's memorandum analyzing the government's proposed HMT "claim form".
  
  

WILL CONGRESS
ENACT ANOTHER
HARBOR TAX?

The Supreme Court's United States Shoe decision did not rule out the possibility that Congress could, in the future, impose a constitutionally-valid "user fee" to cover costs of port maintenance; however, the Court indicated that the fee could not fall on exported goods, but would instead need to accurately measure an exporter's use of port facilities, taking into account such factors as the size and tonnage of the vessel, the length of time spent in port, whether the port had been dredged, and whether the vessel required a dredged harbor to enter and use the port. Congressional leaders are analyzing possible formats for a new harbor maintenance funding mechanism. However, it would appear that any such fee, to be constitutionally permissible, would likely fall on vessel operators, who obviously oppose any such resolution.

IMPORT HMT
LIKELY ALSO
DOOMED

Although the Supreme Court's United States Shoe decision does not invalidate the HMT as applied to waterborne imports, the import tax is also likely to fall in the relatively near future. Even before the Supreme Court announced its decision, the European Union and other U.S. trading partners had already filed a complaint with the World Trade Organization (WTO), challenging the import HMT as excessive in relation to the costs of port maintenance, and thus in violation of WTO rules. The United States Shoe decision drives another nail in the coffin, since the current HMT -- imposed on imports, but not on exports -- also violates WTO rules as discriminatory. Unless the U.S. settles the case by scrapping the import HMT, the WTO is certain to rule that the tax constitutes an additional import duty imposed in violation of U.S. tariff commitments.

The HMT decision could also have an adverse impact on Customs' proposal to increase from 0.21% to 0.25% the merchandise processing user fee (MPF), which is charged on all imports. The Clinton Administration proposes to use the extra tax revenues to fund badly-needed Customs automation initiatives, such as fixing the agency's 19-year-old Automated Commercial System (ACS), which processes all import transactions nationwide, and developing its replacement, the proposed Automated Commercial Environment (ACE). ACS is in dire condition -- outmoded, running out of capacity, and not yet "Year 2000" compliant. The ACE, on the other hand, is years behind schedule, and in danger of being scrapped as obsolete before it is ever put in place.

"GRAY MARKET"
GOODS: CUSTOMS
PROPOSES NEW
REGULATIONS

The U.S. Customs Service has proposed amendments to its trademark enforcement regulations, in order to clarify the agency's policies on excluding genuine "gray market" goods which are imported without the consent of the U.S. trademark owner. Customs does not exclude gray market goods when the U.S. and foreign owners of the trademark are the same person or subject to common ownership or control. One exception to this rule, established in the case of Lever Brothers Co. v. United States, (D.C. Cir. 1990), involves imported "gray market" goods which are materially physically different from goods sold under the same mark in the U.S. Customs' proposed' regulations would scrap the agency's current informal request procedure for trademark owners seeking "Lever-protection" from gray market imports in favor of a more systematic procedure.

As an alternative to exclusion, Customs' proposed rule would allow physically different grey market goods to be imported, if a label is affixed, giving consumers notice of the fact that the goods are "grey market" goods.

Copies of Customs' proposed regulations are available from our offices [GTR #98-304].

CUSTOMS TESTS
"SEMIMONTHLY
STATEMENT"
PROCEDURE

The U.S. Customs Service is soliciting importers to participate in the test of the agency's "semi-monthly statement processing" program. Under this proposed new procedure, importers entering goods at selected ports of entry will be allowed to consolidate their entry summaries, and payments of estimated duties, taxes and fees, into a single semi-monthly statement, eliminating the need to file individual entry summaries 10 days after each release of merchandise.

All importers are authorized to apply for participation in the program. Preference will be given to high value importers, major importers in Customs' "primary focus industries", and companies which have completed, or are undergoing, Customs' Compliance Assessment Team (CAT) reviews.

Copies of the test announcement are available from our offices [GTR # 98-305].

CUSTOMS TO TEST
"SELF GOVERNANCE"
PROGRAM

The U.S. Customs Service has announced that it will begin a test of its new Importer Compliance Measurement Program (ICMP) which, during its development stages, was known as the "importer self governance" program. Under the ICMP, importers will be required to develop detailed flowcharts and matrices, describing their company's import procedures and internal programs for assuring compliance with Customs and trade law requirements. Working with Customs, ICMP participants will then select a sample of their import transactions and, using corporate internal audit resources, conduct testing to determine compliance with Customs laws and regulations. Customs auditors will then attempt to verify and validate those resources, in effect "auditing the auditors".

While the ICMP is not designed as an alternative to Customs' Compliance Assessment Team (CAT) audit program, participation in the prototype is open to companies which have not undergone or have been scheduled for a CAT audit. Customs has published its Importer Compliance Measurement Program Handbook for the guidance of companies who are interested in participating in the program.

Applications to participate in the ICMP prototype must be submitted to Customs by June 1, 1998. Copies of the announcement and the ICMP handbook are available from our offices [GTR #98-306].

CVDs: INJUNCTION
TRAPS UNWARY
IMPORTER, CAFC
HOLDS

A Court of International Trade injunction against the liquidation of entries affects an importer who was not notified of the injunction, the Court of Appeals for the Federal Circuit recently ruled. In Wolff Shoe Co., Inc. v. United States, an importer protested the assessment of countervailing duties on certain Brazilian footwear entries, charging that the entries had liquidated by operation of law. The CIT had ruled for the plaintiff, holding that the importer involved in the CIT lawsuit lacked standing to seek to enjoin liquidation of anyone's entries but its own.

