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

Volume XV, Number 1
April, 2000

Harbor Maintenance Tax
COURT PAVES WAY
FOR MORE EXPORT
HMT REFUNDS

Exporters may be entitled to recover as much as $500 million in additional refunds of the Harbor Maintenance Tax (HMT), as the result of an important new decision by the U.S. Court of Appeals for the Federal Circuit (CAFC).

In Swisher International Inc. v. United States, No. 99-1277 (February 28, 2000), the CAFC held that exporters may invoke the U.S. Court of International Trade's "protest" jurisdiction by filing applications with the U.S. Customs Service for HMT refunds, protesting Customs' denial of those applications, and then challenging protest denials before the CIT. Since the CAFC found that there is no time limit on filing administrative HMT refund claims, the new decision means that exporters should be able to recover all export HMTs collected since April 1, 1987, when the tax entered into force. Previous refunds of the export HMT - totaling more than $750 million - - were paid in lawsuits that invoked the CIT's "residual" jurisdiction, which is the subject to a two-year statute of limitations.

The Swisher decision means that exporters should be entitled to recover as much as $500 million in additional HMT refunds, mostly for taxes collected between 1987 and 1993. Should the courts determine that exporters are entitled to interest on these refunds, the total amount of additional refunds could double.

Copies of the Swisher decision, and a memorandum analyzing it, are available from our offices [GTR 00-101].

INTEREST ON
HMT REFUNDS
UNSETTLED

Whether exporters who have received $750 million in "early refunds" of the export HMT are entitled to receive interest on those refunds remains undecided. Although the U.S. Court of International Trade ruled in 1996 that exporters were statutorily entitled to interest from the date the disputed taxes were paid until the date they were refunded, the Court of Appeals for the Federal Circuit (CAFC) has now ruled that interest on HMT refunds should not be paid. In International Business Machines Corp. v. United States, No. 98-1590 (January 19, 2000), the CAFC ruled held that, while equitable considerations supported an award of interest, neither the interest provisions of the Internal Revenue Code, nor those of the Tariff Act, "fit" the HMT statute.

Exporters have petitioned the CAFC for a re-hearing of its decision in IBM, asserting that the Constitution itself demands that interest be paid on refunds of illegally- collected taxes.

Copies of the IBM decision are available from our offices [GTR 00-102].

CAFC COAL TAX
DECISION MAY
HELP HMT
CLAIMANTS

A recent U.S. Court of Appeals for the Federal Circuit (CAFC) decision involving challenges to the Coal Excise Tax may assist companies seeking refunds of the Harbor Maintenance Tax (HMT), particularly as that tax is assessed on imports.

In Cyprus Amax Coal Company v. United States, No.99-1560 (March 14, 2000), the CAFC held that firms which challenged the constitutionality of excise taxes imposed on exported coal are entitled to bring their challenge before the U.S. Court of Federal Claims (CFC) without first exhausting administrative protest remedies before the Internal Revenue Service (IRS).

In Cyprus Amax, the CFC had dismissed the exporters' claims for lack of jurisdiction, on the ground that the exporters had failed to exhaust their administrative remedies before the IRS. The Federal Circuit reversed, holding that the exporters' cause of action to challenge the constitutionality of the tax did not flow from the taxing statute itself, but rather directly from the Export Clause of the U.S. Constitution. While the coal exporters had the right to exhaust administrative remedies and bring an action under the taxing statute (which was subject to a three-year statute of limitations), the appellate court held that the CFC could also assert jurisdiction over the exporters' claims under the Tucker Act, which does not require the exhaustion of the administrative remedy in question, and which is subject to a six-year statute of limitations.

The Cyprus Amax cases, were remanded to the CFC, which will almost certainly hold the tax to be unconstitutional under the Export Clause and/or Takings Clause of the Constitution.

The Cyprus Amax decision suggests that importers who have paid the HMT on imports, and who wish to challenge it as an unconstitutional taking of property under the Fifth Amendment, may be able to bring such challenges without having to protest the liquidation of each Customs entry.

