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 4
June, 1998

SUPREME COURT
STRIKES DOWN SOME
CURRENCY SEIZURES

Certain currency seizures made pursuant to the Bank Secrecy Act violate the Constitution's ban on "excessive fines" and are unlawful, the U.S. Supreme Court recently held. In United States v. Bajakajian, No. 96-1487 (June 22, 1998), a traveler returning to Cyprus was convicted of failing to report $357,114 in currency being carried in his baggage. Although the money was legitimately obtained, and was being transported to pay a lawful debt, the government sought forfeiture of the funds, as an additional penalty on conviction.

A 5-4 Court majority, composed of Justice Clarence Thomas and four liberal justices (Stevens, Souter, Ginsburg and Breyer), held that, to the extent the forfeiture was intended as an additional penalty on the defendant, it violated the "excessive fines" clause.

The majority noted that the forfeiture of $357,114 would be "grossly disproportionate" to any harm suffered by the government as the result of the reporting violation. Transporting the money out of the country was not unlawful; the sole harm to the government was the loss of information that the money had been removed.

The Court took pains to note that the "Excessive Fines" clause would not be violated if the unreported currency had been connected with some other crime, or if the penalty had been in the nature of an "in rem" penalty against "guilty property" (as in the case of most Customs forfeiture statutes).

Copies of the Bajakajian decision are available from our offices [GTR #98-401].

CUSTOMS ISSUES
RECORDKEEPING REGS

The U.S. Customs Service has issued Treasury Decision 98-56, which promulgates the agency's final recordkeeping regulations. The new rules become effective on July 16, 1998, and will formally implement the recordkeeping penalty regime provided for in Section 509 of the Tariff Act, as amended by the Customs Informed Compliance and Modernization Act.

Customs' new regulations specify procedures for the creation and retention of records, and the production of those records to Customs upon demand. They establish a basic 30-day period for responding to Customs' record demands, with a shorter period specified in cases where records are needed to determine the admissability of goods. In addition, the rules establish procedures for the issuance and enforcement of Customs summonses and other information requests.

Treasury Decision 98-56 also establishes procedures for Customs' voluntary Recordkeeping Compliance Program, which allows participants to avoid recordkeeping penalties in certain circumstances. Copies of the regulations are available from our offices [GTR #98-402], together with our firm's memorandum analyzing them [GTR #98-403].

CUSTOMS FINALIZES
"PRIOR DISCLOSURE"
REGULATIONS

Customs has also published final regulations overhauling the agency's rules for making and processing "prior disclosures" of Customs law violations. The new rules apply to the prior disclosure of violations of Section 592 of the Tariff Act (relating to entry or attempted entry of merchandise by means of false statements, acts, practices or omissions) as well as Section 593 of the Act (relating to false or negligent claims for duty drawback). The new regulations specify the type of information which must be included in a "prior disclosure", the Customs officials to whom such a disclosure should be addressed, and requirements for deposit of "withheld duties" resulting from the disclosed violations.

Certain aspects of the regulations are likely to be controversial. These include provisions relating to the tender of "withheld duties", and procedures allowing importers to appeal to Customs Headquarters regarding the amount of withheld duties to be submitted -- but at the cost of waiving the right to judicial review of such determination.

Copies of the new regulations are available from our offices [GTR #98-404], together with copies of Customs' new "Informed Compliance" publication regarding Prior Disclosure [GTR 98-405].

CAFC UPHOLDS
CLASSIFICATION OF
NAPHTHAS

Imported naphthas cannot be classified as "motor fuel blending stock" unless the importer furnishes Customs with proof of actual use, the U.S. Court of Appeals for the Federal Circuit recently affirmed. In Clarendon Marketing Ltd. v. United States, an importer entered naphthas under an eo nomine tariff provision for "Naphthas (except motor fuel blending stock)" and paid duty at a rate of 10.5 cents per barrel. Customs argued that the product should have been classified under the actual use provision for motor fuel blending stock, and subject to duty at a rate of 52.5 cents per barrel, even though the importer had furnished no proof of the actual use of the merchandise.

Obviously, the importer had no motive to furnish such proof, since it would increase its duty liability fivefold. The U.S. Court of International Trade held that, despite this anomaly, the merchandise could not be classified under the blending stock provision absent proof of its actual use.

The CAFC affirmed, rejecting a government suggestion that the tariff provision for naphthas" should be presumed inapplicable unless the importer furnished proof that its merchandise was not used as blending stock. The CAFC held that there was no basis to interpret an eo nomine tariff provision as an "actual non-use provision" and held that the tariff should be interpreted according to its terms. While this provision might create an anomaly -- as no importer of naphtha will ever furnish proof of actual use -- the CAFC said that any correction to the tariff must come from Congress in the form of legislation, rather than from the Courts as a matter of judicial construction. Copies of the Clarendon Marketing decision are available from our offices [GTR #98-406].

