GEORGETOWN LAW
CLE
Your Authoritative Legal Resource from the Nation’s Capital
Georgetown Law CLE has established a thirty-two year tradition providing the legal
community high quality programs. Our programs are developed with the profession’s
ever-changing needs in mind, while at the same time meeting the mandatory CLE
requirements of various state bars. Located in the heart of the nation’s capital, we feature
the country’s leading officials, judges and practitioners.
The views and conclusions expressed herein are those of the authors and not necessarily
those of the Georgetown University Law Center CLE Department or of its co-sponsors.
If legal advice or other expert assistance is required, the services of a competent
professional should be sought.
Thank you
Georgetown Law
would like to thank the following
sponsors and exhibitors for
supporting the
2011 International Trade Update
and Trade & Customs Law
Kelley Drye & Warren LLP
Cocktail Reception Sponsor
Wiley Rein LLP
Lunch Sponsor
Adduci, Mastriani & Schaumberg, LLP
Wednesday’s Continental Breakfast & Networking Breaks
Covington & Burling LLP
Thursday’s Continental Breakfast & Networking Breaks
The Pike Law Firm
Friday’s Continental Breakfast & Networking Breaks
COVINGTON
international trade group
Global experience and strength in government
regulation, litigation, and transactions:
BEIJING
BRUSSELS
LONDON
NEW YORK
San Diego
SAN FRANCISCO
Silicon Valley
WASHINGTON
WW W. COV. CO M
∙∙ Trade Law Proceedings
∙∙ Customs
∙∙ Trade Policy
∙∙ CFIUS/Exon-Florio
∙∙ US Foreign Corrupt Practices Act & UK Bribery Act
∙∙ Foreign Governments & International
Organizations Matters
∙∙ Foreign Trade Controls
∙∙ Homeland & National Security
∙∙ International Boundaries
∙∙ International Investment Disputes
∙∙ International Public Policy
In alliance with McLarty Associates and Institution
Quraysh for Law & Policy, we provide our clients with
trusted international strategic advice in legal, regulatory,
and commercial issues.
Providing seasoned International Trade
advice with political insight
Our lawyers protect clients against unfairly traded goods
and help them enter promising markets worldwide.
A leading International Trade
and Customs practice, noted for
our expertise in protecting U.S.
Our team combines legal firepower with the
analytical insights of the firm’s in-house economic
professionals – Georgetown Economic Services.
manufacturers against unfairly
traded goods and for our insight
into the politics surrounding
Capabilities include:
• T
rade Remedies (AD/CVD/
Safeguards)
• I nternational Dispute
Resolution
• Market Access
having “profound understanding
• E
xport Controls and
Compliance
of the legislative landscape,” by
• Customs
Chambers USA.
• F
oreign Corrupt Practices
Act (FCPA)
trade issues – members of our
group have been described as
www.kelleydrye.com
• Tariff Issues
To find out more about our International Trade practice, visit
www.kelleydrye.com/practices/international_trade_customs
246 Sycamore Street • Suite 215 • Decatur, Georgia 30030-3434
is proud to sponsor the
Georgetown Law CLE
2011 International
Trade Update
Wiley Rein’s International Trade Group, which includes 30 attorneys and
consultants, is recognized by Chambers USA as one of the nation’s “elite
international trade practices.”

We represent clients in domestic and international trade litigation and
dispute resolution, including antidumping and countervailing duty
investigations, safeguards proceedings, WTO litigation, Section 337
actions, export enforcement proceedings and investor/state arbitration.

We advise clients on market access issues, trade agreement negotiations
(WTO, free trade agreements, and bilateral investment treaties), trade
legislation, customs regulations, and U.S. and European privacy law.

We represent foreign and domestic clients in corporate structuring
and overseas financial transactions, and compliance with Treasury
Department sanctions, export controls, Bank Secrecy Act regulations,
Anti-Boycott regulations, and the Foreign Corrupt Practices Act.
For more information, contact: Alan H. Price (202.719.3375 or
aprice@wileyrein.com) or Timothy C. Brightbill (202.719.3138 or
tbrightbill@wileyrein.com).
Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com/trade
Table of Contents
I.
General Information
Program Agenda and Room Locations........................................................................................... 11
Advisory Board Roster ................................................................................................................... 12
Speaker Biographies ....................................................................................................................... 13
Things to Do in Washington, DC ................................................................................................... 17
Restaurants ..................................................................................................................................... 18
2010-2011 Program Schedule ........................................................................................................ 19
II.
Customs I: Successful Advocacy in Customs Administrative Practice
Moderator: David P. Sanders
Panelists: Lars-Erik A. Hjelm, Maytee Pereira, William C. Sjoberg, Yelena Slepak
Successful Advocacy in Customs Administrative Practice: Overview & Introduction ................. 21
Classification .................................................................................................................................. 23
Successful Advocacy in Customs Administrative Practice: Customs Valuation ........................... 32
An Introduction to Rules of Origin and Marking as Related to Successful Advocacy before U.S.
Customs and Border Protection...................................................................................................... 44
Hypotheticals .................................................................................................................................. 53
Successful Advocacy in Customs Administrative Practice: Customs and Border Protection
Penalties PowerPoint ...................................................................................................................... 57
III.
Customs II: Customs Litigation
Moderator: R. Kevin Williams
Panelists: Michael T. Cone, T. Randolph Ferguson, Jason M. Kenner
Litigation in the United States Court of International Trade: Selecting and Setting up Issues ...... 69
The Importance of a Well Drafted Scheduling Order to an Orderly Discovery Process................ 87
Basics of Customs Classification ................................................................................................... 99
IV.
Trade I: Petition Process at the Commerce Department
Moderator: Kathleen W. Cannon
Panelists: Timothy C. Brightbill, Peggy A. Clarke, Kristin Mowry
Initial Actions Around a Petition: A Respondent’s Perspective................................................... 111
Trade I: Strategic Considerations for Petitioning Domestic Industries at the Commerce
Department (AD/CVD) ................................................................................................................ 117
Antidumping and Countervailing Duty Petitions, At Home and Abroad PowerPoint ................. 129
V.
Trade II: Injury Investigations in Trade Remedy Cases
Moderator: Hon. Shara L. Aranoff
Panelists: Daniel W. Klett, Daniel L. Porter, Eric P. Salonen
Practical “How-to” for Injury Investigations in Trade Remedy Cases......................................... 149
Practical “How-to” for Injury Investigations in Trade Remedy Cases PowerPoint ..................... 178
Injury Investigations in Trade Remedy Cases .............................................................................. 182
I
PROGRAM AGENDA AND ROOM LOCATIONS
Trade & Customs Law – Basics You Need to Know
Wednesday, March 2, 2011
Georgetown Law  Washington, DC
8:30-9:00 am
Registration & Continental Breakfast – Gewirz Student Center, 12th floor
Sponsored by Adduci, Mastriani & Schaumberg, LLP
9:00-10:15 am
Customs I: Successful Advocacy in Customs Administrative Practice – Gewirz
Student Center, 12th floor
Moderator: David P. Sanders
Panelists: Lars-Erik A. Hjelm, Maytee Pereira, William C. Sjoberg, Yelena Slepak
10:15-10:30 am
Networking Break – Gewirz Student Center, 12th floor
Sponsored by Adduci, Mastriani & Schaumberg, LLP
10:30-11:45 am
Custom II: Customs Litigation – Gewirz Student Center, 12th floor
Moderator: R. Kevin Williams
Panelists: Michael T. Cone, T. Randolph Ferguson, Jason M. Kenner
11:45 am-1:30 pm
Lunch (on your own)
1:30-2:45 pm
Trade I: Petition Process at the Commerce Department – Gewirz Student Center,
12th floor
Moderator: Kathleen W. Cannon
Panelists: Timothy C. Brightbill, Peggy A. Clarke, Kristin Mowry
2:45-3:00 pm
Networking Break – Gewirz Student Center, 12th floor
Sponsored by Adduci, Mastriani & Schaumberg, LLP
3:00-4:15 pm
Trade II: Injury Investigations in Trade Remedy Cases – Gewirz Student Center,
12th floor
Moderator: Hon. Shara L. Aranoff
Panelists: Daniel W. Klett, Daniel L. Porter, Eric P. Salonen
4:15 pm
Adjournment
ADVISORY BOARD ROSTER
Program Co-Chairs
Hon. Leo M. Gordon
U.S. Court of International Trade
New York, NY
Amelia Porges
Law Offices of Amelia Porges
Washington, DC
Paul C. Rosenthal
Kelley Drye & Warren LLP
Washington, DC
Advisory Board Members
M. Jean Anderson
Weil, Gotshal & Manges LLP
Washington, DC
Gary N. Horlick
Law Office of Gary N. Horlick
Washington, DC
Damon V. Pike
The Pike Law Firm
Atlanta, GA
Harvey M. Appelbaum
Covington & Burling LLP
Washington, DC
Prof. John H. Jackson
Georgetown University Law Center