Copies of the Cyprus Amax decision are available from our offices [GTR 00- 103] together with a Memorandum discussing its implications for the HMT [GTR 00-104].

Broker-Forwarder Liability
LIABILITY LIMIT
IN BROKER-
FORWARDER BILLS
UPHELD

A $50 per shipment limitation of liability, contained in a Customhouse broker or freight forwarder bill, may be enforced in certain circumstances, the U.S. Court of Appeals for the Ninth Circuit recently held. In Insurance Company of North America v. NNR Aircargo (February 8, 2000), a shipment of imported golf balls valued at $257,000 was stolen, apparently after the cargo had been released by Customs, but before the broker/forwarder could place it with an inland carrier. When the importer's insurance company sued the brokers/forwarder for the loss of the cargo, the broker/forwarder asserted that a pre-printed clause on the reverse side of its bills to the importer limited its liability to $50 per shipment. This clause is a standard one found on many, if not most, broker and forwarder bills issued in the United States.

In upholding the broker/forwarder's defense, the Ninth Circuit held that a pre-printed condition appearing on the back of a bill can, in many cases, constitute an enforceable contract. Although the bill may not be received until after the cargo was lost, the Ninth Circuit held that the use of the clause in previous shipments involving the importer constituted a "course of dealing" sufficient to put the importer on notice that the broker-forwarder's liability was limited. Finally, the Court held that a California state statute holding warehousemen liable for the loss of cargo in their custody did not apply in this case, since it did not appear that the broker-forwarder, which had a cargo storage facility, was purport to act as a warehouseman for compensation.

The decision underscores the importance to importers and exporters of including in broker-forwarder contracts specific language regarding the latter's liability, including language waiving liability limitations appearing on pre-printed bills of lading.

Copies of the Insurance Company of North America decision are available from our offices [GTR 00-105].

Countervailing Duties
SUBSIDY "PASS
THROUGH" POLICY
STRUCK DOWN

The U.S. Commerce Department may not assume that a subsidy bestowed on a foreign manufacturer automatically the "passes through" to a subsequent arms-length purchaser of the manufacturing facilities, according to an important new decision of the U.S. Court of Appeals for the Federal Circuit. In Delverde s.r.l. v. United States, No. 99-1186 (February 2, 2000), the Italian government was found to have conferred countervailable subsidies on a pasta manufacturing facility. Subsequently, the owner of that facility sold it to a new purchaser, in an arms-length transaction. Commerce ruled that the arms-length sale did not extinguish the effects of the subsidy, but rather assumed that the subsidy "passed through" to the subsequent purchaser, and should be apportioned over all exports of goods from the plant made over a twelve (12) year period. The U.S. Court of International Trade sustained Commerce's methodology.

The CAFC reversed, holding that Commerce's methodology, which presumes a pass-through of the subsidy, is inconsistent with requirements of the Uruguay Round Agreements Act (URAA). Rather, countervailing duties can only be imposed if evidence on the record before Commerce indicates that the benefits of the subsidy were in fact past through to the subsequent purchaser of the pasta facility.

The Delverde decision will have a significant impact on the administration of U.S. countervailing duty laws, particularly with respect to foreign firms which are "privatized". Copies of the decision are available from our offices [GTR 00-106].

Regulation
CUSTOMS AMENDS
RULES ON
TSCA GOODS

The U.S. Customs Service has published final amendments to its regulations involving the importation of chemicals and other goods subject to the Toxic Substances Control Act (TSCA). The new regulations contain procedures whereby importers may ask Customs port directors for permission file blanket TSCA certifications annually in lieu of individual entry-by- entry certifications. The rules also allow for the blanket filing of "negative certifications" for goods which are not subject to particular TSCA restrictions, such as pesticides and food products (which are regulated under other statutes).

Copies of the new regulations, and a descriptive memorandum, are available from our offices [GTR 00-107].

CUSTOMS PROPOSES
MARKING RULE
CHANGES

The U.S. Customs Service has proposed amendments to its regulations concerning country of origin marking requirements. The proposed regulations would rearrange the structure of Part 134 of the Customs Regulations, and would make some substantive changes to marking requirements.