The CAFC reversed, holding that the lower court had the power to issue an injunction blocking liquidation of all entries of Brazilian footwear. The plaintiff's entries were covered, even if it was not a party to the lawsuit, and even if received no notice of the injunction. Its entries could be assessed with CVDs in excess of the amounts deposited at the time of entry.

Where Customs fails to liquidate entries within the time provided by law, the CAFC held, the entries are deemed liquidated at the rate and amount of duties asserted at the time of entry. This includes the amount of any special antidumping or countervailing duty bond the importer may have posted, the CAFC ruled.

Copies of the Wolff Shoe decision are available from our offices [GTR #98-307].

LEATHER FOLIOS
ARE "LIKE"BRIEFCASES,
CIT RULES

Leather "folios", designed to hold and organize papers, are like "briefcases", and therefore classifiable in Harmonized Tariff Schedule (HTS) heading 4202 at high rates of duty, the U.S. Court of International Trade recently held. In Avenues in Leather, Inc. v. United States, Slip Op. 98-54 (April 24, 1998), the CIT considered the classification of various types of leather folios, featuring handles and a three-sided zippered opening, a pad of paper, a three-ring binder, and compartments for carrying calculators, pens and similar articles.

Rejecting the importer's argument that the folios were "diaries", Senior Judge Bernard Newman held that the mere presence of a pad or other blank paper inside the folio did not cause it to be classified as a stationery article of Harmonized Tariff Schedule Heading 48. Noting that the folio could be used to carry papers or other items by the handles or under the arm, Judge Newman ruled that they fell within the broad definition of "briefcases" provided for in HTS Heading 4202.

The Avenues in Leather decision could have implications for other pending CIT lawsuits concerning the tariff classification of folios with textile covers. Copies of the decision are available from our offices [GTR #98-308].

CUSTOMS VALUATION:
IMPORTER MUST JUSTIFY
RELATED PARTY PRICE

Importers bear the burden of persuading Customs to accept a related party price as the basis for dutiable "transaction value", the U.S. Court of International Trade (CIT) recently held. In La Perla Fashions, Inc. v. United States, an Italian manufacturer sold apparel to a United States subsidiary, which resold them to unrelated U.S. retailers. The CIT upheld Customs' finding that the sales to the U.S. subsidiary were not bona fide sales. In any event, the CIT held, the related party transfer prices could not be used as the basis of transaction value, since the related party prices were much lower than the prices at which the Italian manufacturer sold the same goods to unrelated U.S. customers.

The Court also rejected the importer's efforts to secure appraisement on the basis of "deductive value" or "computed value", since the importer failed to provide Customs with access to source documents needed for verification of cost information. Copies of the La Perla decision are available from our offices [GTR #98-309].

Michael Jordan's Chicago Bulls are still alive in the NBA playoffs, but his "Air Jordan" shoes recently took a 3-0 thumping in the U.S. Court of Appeals for the Federal Circuit (CAFC). In Nissho-Iwai American Corp. v. United States, No. 97-1489 (May 12, 1998), the CAFC affirmed last year's U.S. Court of International Trade (CIT) decision holding that the popular basketball shoes, marketing in the U.S. by Nike, featured a "foxing-like band", and were therefore subject to high rates of duty.

The CAFC rejected the importer's contention that a band which encircles the shoe, but which is formed by a midsole rather than an outer sole, cannot be a "foxing-like band". While noting that the tariff does not identify the specific types of footwear having such a band, the CAFC found no basis to exclude foxing-like bands created by midsoles.

Copies of the Nissho-Iwai decision are available from our offices [GTR #98-310].

U.S. HITS
INDIA WITH
TRADE SANCTIONS

Following India's conduct of several nuclear tests, the Clinton Administration has imposed a number of sanctions on trade with India. Under a May 13, 1998 Presidential Order, the U.S. is banning the exportation to India of all goods on the U.S. Munitions List, prohibiting the exportation of missile technology and other high-tech products, banning the supply of defense materials and services and blocking financial assistance to India by U.S. and international institutions. As of this writing, imports from India have not been affected. A memorandum describing the Administration's sanctions against India is available from our offices [GTR #98-311].

OTHER NEWS OF
INTEREST:

Informal Entry Limit Raised: Effective July 2, 1998, the U.S. Customs Service will raise from $1250.00 to $2000.00 the value limit for goods which may be entered pursuant to informal entries.

GSP Due to Expire June 30: The Generalized System of Preferences (GSP), which furnishes duty free treatment to selected goods from beneficiary developing countries, is scheduled to expire June 30, 1998, and is not expected to be reauthorized before that date.

U.S. Hits China With Transshipment Charges: The U.S. has imposed $5.1 million worth of "triple transshipment" charges against China, as a result of claims that China unlawfully transshipped textile and apparel products to the U.S. through Hong Kong. The charges will be deducted from 12 categories of textile quota restrictions for Chinese goods imported during 1998 through 2000. Copies of lists showing the charges are available from our offices [GTR # 98-312].

Kelly's Nomination Official: President Clinton has formally tabbed former New York City Police Commissioner Raymond Kelly to be Commissioner of Customs. Kelly, 56, will replace the retired George Weise.

Neville Peterson LLPhas been selected as the new editors of Customs Law and Administration, the leading treatise on U.S. Customs and trade law. The multivolume treatise, originally edited by the late Ruth Sturm, is published by Oceana Publications, Inc. Information concerning this important reference work is available from our offices [GTR # 98-313].

For additional information concerning the subjects discussed in the Global Trade Report, please contact Martin Neville, John Peterson, Maggie Polito or Arthur Purcell at (212) 635-2730, or George Thompson, Mike Tomenga or Larry Bogard at (202) 861-2959.