Washington, DC
Timothy M. Reif
Office of the U.S. Trade Representatives
Washington, DC
Jeanne S. Archibald
Hogan Lovells LLP
Washington, DC
Jay R. Kraemer
Fried, Frank, Harris, Shriver & Jacobsen LLP
Washington, DC
Jimmie V. Reyna
Williams Mullen
Washington, DC
Alexandra Baj
Steptoe & Johnson LLP
Washington, DC
James M. Lyons
U.S. International Trade Commission
Washington, DC
Marianne Rowden
American Association of Exporters and
Importers
Washington, DC
William H. Barringer
Winston & Strawn LLP
Washington, DC
Warren H. Maruyama
Hogan Lovells LLP
Washington, DC
Timothy C. Brightbill
Wiley Rein LLP
Washington, DC
John D. McInerney
U.S. Department of Commerce
Washington, DC
Peggy A. Clarke
Blank Rome LLP
Washington, DC
Sandy Merber
General Electric Company
Washington, DC
Kevin M. Dempsey
American Iron and Steel Institute
Washington, DC
Julie C. Mendoza
Troutman Sanders LLP
Washington, DC
Lawrence M. Friedman
Barnes, Richardson & Colburn
Chicago, IL
William Methenitis
Ernst & Young LLP
Dallas, TX
Myles B. Harmon
U.S. Department of Homeland Security
Washington, DC
Matthew R. Nicely
Thompson Hine LLP
Washington, DC
Mark D. Herlach
Sutherland, Asbill & Brennan LLP
Washington, DC
Michael S. O’Rourke
Rode & Qualey
New York, NY
Mark E. Herlihy
Institute of International Economic Law
Georgetown University Law Center
Washington, DC
William D. Outman, II
Baker & McKenzie LLP
Washington, DC
Eric P. Salonen
Law Offices of Stewart & Stewart
Washington, DC
Lawrence A. Schneider
Arnold & Porter LLP
Washington, DC
William C. Sjoberg
Adduci, Mastriani & Shaumberg LLP
Washington, DC
Gregory J. Spak
White & Case LLP
Washington, DC
Jeffrey M. Telep
King & Spaulding LLP
Washington, DC
Marguerite E. Trossevin
Jochum Shore & Trossevin PC
Washington, DC
Barbara S. Williams
U.S. Department of Justice
New York, NY
Thomas Wilner
Shearman & Sterling LLP
Washington, DC
SPEAKER BIOGRAPHIES
Trade & Customs Law – Basics You Need to Know
Wednesday, March 2, 2011
Georgetown Law  Washington, DC
Hon. Shara L. Aranoff was nominated to the U.S. International Trade Commission (USITC) by President
George W. Bush on April 27, 2005, was confirmed by the U.S. Senate on July 29, 2005, and was sworn in as a
member of the Commission on September 6, 2005. She served as Chairman of the USITC from June 17, 2008
through June 16, 2010, and Vice Chairman from June 17, 2006 through June 16, 2008. Prior to her
appointment, Commissioner Aranoff was Senior International Trade Counsel on the Democratic staff of the
U.S. Senate Committee on Finance. From June 1993 until her Senate Finance Committee appointment in
January 2001, she served as an Attorney-Advisor in the Office of the General Counsel at the USITC. Earlier in
her career, Commissioner Aranoff was an Associate at the Washington, DC law firm of Steptoe & Johnson,
specializing in international trade and public international law. Prior to that, she served as a judicial clerk for
the Honorable Herbert P. Wilkins, Associate Justice, Massachusetts Supreme Judicial Court. Commissioner
Aranoff holds a B.A. from Princeton University and a J.D. from Harvard Law School. She attended the Insitut
Universitaire de Hautes Etudes Internationales and the University of Geneva in Switzerland as a Fulbright
Scholar.
Timothy C. Brightbill, a partner at Wiley Rein LLP, represents clients on all aspects of international trade law
and policy including import trade remedies (such as antidumping law, countervailing duty law and safeguards
investigations), global trade policy and trade negotiations, international arbitration, export controls (compliance
and licensing), climate change policy, customs matters and international e-commerce issues. Chambers USA
Leading Lawyers for Business (2010) has named Mr. Brightbill one of the nation‟s “Up and Coming”
practitioners in international trade law, noting that “he stands out as „an incredibly impressive „nuts and bolts‟
lawyer.‟”
Kathleen W. Cannon is a Partner in the International Trade and Customs Practice Group at Kelley Drye &
Warren in Washington, DC. She has practiced international trade law for over 25 years. Her practice focuses
on assisting domestic industries that are experiencing injury due to unfairly traded imports, primarily through
the use of antidumping and countervailing duty laws. She has been involved in a wide range of trade matters,
including escape clause actions, section 301 challenges, and World Trade Organization international dispute
settlement challenges and negotiations. She regularly appears before the U.S. Department of Commerce, the
U.S. International Trade Commission, and the U.S. Trade Representative. She also litigates before the U.S.
Court of International Trade (USCIT) and the U.S. Court of Appeals for the Federal Circuit. Ms. Cannon serves
on the USCIT Advisory Committee and is the International Trade Chair of the Customs and International Trade
Bar Association.
Peggy A. Clarke of Blank Rome LLP, advises clients on all aspects of import trade remedies and on customs
compliance and market access issues, including World Trade Organization dispute settlement and North
American Free Trade Agreement. She is a former Co-Chair of the ABA‟s Section of International Law‟s
International Trade Committee and has written and lectured extensively on international trade and market
access issues. She is an adjunct professor at the George Washington University Law School. Ms. Clarke
received her undergraduate degree from the George Washington University and her law degree from
Georgetown University Law Center. She has a master‟s degree from the Johns Hopkins School for Advanced
International Studies.
Michael T. Cone practices in McCullough Ginsberg Montano & Partners LLP‟s New York City office in the
areas of administrative, customs, and international trade law. Mr. Cone counsels clients on a wide array of
regulatory compliance issues, with administrative expertise that includes matters falling under the jurisdiction of
the Bureau of Customs and Border Protection and over 30 other administrative bodies that regulate the
importation and sale of merchandise. He also represents clients in all phases of litigation before federal and state
courts, including the U.S. Court of International Trade. Mr. Cone has been quoted in a variety of publications
including the New York Times, International Herald Tribune, Women’s Wear Daily, Journal of Commerce,
Shipping Digest, BNA International Trade Reporter, Grand Rapids Press, and Seafood Magazine. Mr. Cone is
fluent in French, and has studied and practiced law in Paris.
T. Randolph Ferguson is a member of Sandler, Travis & Rosenberg, P.A. Mr. Ferguson has concentrated his
practice in customs and international trade law since 1976 and is recognized nationally for his expertise in
representing companies in a wide range of import and export related matters. He is also well known for his
representation of the surety companies that underwrite the customs bonds that importers submit upon entry of
merchandise into the United States.
Lars-Erik A. Hjelm focuses on customs law and policy for Akin Gump Strauss Hauer & Field LLP. He
represents Fortune 500 companies whose imports and exports are regulated by the U.S. Department of
Homeland Security agencies of U.S. Customs and Border Protection (USCBP) and Immigration and Customs
Enforcement (ICE), as well as other federal agencies. His experience covers the wide range of commercial and
enforcement laws and policies that USCBP and ICE administer, including duty preference programs, tariff
classification, valuation, customs brokerage, intellectual property rights enforcement, country of origin marking,
binding rulings, audits, anti-terrorism and border protection initiatives (e.g., the Customs-Trade Partnership
Against Terrorism), export controls, sanctions, disclosures, seizures and forfeitures, fraud and strategic
investigations, and civil and criminal penalties. Mr. Hjelm counsels companies in the airline, customs
brokerage, electronics, food, footwear, freight forwarding, home furnishings, paper, telecommunications and
textile industries. His accomplishments include counseling clients through intensive customs audits and
representing a company before the U.S. Court of International Trade (USCIT) in an historic case on USCBP‟s
refusal to grant duty-free treatment under the Generalized System of Preferences. Before joining Akin Gump,
Mr. Hjelm served in various capacities at the U.S. Customs Service. From 1996 to 1999, Mr. Hjelm was the
assistant chief counsel and managing lawyer for the Customs Service in the mid-Atlantic, where he supervised
the regional legal office and was the principal legal advisor to the customs ports of Baltimore, Philadelphia and
Washington, DC and the customs Special-Agent-in-Charge. From 1989 to 1996, Mr. Hjelm was a lawyer in the
Office of the Chief Counsel and the Office of the General Counsel of the U.S. Department of the Treasury.
During his tenure, he represented the agency before the USCIT, federal District courts and a U.S.-Canada Free
Trade Agreement dispute resolution panel, served as a special assistant U.S. attorney, taught customs law at the
Federal Law Enforcement Training Center and assisted in the drafting of the Customs Modernization Act.
Jason M. Kenner is a trial attorney with the U.S. Department of Justice, Civil Division, International Trade
Field Office in New York. Mr. Kenner‟s practice focuses on tariff classification, valuation, ship repair and duty
drawback cases. Prior to joining the International Trade Field Office, Mr. Kenner was a trial attorney at the
New York City Law Department where he practiced in municipal tort liability. He is a 2004 graduate of St.