Significantly, Customs is proposing to change the regulatory definition of the "ultimate purchaser" of imported merchandise Ñ the person to whom legally required origin markings must be communicated. Traditionally, the "ultimate purchaser" has been defined as the last person in the U.S. who receives the goods in the condition in which they were imported, and may include persons who receive goods free of charge, such as by donation or gift, or as "premiums". Customs now proposes to change its regulations to define the "ultimate purchaser" as the last person in the U.S. who purchases the goods in their imported condition. This would bring the definition into line with that used for goods imported from NAFTA countries. Customs also proposes to change its regulations concerning the marking of containers.

In a related development, Customs has announced that it will no longer apply the distinction between "producer goods" and "consumer goods" for purposes of determining origin requirements for imported goods. The test, enunciated in the 1970 Customs Court case of Midwood Industries, Inc. v. United States, holds that converting an article from a "producer's good" to a "consumer's goods" effects a "substantial transformation", and change of origin for marking purposes. The decision was never popular with Customs and, although never overruled, was not heavily relied upon by the courts. How the courts will react to Customs' rather anti-climactic announcement remains to be seen.

Copies of Customs' proposed regulations [GTR 00-107] and Midwood case announcement [GTR 00-108] are available from our firm.

CUSTOMS ISSUES
NEW BROKER
REGULATIONS

The United States Customs Service has published a final comprehensive revision of the agency's regulations governing the licensing and conduct of Customshouse Brokers. The new regulations are intended to codify and clarify Customs' position regarding permissible activities by licensed Customhouse brokers, and to discuss procedures for applying for and securing Customhouse broker licenses; issuing permits to permit brokers to transact Customs business in particular Customs districts; conducting broker license revocation, suspension, and monetary penalty proceedings; and relations between Customhouse brokers, and between brokers and unlicensed persons.

Some of the more controversial provisions of the new regulations apparently limit the extent to which licensed brokers, who are employed by importers in-house, may furnish Customs advice to their employers, and to separately-incorporated subsidiaries and affiliates of their employers.

Copies of the new regulations are available from our offices [GTR #00-109].

Agriculture Policy
USDA PROPOSES
IMPORT LICENSING
FOR SOME SUGAR-
CONTAINING
PRODUCTS

In a move that could serve as a precedent for regulating imports of agricultural products, U.S. Department of Agriculture (USDA) has proposed a new system for the issuance of import licenses to companies wishing to enter certain sugar-containing products at low under-Tariff Rate Quota (TRQ) rates of duty.

The goods covered by USDA's proposals are sugar-containing products, containing more than 10% by dry weight of sugar, provided for in Additional U.S. Note 8 to Chapter 17 of the Harmonized Tariff Schedule (HTS). This note covers a diverse group of sugar-containing products, ranging from flavored and powdered sugars to various chocolate preparations, cake and cookie doughs, and other food preparations. At present, approximately 67,000 thousand metric tons of these goods may be imported into the U.S. each year at low-under-TRQ rates of duty (of which approximately 59,000 MT has been allocated to products of Canada). Mexican products are not covered by this TRQ regime.

Under the USDA proposal, companies which have imported sugar- containing products during a representative three (3)-year period can apply for "historical" import licenses. "Non-historical" import licenses will be granted, on an "as available" basis, for products not covered by historical licenses. Only an importer holding a valid license would be permitted to enter sugar-containing products into the U.S. at under-TRQ duty-rates, ending the "first come, first serve" administration of these TRQ restrictions. Licenses would be required to use at least 95% of their annual license allotment, or risk losing eligibility for future licenses. Unused license balances must be turned over USDA for possible re-distribution. USDA will charge license holders a fee for processing their license applications.

USDA is requesting comments on the new regulations through April 17, 2000. [The current proposal only affects certain sugar-containing products, but could conceivably serve as a precedent for the use of import licenses in administering other agricultural TRQ restraints]. Copies of the proposed regulations are available from our offices [GTR #00-110].

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