CIT: TIME-BARRED
DUTY REQUEST IS
A PROTESTABLE
"EXACTION"

A Customs Service demand that a surety pay a time-barred claim for "withheld duties" constitutes a protestable "exaction", the U.S. Court of International Trade recently ruled. In American Motorists Insurance Co. v. United States, Customs demanded that a Customs surety pay certain 19 U.S.C. Section 1592(d) "withheld duties" of which the government had been deprived as the result of an importer's fraud. Although the statute of limitations for collecting the monies from the surety had expired, Customs threatened the surety with administrative sanctions if it failed to pay. The surety paid, and protested.

Following a 1996 Federal Circuit decision prohibiting Customs from exacting time-barred duties from sureties under threat of sanction, the government agreed to refund the money to American Motorists. However, the parties could not agree on whether the refund should be paid with interest. The interest question turned upon whether the action was properly before the CIT under the Court's "protest" jurisdiction or under its "residual" jurisdiction. The CIT held that the government's time-barred demand for duties was an illegal "exaction" which could be protested. Accordingly, the surety was entitled to receive its refund with interest from the date the suit was filed, as provided by law.

Copies of the American Motorists decision are available from our offices [GTR #98-407].

HMT: COURT
MOVES COLLATERAL
ISSUES FORWARD

Anxious to expedite refunds to exporters of unconstitutionally-exacted Harbor Maintenance Taxes (HMTs), the U.S. Court of International Trade (CIT) has taken steps to seek the quick resolution of collateral issues which may have an important impact on the extent and amount of those refunds. On May 22, 1998, Judge Jane A. Restani lifted the stay in several HMT lawsuits, to allow them to proceed.

The Court lifted the stay in the case of Stone Container Co. v. United States, which raises several issues, including: (1) whether the statute of limitations for exporters to file HMT lawsuits was "tolled" during the approximately 18 months an unsuccessful motion to designate a class action was pending before the CIT; (2) whether an exporter's cause of action to sue for an HMT refund accrues at the time the quarterly tax refund was due, or the time the tax was actually paid; and (3) whether the Court of Federal Claims (CFC) has any jurisdiction over export HMT claims, such that exporters might claim the benefit of that court's 6-year statute of limitations. In a conference with counsel for exporters, Judge Restani informally expressed the view that exporters' cause of action to recover the HMT likely accrued on the date of payment, and expressed doubt that the CFC had any jurisdiction over harbor tax cases.

The Court also lifted the stay in Swisher International, Inc. v. United States, which raises the issue of whether exporters whose claims for HMT refunds are time-barred under the CIT's "residual" jurisdiction might nonetheless pursue HMT refunds by prosecuting administrative protests against the denial of a request for an HMT refund. While the United States Shoe court held that the mere payment or collection of the export HMT was not a protestable "decision", the courts have yet to deal squarely with the issue of whether administrative denial of an HMT refund claim might constitute a protestable decision regarding a duty or exaction.

Finally, the CIT entered judgment for plaintiffs in the United States Shoe case and in the case of International Business Machines Corp. v. United States, awarding HMT refunds plus interest pursuant to 26 U.S.C. Section 2411. The government has 60 days in which to decide whether to appeal the award of interest to the Federal Circuit.

A memorandum describing these actions is available from our offices [GTR #98-408], together with copies of the judgment orders in the United States Shoe and IBM cases [GTR #98-409].

CIT HOLDS HMT ON
PASSENGERS TO BE
UNCONSTITUTIONAL

In two unusual decisions, the U.S. Court of International Trade has ruled that the Harbor Maintenance Tax is unconstitutional as applied to the carriage of passengers. In Carnival Cruise Lines, Inc. v. United States, Slip Op. 98-71 (June 2, 1998) and Princess Cruises, Inc. v. United States, Slip Op. 98-74 (June 9, 1998), the Court, per Senior Judge R. Kenton Musgrave, held that since the U.S. Supreme Court had struck down the export HMT as unconstitutional, and the HMT statute defined "exports" to include the carriage of passengers, the tax was perforce invalid as applied to passenger carriage.

What is potentially more intriguing about these decisions is that they were in part based upon protests filed with the Customs Service, and the Court entertained the cases under its 28 U.S.C. Section 1581(a) "protest" jurisdiction. This suggests that there may be a basis to ask the Court to exercise such jurisdiction over export HMT cases as well.

Copies of the Carnival Cruise Lines [GTR #98-410] and Princess Cruises [GTR #98-411] decisions are available from our offices.