John‟s University School of Law.
Daniel W. Klett is a principal and economist with Capital Trade, Incorporated, an economic consulting firm
that specializes in providing economic and accounting analysis and support for law firms involved in
international trade proceedings, including AD/CVD investigations and sunset reviews, Safeguard (Section 201
and 421) proceedings, and Section 337 investigations. Mr. Klett also participates in trade policy analyses, most
recently conducting studies for the Saudi Ministries of Commerce and Finance, and the United Arab Emirates
Embassy. Prior to Capital Trade, Mr. Klett was a consultant at ICF Inc. and Coopers & Lybrand, and from
1979 to 1987 he served as an economist at the U.S. International Trade Commission. Mr. Klett was a Peace
Corps volunteer in Sierra Leone. He has a Master‟s degree in economics from Georgetown University, and a
Bachelor‟s degree in economics from College of the Holy Cross.
Kristin Mowry is a partner at Mowry & Grimson PLLC, and an international trade and market access attorney
whose practice consists of providing global business, investment, regulatory and government relations advice to
U.S. and international clients. Ms. Mowry has represented corporate and government clients in international
trade matters such as unfair trade litigation, World Trade Organization issues and disputes, and U.S. export
control and economic sanctions laws. Ms. Mowry's practice has a particular emphasis on developing and
implementing market penetration strategies and securing market access opportunities through free trade
agreement negotiations and through strategic business alliances. Ms. Mowry's clients have included trade
associations, manufacturers, importers, and U.S. multinationals that source abroad, as well as national and
provincial foreign governments. Ms. Mowry is a graduate of the University of Chicago, where she earned her
Bachelor‟s and Master‟s degrees in International Relations, as well as a graduate of the Georgetown University
Law Center.
Maytee Pereira is a Director in PricewaterhouseCoopers LLP‟s Worldtrade Management Services Practice in
New York, where she assists U.S. multinationals in navigating the complex U.S. customs requirements with
particular focus in the area of customs valuation. Prior to joining PricewaterhouseCoopers' predecessor firm,
Coopers & Lybrand, LLP, Ms. Pereira was a practicing attorney at Siegel, Mandel & Davidson, LLP, a longestablished law firm in New York, NY, engaged exclusively in the practice of customs and international trade
law. She began her professional career as a law clerk to the Honorable Nicholas Tsoucalas, Senior Judge of the
United States Court of International Trade in New York. Ms. Pereira is also a licensed U.S. customs broker.
Ms. Pereira is a graduate of Fordham University and Fordham Law School.
Daniel L. Porter is a partner in Winston and Strawn LLP‟s Washington, DC office who focuses his practice on
international trade law. Mr. Porter counsels clients on a variety of U.S. laws that affect the cross-border
shipment of goods, including antidumping, countervailing duty, market access, escape clause relief, and
customs matters. Mr. Porter represents clients from China, Canada, Japan, Korea, and Brazil who export of
wide range of materials, including steel, semiconductors, agricultural products, and consumer goods. Mr.
Porter‟s experience also includes preparing defenses for injury proceedings before the U.S. International Trade
Commission and arguing before the U.S. Department of Commerce for reductions in dumping margins.
Eric P. Salonen is an international trade attorney and partner with the Law Offices of Stewart & Stewart in
Washington, DC. Mr. Salonen has a broad range of experience in U.S. trade remedy laws and trade policy,
including antidumping and countervailing duty cases, safeguards, and Section 337, as well as North American
Free Trade Agreement (NAFTA) and World Trade Organization dispute settlement. Prior to joining Stewart &
Stewart in 1998, Mr. Salonen served as attorney-advisor to two Commissioners of the U.S. International Trade
Commission (USITC) between 1991 and 1997, during which time he worked on more than 50 antidumping and
countervailing duty investigations, as well as numerous Section 337 and Section 332 investigations. He
provided analysis and advice on implementing legislation for the Uruguay Round Agreements and helped draft
the USITC‟s regulations to implement changes to U.S. trade laws brought about by the Uruguay Round
Agreements Act and the NAFTA, including proposed regulations governing the conduct of five-year sunset
reviews of antidumping and countervailing duty orders. Mr. Salonen is a graduate of the Edmund A. Walsh
School of Foreign Service at Georgetown University (B.S.F.S. cum laude) and received his law degree from the
University of Pennsylvania.
David P. Sanders is a partner with Williams Mullen in Washington, DC. He has over 22 years of experience in
customs and international trade matters, focusing on the representation of clients before U.S. Customs and
Border Protection in a wide range of proceedings from ruling requests and appeals of agency actions, to audits
and penalty cases involving issues such as tariff classification, valuation, special program qualification,
drawback and North American Free Trade Agreement (NAFTA). He advises and represents U.S. importers in a
variety of customs matters, including administrative proceedings involving U.S Customs‟ treatment of clients‟
imports, focused assessments, NAFTA verifications, prior disclosures, IP protection, investigations, detentions,
seizures and litigation in the U.S. Court of International Trade. He also assists clients in developing,
implementing and documenting import and export compliance programs adapted to their international business
operations. Before entering private practice, Mr. Sanders served as an Attorney with U.S. Customs Service
Headquarters. He received his J.D. from the University of Denver Sturm College of Law and his B.A. from the
University of Michigan.
William C. Sjoberg is a partner at Adduci, Mastriani & Schaumberg, LLP in Washington DC, where his
practice focuses on international trade and customs. He practices before and advises clients on issues important
to the U.S. Department of Commerce, the U.S. Department of Homeland Security, the U.S. International Trade
Commission (USITC), the U.S. Department of the Treasury, the U.S. Department of State, and the Office of the
United States Trade Representative. Prior to entering private practice, he was an import compliance specialist
at the U.S. Department of Commerce and a Private Sector Project manager at the U.S. Embassy in Belize. He is
an active member of the Customs and International Bar Association, International Trade Commission Trial
Lawyers Association, and the DC Bar. Mr. Sjoberg has lectured and published articles on various international
trade issues, including his most recent article, “Everybody Comes to the ITC” which highlights the effective use
of Section 337 before the USITC. He is a graduate of the University of Texas at Austin, the LBJ School of
Public Affairs, and Texas Tech Law School.
Yelena Slepak is currently a Senior Attorney with the Office of the Assistant Chief Counsel, International
Trade Litigation, U.S. Customs and Border Protection, in New York City. Prior to joining Customs in 1998,
Ms. Slepak was employed by Coudert Brothers, specializing in customs and international trade law. She
received her J.D. from the New York University School of Law in 1995. She graduated with honors from
Queens College of the City University of New York in 1992. She is admitted to the bars of the State of New
York, U.S. Court of International Trade, U.S. Court of Appeals for the Federal Circuit and U.S. Supreme Court.
R. Kevin Williams is a partner with Rodriguez O‟Donnell Gonzalez & Williams, P.C. He concentrates his
practice in Customs and International Trade Law. Mr. Williams received both his Bachelor of Science and Juris
Doctor from the University of Illinois in 1976 and 1987, respectively, and received a Diploma in Advanced
Legal Studies from the McGeorge School of Law‟s Program in Salzburg, Austria in 1987. He was admitted to
the Illinois Bar in 1987, and to the U.S. Court of Appeals for the Federal Circuit and the U.S. Court of
International Trade in 1988. In 1989, he was admitted to the Bar of the U.S. District Court for the Northern
District of Illinois. He is member of the Illinois State and American Bar Associations, and the Customs and
International Trade Bar Association. Mr. Williams practices Customs and International Trade Law focusing on
all aspects of the import and export process including tariff classification and valuation of imported
merchandise, country of origin determinations, marking, intellectual property protection, antidumping/countervailing duty cases including representation before the International Trade Administration,
Department of Commerce and the International Trade Commission, and retaliatory actions such as those taken
under Section 301. He represents clients before the U.S. Trade Representative in the World Trade Organization,
export licensing, Anti-Boycott/Foreign Corrupt Practices Act and comprehensive import, export and North
American Free Trade Agreement compliance programs. Mr. Williams speaks German.
THINGS TO DO IN WASHINGTON, D.C.
Washington Monument: Constitution Ave. & 15th St. NW. Reserve tickets to ride the elevator to the top
(free at kiosk on grounds, or reserve in advance for $1.50) for a great view of the city. Relax on the grass
of the National Mall, check out the Smithsonian museums to the east, the Lincoln Memorial on the west,
the Tidal Basin to the south, or the White House to the north
Smithsonian Museums: Pick up a map at the “Castle,” the Smithsonian Institution Building. Museums
open daily from 9am-5:30pm. Great for kids: Natural History Museum and National Air and Space
Museum.
Jefferson Memorial & Tidal Basin: 15th St. SW. Great for a walk, especially during cherry blossom
season. Open 8am-midnight daily.
Lincoln Memorial: 23rd Street NW (Between Constitution and Independence Ave) Open 8am-midnight
daily.
The White House: 1600 Pennsylvania Ave NW. Tours are only available though contacting one’s
member of Congress in advance. However, at the White House Visitor Center at the corner of 15th & E St.
NW, learn about the history, visit the gift shop, and watch a video on the President’s home.
U.S. Capitol Building: Constitution and 1st St. NE. Guided tours conducted 9am-4:30pm, MondaySaturday. Get free tickets from the Capital Guide Service Kiosk at 1st St. NE & Independence Ave.
U.S. Holocaust Memorial Museum: 100 Raoul Wallenberg Place, SW. Permanent exhibit NOT
RECOMMENDED FOR CHILDREN UNDER 11. There is an exhibit designed for children 8 years and up.
Open 10am-5:30pm daily; extended hours to 7:50pm on Tuesdays and Thursdays, April to mid-June.
Arlington National Cemetery: At the west end of the Memorial Bridge in Arlington, VA. Guided tours for
$6, or tour the grounds on your own. See burial sites of Presidents William Howard Taft and John F.
Kennedy, and many others. Open 8am-7pm daily, April to September; 8am-5pm daily October to March.
TRANSPORTATION
Taxis: Hail one on the street, or call:
Diamond Cab (202) 3387-2600
Yellow Cab (202) 544-1212
Silver Cab (202) 484-8125
Metro: The closest stations to Georgetown Law are Judiciary Square (E & 4 St NW) or Union Station (1
St. & Massachusetts Ave. NE). Both are on the Red Line; pick up a map of the Metro at the station.
RESTAURANTS
Walking Distance from Law Center
Article I: Located in the Hyatt Regency Hotel, this restaurant offers upscale classic American cuisine and libations.
Moderate. 400 New Jersey Avenue. 202-737-1234. *Ask for the D.C. Neighborhood Business Discount*
Art & Soul: Presents Art Smith’s renowned fresh and modern regional cuisine with a Southern accent in a chic and
stylish urban atmosphere within The Liaison Hotel. Smith works closely with the local purveyors, farmers and vendors to
bring guests the finest and freshest ingredients available. Moderate-Expensive. Located in The Liaison at 415 New
Jersey Ave. 202-638-1616
Billy Goat Tavern: Burgers and sandwiches. Do you recall the Saturday Night Live sketch in which a short order cook
would yell out to incoming patrons: "Cheezborger! Cheezborger! No fries, cheeps! No Pepsi, Coke!"? Inexpensive. 500
New Jersey Avenue. 202-783-2123.
Bistro Bis: Fabulous french food, lots of seafood and great desserts. Blond wood, big booths and a neat view of chefs at
work through the glass wall that covers the kitchen. Expensive. Located in The Hotel George at 15 E Street. 202661-2700.
Capitol City Brewing Company: Burgers, sandwiches, salads. A nice treat are the great soft pretzels they give you
instead of a bread basket. Inexpensive/Moderate. 2 Massachusetts Avenue. 202-842-2337.
Charlie Palmer Steak: A sleek and sophisticated restaurant offering steaks and seafood. Offers views of Capitol Hill and
the Mall from its rooftop terrace. Expensive. 101 Constitution Avenue. 202-547-8100.
The Dubliner: A traditional Irish pub and restaurant. Has outdoor dining in good weather. Inexpensive. 520 North
Capitol Street. 202- 737-3773.
Irish Times: Irish pub, looks rather run down but always packed for lunch. They have great specials and the food tends
to be on the spicy side. Inexpensive. 14 F St., NW . 202- 543-5433.
Quiznos: Patrons can choose from a variety of signature subs, such as the Honey Bourbon Chicken, Prime Rib
Cheesesteak, and The 5 Meat Stack. Quiznos also serves salads, soups, and dessert items. Very inexpensive. 80 F
Street NW. 202-783-2136
Sunspot: A very casual sandwich shop and salad bar. Has nice outdoor seating area. Very inexpensive. 601 New
Jersey Avenue. 202-783-8331.
Union Station: The lower level of Union Station offers many casual dining options, it resembles a very large mall food
court. There are also sit-down restaurants including:
B.Smith’s--Southern style cooking with a great dessert menu, located in the former Presidential train station waiting room.
Expensive. 202-289-6188.
Pizzeria Uno--This busy pizza chain serves up Chicago deep-dish style pizza, pastas and good appetizers. Inexpensive.
202-842-0438.
Cab Ride from Law Center
Old Ebbitt Grill: Steps from The White House, this restaurant features upscale American saloon food. Popular with
political insiders. Moderate. 675 15th St NW. 202-347-4800.
Tosca: Award-winning northern Italian fare, in a sophisticated downtown venue. Expensive. 1112 F St. NW. 202-36712990.
Ten Penh: Asian fusion at its best. Best known for their lobster. Moderate/Expensive. 1001 Pennsylvania Ave. NW.
202-393-4500.
2010-2011 Program Schedule
For more information or to register for any seminar, please visit us online at www.law.georgetown.edu/cle or call 202662-9890. Unless noted, seminars will be held in Washington DC. Seminar dates are subject to change.
September
21
Global Antitrust Enforcement Symposium
Georgetown Law
28
International Arbitration & Finality of Awards
Georgetown Law
Bankruptcy: Views from the Bench
Georgetown Law
10
Advanced Summit on Business Valuation: Resolving Tax & Legal Issues
Georgetown Law
18-19
Advanced E-Discovery Institute
March
3-4
International Trade Update
Georgetown Law
10-11
15th Annual Corporate Counsel Institute
Georgetown Law
24-25
Section 1983: Civil Rights Litigation
Georgetown Law
7-8
Advanced Commercial Leasing Institute
Georgetown Law
28-29
Representing & Managing Tax-Exempt Organizations
October
1
November
April
May
Co-sponsored by Howrey LLP
Co-sponsored by West LegalEdcenter
Co-Sponsored by The American Bankruptcy Institute
Co-Sponsored by Business Valuation Resources, LLC
In cooperation with The Sedona Conference
In cooperation with the Association of Corporate Counsel
In cooperation with Suffolk Law School
Ritz Carlton-Pentagon City
Renaissance-Washington, DC
Advanced State & Local Tax Institute
Georgetown Law
5-10
E-Discovery Training Academy
Georgetown Law
16
Corporate Counsel Institute – Europe
18-19
June
(tentative)
Paris, France
II
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Successful Advocacy in
Customs Administrative
Practice: Overview &
Introduction
Submitted by:
Moderator:
David P. Sanders
Williams Mullen
Washington, DC
Panelists:
Lars-Erik A. Hjelm
Akin Gump Strauss Hauer & Feld
LLP
Washington, DC
Maytee Pereira
PricewaterhouseCoopers LLP
New York, NY
William C. Sjoberg
Adduci, Mastriani & Shaumberg, LLP
Washington, DC
Yelena Slepak
U.S. Customs & Border Protection
New York, NY
Georgetown CLE Conference—Trade & Customs Law—
Basics You Need to Know (Wed. March 2, 2011)
Successful Advocacy in Customs Administrative Practice
Overview & Introduction
David P. Sanders, Esq. 1, Moderator
Customs administrative practice covers a broad range of subjects, all related to the
importation of merchandise. While many subjects within this area cover matters well beyond
simple importing, today’s panel covers the basics of tariff classification, valuation and country of
origin, as well as enforcement actions and associated topics including penalties and prior
disclosures. Areas not covered in today’s panel that have a significant place in customs
administrative practice include: special programs such as Generalized System of Preferences
(GSP), NAFTA, US Chapters 9801 and 9802—duty-free provisions, other free trade agreements
(FTA’s); Drawback; administration of Anti-dumping (A/D) Counterveiling (CVD) duty orders;
Foreign Trade Zones (FTZ’s); and vessel repair.
For all of the topics mentioned, there are a number of different situations where advocacy
in customs administrative practice comes into play. These administrative processes include:
advance ruling requests—where importers seek guidance from CBP before importation—for
example, a tariff classification; CBP requests for information—where CBP requests specific
information and documentation from and importer in connection with a particular import entry;
Notices of Action—CBP notifies an importer of an action it intends to take or has already taken
relating to an importation or series of importations—examples would be where CBP informs the
importer that it disagrees with the importer’s classification of an imported product in a duty-free
provision, and reclassifies it under a dutiable provision, or where CBP rejects a declared value
and imposes a different value for specific reasons. Administrative appeals such as Protests (with
or without applications for further review) and internal advice requests allow the importer to
challenge or seek clarification about a position taken by CBP affecting the importer’s rights and
duty liability. When merchandise is detained and/or seized, the importer has rights to challenge
CBP’s action—another opportunity for advocacy before the agency. Investigations and penalties
are other areas where importers can benefit from an effective advocate. And finally, last but
certainly not least is advocacy that may be required within an organization or company to garner
the necessary support for a compliance function or particular activity.
Our panelists have substantial experience in the areas of customs and international trade
law and regulation. Attached are detailed papers prepared by the panelists explaining their
respective topic areas, which include tariff classification, customs valuation, country of origin,
and enforcement/penalties and disclosures.
David Sanders is a partner in the Washington, DC office of the law firm of Williams Mullen. His practice
focuses on Customs and International trade matters.