PLOTTERS ARE
"PRINTERS" UNDER
HTS, COURT HOLDS

"Plotters" used to print engineering data and drawings from computer systems are properly classifiable as output units (printers) for automatic data processing machines under heading 8471 of the Harmonized Tariff Schedule of the United States (HTS), the U.S. Court of International Trade recently held. In Hewlett-Packard Corp. v. United States, Slip Op. 98-76 (June 12, 1998), the Court rejected Customs' assertion that the "plotters" were classifiable under the HTS heading 9017 provisions for "drawing machines".

In two previous decisions, issued under the former Tariff Schedules of the United States (TSUS), the Court had ruled that plotters designed for use with computer systems were classifiable with those systems, rather than as "drawing machines". However, Customs refused to apply these decisions to the classification of "plotters" under the HTS, believing that a passage in the Explanatory Notes to HS heading 9017 compelled a different result. The court disagreed, finding that the plotters in question were not used to "draw", but merely to print data created or processed on computer systems.

Copies of the Hewlett-Packard decision are available from our offices [GTR #98-412].

WTO APPEALS BODY
REVERSES "LAN"
CASE DECISION

In a significant setback for the U.S. a World Trade Organization (WTO) Appellate Body has reversed the recent decision of a WTO dispute resolution panel which held that the European Union had violated its trade obligations by changing the tariff classification of Local Area Network (LAN) equipment for automatic data processing systems. The EU had classified the LAN equipment as telecommunications equipment, but the World Customs Organization (WCO) agreed with the U.S. claim that the goods were properly classifiable as ADP units.

The Appellate Body decision did not dwell on the proper classification of LAN equipment. Rather, its decision rested on a finding that the U.S. had not established that there was a definite and multilateral understanding concerning the proper classification of LAN equipment. A unilateral expectation of how goods should be classified is not sufficient to make out a violation of a country's WTO obligations, the panel said. The U.S. will probably seek a more definite clarification of LAN boards' tariff status as part of the ongoing talks to expand the Information Technology Agreement (ITA).

Copies of the WTO Appellate Body decision and our firm's analysis are available from our offices [GTR #98-413].

CUSTOMS TO REVIEW
DRAWBACK CLAIMANTS'
EXPORT RECORDS

Customs' drawback liquidators will be required to conduct an annual review of export documentation maintained by drawback claimants who use the Exporter's Summary Procedure (ESP), under a new policy announced by the Customs Service.

Under the new drawback regulations established in Treasury Decision 98-16, the use of the ESP -- in which a drawback claimant combines multiple export shipments on a single claim -- is no longer a "privilege" subject to Customs' approval, but may be used at the claimant's election. Customs is now directing its drawback officials to conduct annual reviews of claimants' records, to ensure that the claimant can establish the fact of exportation, and the nature of the goods exported. Exports by sea, air and land conveyances are to be verified independently. Where Customs cannot verify exports, the agency can suspend the claimant's accelerated payment of drawback privileges, or waiver of prior notice of exportation.

Copies of Customs' policy statement, and our firm's analysis, are available from our offices [GTR #98-414].

CUSTOMS SEEKS
COMMENT ON GAUGER,
LABORATORY RULES

The Customs Service has published a comprehensive set of proposed regulations concerning the establishment, accreditation and regulation of Customs-approved gaugers and independent laboratories. Gaugers and laboratories are authorized to conduct measurements (e.g., petroleum gauging) and specified kinds of product analyses on imported merchandise. The new regulations include provisions for monetary penalties to be assessed on gaugers and laboratories which do not meet Customs' regulatory requirements.

Customs is accepting comments on the proposed regulations through August 10, 1998. Copies of the proposal are available from our offices [GTR #98-415].

GSP EXPIRES --
AGAIN !

The Generalized System of Preferences (GSP), which provides preferential tariff treatment to a broad range of goods imported from Beneficiary Developing Countries, expired once again on June 30, 1998. Pending Congressional reauthorization, importers of formerly GSP-eligible goods must deposit duties with Customs at full Column 1 MFN rates. As in the past, Customs will allow importers to use the Special Program Indicator "A" when filing entries. The indicator will trigger a duty refund, when and if GSP is renewed on a retroactive basis.

Copies of Customs' GSP expiration procedures are available from our offices [GTR # 98-416].

IN BRIEF . . .

Customs, as expected, has reversed its prior ruling concerning the classification of pre-drilled softwood studs from Canada, subjecting the products to export restrictions under the U.S. - Canada Softwood Lumber Agreement [GTR #98-417]. A court challenge to the decision is expected . . . The President has proclaimed "escape clause" quotas on imports of wheat gluten [GTR #98-418].