1
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Classification
Submitted by:
Moderator:
David P. Sanders
Williams Mullen
Washington, DC
Panelists:
Lars-Erik A. Hjelm
Akin Gump Strauss Hauer & Feld
LLP
Washington, DC
Maytee Pereira
PricewaterhouseCoopers LLP
New York, NY
William C. Sjoberg
Adduci, Mastriani & Shaumberg, LLP
Washington, DC
Yelena Slepak
U.S. Customs & Border Protection
New York, NY
CLASSIFICATION
Yelena Slepak
Senior Attorney
Office of the Assistant Chief Counsel
International Trade Litigation
U.S. Customs & Border Protection
All merchandise imported into the United States must be classified under the
Harmonized Tariff Schedule of the United States (“HTSUS”). The HTSUS is more than
a thousand pages long, and constitutes an attempt to describe all articles that can possibly
be imported, for example, live animals, food, clothing, chemicals, medicines, alcohol,
tobacco, electronics, heavy industrial machinery, works of art, etc. Classification under
the HTSUS determines the rates of duty and, where applicable, the quota/visa status of
the imported merchandise.
The HTSUS was adopted by Congress into law in January 1989. The statutory
authority for the HTSUS is 19 U.S.C. § 1202, which provides, in relevant part, that: “The
Harmonized Tariff Schedule of the United States, which replaced the Tariff Schedules of
the United States, is not published in the Code. A current version of the Harmonized
Tariff Schedule is maintained and published periodically by the United States
International Trade Commission….” In fact, the HTSUS is published annually by the
International Trade Commission (“ITC”). The HTSUS incorporates and is based on an
international classification system, which is known as the Harmonized Tariff Schedule
(“HTS”), which was created and is maintained by the Harmonized System Committee
(“HSC”) of the World Customs Organization (“WCO”).
The HTSUS is made up of several components. It begins with a Table of
Contents, followed by the General Rules of Interpretation (“GRI’s”), which are
international rules used to classify merchandise; the Additional U.S. Rules of
Interpretation (“ARI’s”), which are the United States rules that help define the scope of
the tariff provisions; General Notes, which, among other things, list Special Tariff
Treatment Programs, such as the Generalized System of Preferences (“GSP”) and the
North American Free Trade Agreement (“NAFTA”); the tariff provisions in which
imported merchandise is classified; the Chemical and Pharmaceutical Appendices to the
Tariff Schedule; and, finally, the Alphabetical Index.
The tariff provisions are organized into 22 sections, which cover broad categories
of goods. The sections are subdivided into 99 chapters. Chapters 1 through 97 are
international, i.e., they are the same for all countries, and Chapters 98 and 99 are national,
i.e., they are unique to the United States. For example, Section XI, entitled Textiles and
Textile Articles, includes Chapters 51 through 63. Each chapter is further subdivided
into headings, and each heading into subheadings. Each heading is represented by a fourdigit number and a corresponding description of the articles classifiable in such heading.
For example, Section XI includes Chapter 62, entitled Articles of Apparel and Clothing
Accessories, Not Knitted or Crocheted. Chapter 62 has a total of 17 headings (Headings
6201 through 6217). It includes Heading 6216, among others, which provides for:
“Gloves, mittens and mitts.” (A sample page from HTSUS containing an excerpt from
Heading 6216 is included for the reader’s ease of reference.)
Subheadings contain further, more specific descriptions of the articles classifiable
in each heading. Because Chapters 1 through 97 are international, the first six digits of
each subheading in those chapters are harmonized, i.e., their numerical and descriptive
parts are the same for all countries. The 7th and 8th digits of the subheadings are national,
i.e., they are drafted and adopted by the United States. Moreover, the duty rates in
Chapters 1 through 98 are set by the U.S. Congress at the 7th and 8th digit subheading
level. The last two digits in the subheadings, the 9th and 10th digits, constitute statistical
suffixes, and the corresponding descriptions are statistical annotations. They are used for
statistical reporting purposes, and are not part of 19 U.S.C. § 1202, the statute which sets
forth the HTSUS.
Chapter 98 is entitled Special Classification Provisions, and covers articles
exported from the United States and returned with or without being advanced or
improved while abroad, articles exported for alterations and/or repair, personal
exemptions extended to residents and nonresidents, as well as other personal exemptions,
importations of the U.S. and other governments, importations of religious, educational,
scientific and other institutions, importations under bond, etc. The majority of the articles
classified in this chapter are duty-free or subject to reduced rates.
Chapter 99 is entitled “Temporary Legislation; Temporary Modifications
Established Pursuant to Trade Legislation; Additional Import Restrictions Established
Pursuant to Section 22 of the Agricultural Adjustment Act, As Amended.” Chapter 99 is
reserved for the President and allows him to impose temporary tariff modifications and
quotas to remedy unfair trade practices. The rates in Chapter 99 are proclaimed by the
President and imposed in lieu of the rates set by Congress for Chapters 1 through 98. An
example of proclaimed rates in Chapter 99 is 100% duties imposed by the United States
Trade Representative on certain goods imported from the European Community (“EC”)
in retaliation for EC’s ban on the importation of hormone-treated beef from the United
States in violation of EC’s trade obligations.
There are three types of duty rates in the HTSUS. The most common type is
ad valorem, which is a percentage of the value of the imported good. For example, the
rate of duty applicable to goods classifiable in Subheading 6216.00.08 is 0.8% ad
valorem. The second type is a specific rate, which is assessed on the quantity of the
imported goods, such as ¢/kg. Finally, there can be a compound rate, which is a
combination of the ad valorem and specific rates. For example, the duty rate applicable
to the merchandise classifiable in Subheading 6216.00.19 is 11.1 cents/kg + 5.5% ad
valorem. Finally, the imported merchandise may be conditionally or unconditionally
duty-free, such as merchandise classifiable in Subheading 6216.00.05.
Duty rates appear in the HTS in two columns: Column 1 and Column 2. Column
1 is further subdivided into General and Special Rate Subcolumns. The General Rate
Subcolumn contains Normal Trade Relations (fka Most Favored Nations) rates, which are
imposed on merchandise imported from countries that are members of the World Trade
Organization (“WTO”) or countries granted WTO rates. The Special Subcolumn of
Column 1 contains preferential rates for goods that qualify under various unilateral
preference programs (e.g., GSP) and free trade agreements (e.g., NAFTA). Column 2
contains tariff rates imposed pursuant to the Smoot-Hawley Tariff Act of 1930. These
rates are usually very high, and apply to countries that are not members of the WTO
and/or do not receive negotiated preferential rates (e.g., North Korea, Cuba). Based on
the foregoing, it is clear that the country of origin of the imported merchandise may affect
the rates of duty imposed at importation.
In order to determine which tariff provision and corresponding duty rate applies to
an imported article, U.S. Customs and Border Protection (“CBP”) relies on the GRI’s, the
ARI’s, Section, Chapter and Subheading Notes, Additional U.S. Notes and the
Explanatory Notes, all of which are described in detail below.
There are six General Rules of Interpretation, which are the international legal
principles governing the classification of all imported goods. The GRI’s are mandatory
rules used to resolve the applicability of sometimes competing tariff provisions, and to
provide the uniformity of interpretation of the tariff provisions. GRI’s 1 through 4 are
applied sequentially in a hierarchy. GRI 5 is a special rule for the classification of
containers, and GRI 6 is a special rule for determining the classification of goods at the
subheading level.
GRI 1 provides, in part, that “for legal purposes, classification shall be determined
according to the terms of the headings and any relative section or chapter notes.” Thus,
the first step in classifying the merchandise under this rule is to examine the terms of the
headings to identify one that covers the merchandise. For example, Heading 6216
provides for “Gloves, mittens and mitts.” As noted above, Chapter 62 covers goods
made of fabric that is not knitted or crocheted. Based on the terms of Heading 6216,
gloves made of fabric that is not knitted or crocheted would be classified in this heading.
GRI 1 also directs the classifier to “any relative section or chapter notes.” The
section and chapter notes are found at the beginning of sections and chapters,
respectively. They are legally binding and are referred to as “legal notes.” The notes are
international, i.e., they are the same for all countries. Their function is to define the
scope of particular sections, chapters, headings and even subheadings. The notes often
provide lists of goods specifically included or specifically excluded from a particular
section or chapter. They may also contain special classification rules for goods of that
section/chapter. For example, Chapter 61 covers Articles of Apparel and Clothing
Accessories, Knitted or Crocheted. Heading 6104 covers women’s or girls’ dresses,
among other things. On the other hand, Heading 6111 covers babies’ garments. Note
6(b) to Chapter 61 provides, in relevant part, that articles “classifiable both in heading
6111 and in other headings of this chapter are to be classified in heading 6111.” Thus,
pursuant to GRI 1, applying the relative chapter note, babies’ dresses must be classified
in Heading 6111.
GRI 2 consists of two parts. GRI 2(a) provides that: “Any reference in a heading
to an article shall be taken to include a reference to that article incomplete or unfinished,
provided that, as entered, the incomplete or unfinished article has the essential character
of the complete or finished article. It shall also include a reference to that article
complete or finished (or falling to be classified as complete or finished by virtue of this
rule), entered unassembled or disassembled.” Pursuant to this rule, a bicycle imported
without a saddle and tires is still classifiable as a bicycle because even though it is
unfinished, it has the essential character of the finished bicycle. Similarly, if a bicycle is
imported with all parts present, but unassembled, it is still classifiable as a bicycle under
GRI 2(a).
GRI 2(b) provides that: “Any reference in a heading to a material or substance
shall be taken to include a reference to mixtures or combinations of that material or
substance with other materials or substances. Any reference to goods of a given material
or substance shall be taken to include a reference to goods consisting wholly or partly of
such material or substance. The classification of goods consisting of more than one
material or substance shall be according to the principles of rule 3.” Under this rule,
addition of another material or substance to an article described in a heading does not
preclude it from the classification in such heading. However, if by virtue of adding a
material or substance to the good, it is classifiable under two or more headings, GRI 3
must be considered. For example, Heading 0406 covers “Cheese and curd.” Under GRI
2(b), the heading would also cover powdered cheese with added dried chopped
vegetables, seasonings and preservatives. However, such mixture may also be
classifiable in Heading 2103 as “Sauces and preparations therefore….” Because more
than one heading potentially covers the subject merchandise, GRI 3 must be consulted.
GRI 3 consists of three parts and requires that goods be classified in the following
order: (a) in the heading which provides the most specific description; (b) in the heading
applicable to the material or component which gives the articles their essential character;
or (c) in the heading which occurs last in numerical order among those that equally merit
consideration.
More specifically, GRI 3(a) states that: “The heading which provides the most
specific description shall be preferred to headings providing a more general description.
However, when two or more headings each refer to part only of the materials or
substances contained in mixed or composite goods or to part only of the items in a set put
up for retail sale, those headings are to be regarded as equally specific in relation to those
goods, even if one of them gives a more complete or precise description of the goods.”
This rule is commonly known as the rule of relative specificity, and a heading is usually
considered more specific if it has requirements for classification that are more difficult to
satisfy. In the above example involving a powdered cheese mixture used as a base for a
sauce, which comes from an actual Customs ruling, HQ 960583 (April 19, 1999), CBP
held that Heading 2103, which covers preparations for sauces, was more specific than
Heading 0406, which covers cheese and curd. CBP reasoned that conditions for use as a
preparation for a sauce were more difficult to satisfy than the provision for cheese and
curd.
GRI 3(b) states that: “Mixtures, composite goods consisting of different materials
or made up of different components, and goods put up in sets for retail sale, which cannot
be classified by reference to 3(a), shall be classified as if they consisted of the material or
component which gives them their essential character, insofar as this criterion is
applicable.” Under this rule, the classification of a composite good or a set is determined
based on the component which imparts the essential character to the article. The essential
character may be determined by examining the nature of the material or component, its
bulk, quality, quantity, weight, value, and/or its role in relation to the use of the good.
A composite good may consist of components which are attached to each other to
form an inseparable whole, or separable components which are adapted to one another,
are mutually complementary and are not normally offered for sale in separate parts. An
example of a composite article is a tabletop water fountain consisting of a water
reservoir/base, an electric pump that sits in the base, a plastic tubing, a power cord,
simulated rocks and natural polished stones, through which and/or over which pumped
water flows. See Conair v. United States, 29 CIT 888 (2005). In Conair, the court held
that the essential character of the fountain was imparted by the pump, which made the
water flow and was indispensable to making the merchandise what it was.
A set consists of at least two different articles classifiable in different headings,
which are put up together to meet a particular need or carry out a specific activity in a
manner suitable for sale directly to users without repacking. An example of a set is a
picnic backpack consisting of a backpack (Heading 4202) imported with a place setting
for four that includes plates, knives, forks, spoons and cups made of plastic (Heading
3924). See HQ 962643 (July 9, 2001). The backpack component imparts the essential
character to the set because it provides storage space and carries all of the other items,
allows for mobility, has the greatest value, weight and bulk.
Finally, GRI 3(c) provides that: “When goods cannot be classified by reference to
3(a) and 3(b), they shall be classified under the heading which occurs last in numerical
order among those which equally merit consideration.” For example, in Conair, if the
court were to consider that the plastic components (Heading 3926) and the pump
(Heading 8413) equally merited consideration, the tabletop fountain would still have to
be classified in Heading 8413 because it appears last in numerical order among the two
potentially applicable provisions.
GRI 4 states that: “Goods which cannot be classified in accordance with the
above rules shall be classified under the heading appropriate to the goods to which they
are most akin.” This rule is very rarely used, and will not be discussed in this paper.
GRI 5 is a two-part rule governing the classification of various containers. GRI
5(a) provides that: “Camera cases, musical instrument cases, gun cases, drawing
instrument cases, necklace cases and similar containers, specially shaped or fitted to
contain a specific article or set of articles, suitable for long-term use and entered with the
articles for which they are intended, shall be classified with such articles when of a kind
normally sold therewith. The rule does not, however, apply to containers which give the
whole its essential character.” Under this rule, containers such as a violin case, camera
case, sunglasses case, blackberry holster, all of which are specially shaped or fitted to
contain the respective articles, imported and normally sold with those articles, are
classified with such articles. On the other hand, an ornamental ceramic bowl filled with
candy would not be classified in a tariff provision that covers candy because it is the bowl
that gives the essential character to the set.
GRI 5(b) states that: “Subject to the provision of rule 5(a) above, packing
materials and packing containers entered with the goods therein shall be classified with
the goods if they are of a kind normally used for packing such goods. However, this
provision does not apply when such packing material or packing containers are clearly
suitable for repetitive use.” Under this rule, cardboard boxes and plastic bags would be
classified with the goods which are packed in them at importation. However, containers
clearly suitable for repetitive use, such as steel metal drums for compressed or liquefied
gas, would be classifiable separately.
GRI 6 is a rule which governs the classification of the merchandise at the
subheading level. It states that: “For legal purposes, the classification of goods in the
subheadings of a heading shall be determined according to the terms of those
subheadings and any related subheading notes and, mutatis mutandis, to the above rules,
on the understanding that only subheadings at the same level are comparable. For
purposes of this rule, the relative section, chapter and subchapter notes also apply, unless
the context otherwise requires.” Essentially, GRI 6 requires that rules for classification at
the subheading level follow the rules for headings (GRI’s 1 through 4). This rule is
invoked only after the applicable heading is determined. Only subheadings at the same
level are comparable, i.e., to determine the scope of an applicable subheading within a
heading, the 6-digit subheading may only be compared to another 6-digit subheading
within the heading, and similarly the 8-digit subheading may only be compared to
another 8-digit subheading within the 6-digit subheading.
The Additional US Rules of Interpretation are the United States rules, which
supplement, but may not contravene the GRI’s. ARI 1(a) states that: “a tariff
classification controlled by use (other than actual use) is to be determined in accordance
with the use in the United States at, or immediately prior to the date of importation, of
goods of that class or kind to which the imported goods belong, and the controlling use is
the principal use.” An example of a principal use provision is Subheading 6216.00.08 set
forth in the attachment below. It provides for “Other gloves, mittens and mitts, all the
foregoing specially designed for use in sports….” The phrase “designed for use” in this
subheading is indicative of it being a “principal use” provision.
ARI 1(b) provides that: “a tariff classification controlled by the actual use to
which the imported goods are put in the United States is satisfied only if such use is
intended at the time of importation, the goods are so used and proof thereof is furnished
within three years after the date the goods are entered.” An example of an actual use
provision is Subheading 2401.10.61, which provides for: “unmanufactured tobacco … to
be used in products other than cigarettes.” Another example is Subheading 9817.00.50,
which provides for: “machinery, equipment and implements to be used for agricultural or
horticultural purposes.” In both subheadings, the phrase “to be used” indicates that they
are “actual use” provisions.
ARI 1(c) states that: “a provision for parts of an article covers products solely or
principally used as a part of such articles but a provision for ‘parts’ or ‘parts and
accessories’ shall not prevail over a specific provision for such part or accessory.” Under
this rule, bolts and screws, which are parts of many articles, are classified in Heading
7318, which covers fasteners, and specifically provides for bolts and screws.
ARI 1(d) states that: “the principles of Section XI regarding mixtures of two or
more textile materials shall apply to the classification of goods in any provision in which
a textile material is named.” This rule is useful in classifying goods made of various
fabrics which do not fall in any of the chapters of Section XI (Chapters 51-63), such as
headgear of Chapter 65 or bedding of Chapter 94.
Finally, there is an international publication, The Explanatory Notes to the
Harmonized Commodity Description and Coding System, which serve as an aid in
determining the proper tariff classification of the imported merchandise. The
Explanatory Notes are published by the World Customs Organization and constitute an
official interpretation of the HTS. They are not legally binding, but are instructive in that
they contain a commentary on the scope of each heading in the tariff. They list articles
which are included and/or excluded from the headings, provide definitions, technical
descriptions and/or descriptions by appearance, properties, methods of manufacture or
use of the articles. The Explanatory Notes are intended as practical guidance to assist the
classifier in understanding the terms of the tariff headings.
To summarize, if the plain language of a tariff term is clear and unambiguous, the
classification inquiry is complete. Absent congressional intent to the contrary, the
meaning of a tariff term is based on its common and popular understanding. Carl Zeiss,
Inc. v. United States, 195 F. 3d 1375, 1379 (Fed. Cir. 1999). In addition to relying on all
of the above described rules and sources, CBP may rely on its own understanding of the
terms, and may consult lexicographic and scientific authorities, dictionaries and other
reliable sources to arrive at the proper classification of the merchandise. Precision
Specialty Metals, Inc. v. United States, 116 F. Supp. 2d 1350, 1362 (CIT 2000).
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Successful Advocacy in
Customs Administrative
Practice: Customs
Valuation
Submitted by:
Moderator:
David P. Sanders
Williams Mullen
Washington, DC
Panelists:
Lars-Erik A. Hjelm
Akin Gump Strauss Hauer & Feld
LLP
Washington, DC
Maytee Pereira
PricewaterhouseCoopers LLP
New York, NY
William C. Sjoberg
Adduci, Mastriani & Shaumberg, LLP
Washington, DC
Yelena Slepak
U.S. Customs & Border Protection
New York, NY
GEORGETOWN INTERNATIONAL TRADE CONFERENCE 2011
SUCCESSFUL ADVOCACY IN CUSTOMS ADMINISTRATIVE PRACTICE:
CUSTOMS VALUATION
BY MAYTEE PEREIRA AND JINI KOH 1
I.
Introduction
The concepts of "informed compliance" and "shared responsibility" adopted pursuant to the
Customs Modification Act ("Mod Act") 2, combined with steadily increasing U.S. import
volumes, have forever altered the landscape of administrative advocacy before U.S. Customs
and Border Protection ("CBP"). In the current environment where the efficient cross-border
movement of goods can define the success of an enterprise, administrative practice before
CBP is best approached as a proactive process of strategic collaboration with the agency.
Not only does the administrative process afford the importer the first and generally most costeffective avenue to address material issues pertinent to the import process, but equally
important, the strategies explored and positions developed throughout this process often serve
to frame the issues for future litigation. Accordingly, administrative practitioners play a key
role in setting the stage on which issues of customs valuation are ultimately decided.
This paper examines the venues for advocacy within the CBP administrative process through
the lens of customs valuation issues. The first section offers a framework for customs
valuation methods in the U.S., focusing on transaction value, while the second section
examines common areas of CBP inquiry and challenge and the substantive opportunities for
administrative advocacy arising therefrom. The final section of this paper seeks to paint the
picture of effective advocacy before CBP, contemplating the factors that, in the authors'
opinion, successful advocates should consider when assisting clients in the context of the
administrative dialogue with CBP.
II.
U.S. Valuation Framework
The importance of customs valuation arises from the fact that most imported merchandise is
subject to ad valorem duties. Thus, the value ascribed to the imported article will ultimately
determine the tariff revenue that CBP will collect. From the contrasting perspective, customs
value will dictate the duty expense that the importer will incur with respect to the imported
merchandise. Thus, each party has a vested interest in ensuring that customs value of
imported merchandise is properly established.
The U.S. customs valuation framework reflects the multi-jurisdictional model that was first
agreed upon during the Tokyo Round of the General Agreement on Tariff and Trade
(“GATT”) negotiations and resulted in the GATT Customs Valuation Code of 1979. As
adopted into domestic law in the Trade Agreements Act of 1979 (the "Act"), codified at 19
U.S.C. § 1401a and implemented through corresponding regulations contained in 19 C.F.R §
1
Authors are non-practicing attorneys currently consultants with PricewaterhouseCoopers LLP’s Customs & International Trade Practice.
See Customs Modernization Act, Pub. L. 103-182, 107 Stat. 2057, Dec. 8, 1993 (formally Title VI of the North American Free Trade
Agreement Implementation Act, commonly known as the "Mod Act").
2
152.100, et al., the U.S. customs valuation framework establishes a hierarchy of
appraisement methods to be applied in order.
a. Valuation Hierarchy - 6 Methods
The Act sets forth the six distinct methods of appraisement for merchandise imported into the
United States in their order of preference, as follows:
1) Transaction value
2) Transaction value of identical merchandise
3) Transaction value of similar merchandise
4) Deductive value
5) Computed value
6) Value if other values cannot be determined.
Transaction value methodology will be explored in more depth infra. 3 In the event that the
transaction value-based methods are inapplicable, deductive or computed value may be
utilized.4 In simple terms, deductive value is based on the resale price in the U.S. after
importation of the goods, with certain specified deductions. 5 By contrast, computed value is
derived from the aggregation of input costs required to produce the item at issue, such as
component materials, labor cost, selling, general and administrative expenses and profits,
plus any assists 6 not already included, and packing costs. 7 Finally, should none of the five
primary methods of appraisement be applicable, imported merchandise shall be appraised on
the basis of one of the aforementioned methods reasonably adjusted as necessary to derive a
value; this is sometimes referred to as the "fall-back" method. 8
b. Transaction Value: In Depth
Transaction value of imported merchandise is the primary method of appraisement in the
U.S., and is defined as “the price actually paid or payable for the merchandise when sold for
exportation to the U.S., plus certain statutory additions.” 9 The price actually paid or payable
is the total payment made, or to be made, for imported merchandise by the buyer to, or for
the benefit of, the seller. 10 In short, transaction value is typically the total invoice value of
the imported merchandise.
19 U.S.C. § 1401a(b)(1) also sets forth certain statutory additions to be added to transaction
value to the extent they are incurred by the buyer and not included in the price paid or
payable. These prescribed additions are as follows:
3
Of note, transaction value of similar or identical merchandise can only be used when the identical or similar merchandise is exported to the
U.S. at or about the same time, is at the same commercial level and is in substantially the same quantity as the merchandise at issue. See 19
U.S.C. § 1401a(d) and (e) (2006); 19 C.F.R § 152.104 (2010).
4
At the request of the importer, deductive value and computed value may be applied in reverse order.
5
19 U.S.C. § 1401a(d), 19 C.F.R. § 152.105; see also CBP Informed Compliance Publication, “What Every Member of the Trade
Community Should Know About: Customs Value” at 14-15 (2006) [hereinafter CBP ICP].
6
Further explanation of assists is included, infra.
7
19 U.S.C. § 1401a(e), 19 C.F.R. § 152.106; see also CBP ICP at 15.
8
See 19 U.S.C. § 1401a(f), 19 C.F.R. § 152.107.
9
19 U.S.C. § 1401a(b)(1).
10
The price actually paid or payable can be direct or indirect, and is exclusive of any costs, charges, or expenses incurred for transportation,
insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of
importation in the United States. 19 U.S.C. § 1401a(b)(4)(A); see also CBP ICP at 8.
A. packing costs,
B. selling commission,
C. "assists" the value, apportioned as appropriate, of any assist (i.e., items provided by
the buyer free of charge or at reduced cost for use in production or sale of
merchandise),
D. royalty or license fee that the buyer is required to pay, directly or indirectly, as a
condition of sale, and
E. the proceeds of any subsequent resale, disposal, or use of the imported merchandise
that accrue, directly or indirectly, to the seller. 11
Each is briefly addressed in turn.
Packing costs refer to costs associated with all containers and coverings of whatever nature
and of packing used in placing merchandise in a condition that is packed and ready for
shipment.
Selling commissions relate to a seller's payment to an agent for assistance in identifying
buyers and facilitating the sale of imported merchandise. Selling agents act under the control,
and for the benefit, of the seller.
Assists refer to any good or service supplied by the buyer, directly or indirectly, either free of
charge or at a reduced rate for use in connection with the production of the imported
merchandise. 12 The goods and services statutorily defined as assists are: 1) materials,
components, parts, and similar items incorporated in the imported merchandise, 2) tools, dies,
molds, and similar items used in the production of the imported merchandise, 3) merchandise
consumed in the production of the imported merchandise and 4) engineering, development,
artwork, design work, and plans and sketches that are undertaken elsewhere than in the
United States and are necessary for the production of the imported merchandise. 13
Royalty or license fees refer to any payments the buyer is required to pay to be able to
purchase the imported merchandise.
Proceeds refer to any portion of the buyer's receipts from the post-importation resale or other
use of the merchandise that inures (directly or indirectly) to the benefit of the seller.
c.
Restrictions on Use of Transaction Value
There are limitations on the use of transaction value. 14 For example, transaction value cannot
be used if there are restrictions on the disposition or use of the merchandise; where there are
conditions on the sale for which a value cannot be determined; and if there are proceeds of a
subsequent resale, disposal or use of the merchandise, accruing to the seller, for which an
appropriate adjustment to transaction value cannot be made. Additionally, transaction value
11
19 U.S.C. § 1401a(b)(1)(A)-(E); see also 19 C.F.R. § 152.103(b)(1)(i)-(v).
19 U.S.C. § 1401a(h)(1)(A).
13
19 U.S.C. § 1401a(h)(1)(A); see also 19 C.F.R. § 152.102.
14
19 U.S.C. § 1401a(f)-(g), 19 C.F.R. § 152.103(j), CBP ICP at 10.
12
can be used to establish customs value in related party transactions if the relationship did not
influence the price actually paid or payable; 15 in essence, transaction value is an acceptable
basis of customs value between related parties provided that the transaction was conducted as
an arm's length business deal. 16
III.
Common Areas of CBP Inquiry and Challenge to Customs Value
As cross-border transactions become increasingly complex in the global economy,
determining and accurately declaring the proper basis of customs value becomes ever more
challenging. Oftentimes, in the context of related party transactions, elements that are
includable in customs value are not fully captured in the product price for a variety of
operational reasons (such as, e.g., the increased use of global cost sharing arrangements and
centralized cost-centers), thus not being easily identifiable by the importer’s customs
compliance team. Other times, product sale prices between related parties may include cost
elements which are in fact unrelated to the imported merchandise, thereby inadvertently
inflating the customs value. Nevertheless, insofar as it remains the importer’s responsibility
to identify and appropriately declare customs value, these issues are increasingly areas of
focus by CBP. A brief synopsis of the more common areas of valuation inquiry follows, but
is by no means exhaustive.
a. Price Actually Paid or Payable
In determining what constitutes the price actually paid or payable, CBP is entitled to presume
that all payments made by the buyer to the seller or to a party related to the seller are part of
the price actually paid or payable for imported merchandise. 17 This presumption can often
give rise to valuation issues for multinational importing entities that purchase goods from
related entities who also provided additional services (e.g., centralized management support,
IT, global marketing, cost sharing, etc.) for which separate payment is made to the seller by
the importer. CBP routinely questions the nature of the payments made by the buyer to the
seller of imported merchandise, and while the Generra presumption may be successfully
rebutted, to do so the importer must be able to demonstrate that the payments at issue are
unrelated to the imported merchandise. 18
b. Selling Commissions versus Bona Fide Buying Commissions
Commissions are a common area of CBP scrutiny by virtue of the fact that bona fide buying
commissions are excludable from the customs value of imported merchandise; by contrast
selling commissions constitute one of the statutory additions to the price paid or payable.
There are specific requirements for buying agency arrangements to rise to the level of a bona
fide buying agency and the importer bears the burden of proving the existence of a bona fide
15
19 U.S.C. § 1401a(2)(B), see also 19 C.F.R. § 152.103(j)(2). Related party transactions are further discussed, infra.
19 U.S.C. § 1401a(b)(2)(B), 19 C.F.R. § 152.103(j)(2); see also Michael D. Sherman, et al., U.S. Customs: A Practitioner's Guide To
Principles, Processes and Procedures (American Bar Association Section of International Law 2010) at 73 [hereinafter Sherman].
17
This presumption is referred to as the Generra presumption after Generra Sportswear Co. v. United States, 905 F.2d 377 (Fed. Cir. 1990)
[hereinafter Generra].
18
See Generra, 905 F.2d at 380.
16
agency relationship in connection with which the commissions are paid; an importer's failure to
meet the requirements may result in CBP treating the commission as includable in customs value. 19
More complex situations involving commissions may arise where the commissioned agent
undertakes activities the cost of which may be deemed includable in the price actually paid or
payable of the merchandise. While guidance has been established as to what constitutes
acceptable buying agent activities, where the agent's functions exceed the functions generally
associated with the buying agency arrangement, the non-dutiable nature of the buying
commission can be cast into doubt. 20 Another area of controversial commissions involves
transactions in which the agent takes title and risk of loss for the imported merchandise;
while in some instances CBP has accepted such arrangements, there have been cases in
which the assumption of title and risk of loss has resulted in the characterization of the agent
as an independent reseller, thereby making the price from the agent to the importer (including
the commission amount) the basis for transaction value. 21
c. Assists
CBP inquiries regarding assists can range from simply questioning whether an assist exists,
determining whether an item constitutes an assist (and therefore needs to be valued and
apportioned), ascertaining the value of an assist, or the apportionment method to be used. In
determining whether an assist exists, a primary consideration must be whether the element at
issue is specifically identified as an assist under 19 U.S.C. § 1401a. Another consideration is
that assists can be directly or indirectly provided. For example, a buyer could directly
provide the manufacturer with tooling used to produce the imported item or, alternatively,
unbeknownst to the U.S. importer (buyer), its foreign parent could indirectly provide the
tooling freely to the manufacturer. In either instance, a tooling assist has been provided and
must be added to the transaction value of the imported merchandise.
d. Royalties and License Fees
Issues relating to royalties and licenses fees have become an increasingly complicated area,
particularly in the context of related party transactions, because the provision is often
construed as a catch-all under which virtually any and all payments, such as those associated
with distribution rights, cost-sharing agreements, licenses, trademarks, patents, royalties, etc.
may be considered an addition to transaction value. In a CBP General Notice titled as
Dutiability of Royalty Payments, Vol. 27, No. 6 Cust. B. & Dec. at 1 (Feb. 10, 1993),
commonly known as “Hasbro II,” CBP articulated three factors to aid in determining whether
royalty and license payments are related to the imported merchandise and are a condition of
sale. These factors are whether:
1) the imported merchandise was manufactured under patent;
19
See Rosenthal-Netter, Inc. v. U.S., 679 F. Supp. 21 (CIT 1988).
CBP considers various factors in determining the principal in the agency relationship, including which party chose the manufacturer, set
the sale price, determined the manner of payment, bore the risk of loss or damage and was responsible for shipping and handling of the
merchandise. Sherman at 68-9.
21
See e.g., Headquarter Ruling Letter H098419 (Oct. 26, 2010) (CBP determined that even though the agent was acting under the direction
and control of the importer, by taking title to the goods, assuming risk of loss, and making payment to the vendor, the parties are performing
as buyer and seller.)
20
2) the royalty was involved in the production or sale [for exportation] of the
imported merchandise; and
3) the importer could buy the product without paying the fee.
Affirmative responses to factors one and two and a negative response to factor three would
indicate that the payment is includable as an addition to transaction value. When the fees at
issue are paid to unrelated parties, the analysis outlined. Supra, tends to be more
straightforward; whereas the analysis of inter-company payments within related multinational entities tends to be far more ambiguous. Whether royalty or license fees are dutiable
will be determined on a case-by-case basis, and depends on what is being covered by the
fees, whether the buyer had to pay them as a condition of the sale and the circumstances of
the payment. CBP has increasingly raised challenges as to all inter-company payments, often
imputing conditionality in the context of the sale even where it does not clearly exist.
Finally, should the royalty/licensing fee arrangement successfully pass the Hasbro II criteria,
it may nevertheless be captured as an addition to transaction value as "proceeds of any
subsequent resale" pursuant to 19 U.S.C. § 1401a(b)(1)(E), if the arrangement results in a
(direct or indirect) payment to the seller. This could include payments made to the seller that
are based on the resale of the imported merchandise (e.g., % based on net sales).
e. Related Party Transactions and Transfer Pricing
Insofar as a majority of current U.S. import activity involves transactions by and between
related entities, in which the applicability of transaction value is circumscribed by whether
the arm's length nature of the transaction can be demonstrated, 22 it comes as no surprise that
related party transactions would be an area of increased CBP scrutiny. Under 19 U.S.C. §
1401a, transaction value between related parties is acceptable if the transaction passes either
the "circumstances of sale" test or the "test values" test. 23 Under a circumstances of sale test
CBP will examine the commercial relations between buyer and seller, whether the price was
settled in a manner consistent with industry practice or in a manner as if buyer and seller
were unrelated, or if it enables the seller to recover all costs plus an appropriate profit. 24 For
the test values approach, CBP will accept transaction value if it closely approximates either
the transaction value of identical or similar merchandise in sales to unrelated buyers or the
deductive or computed value of identical or similar merchandise. 25
As there is no mandated procedure by which an importer can evidence that its inter-company
pricing policy is an appropriate basis for transaction value, this is an area of opportunity to
advocate a process that meets CBP's requirements while being compatible with the importer's
other business considerations. For example, CBP has held that an importer’s transfer pricing
study, typically prepared to satisfy the contemporaneous documentation requirements under
22
19 U.S.C. § 1401a(b)(2)(B), 19 C.F.R. § 152.103(j)(2)(i)(A)-(C).
19 U.S.C. § 1401a(b)(2)(B).
19 C.F.R. § 152.103(l)(1)(iii) states that the relates party price is acceptable if “it is shown that the price is adequate to ensure recovery of
all costs plus a profit which is equivalent to the firm’s overall profit realized over a representative period of time (e.g., on an annual basis),
in sales of merchandise of the same class or kind.”
25
Id., see also CBP ICP at 11. These test values must have been previously accepted by CBP and must have been exported to the U.S. at or
about the same time as the subject merchandise. Sherman at 75.
23
24
federal tax law, 26 is acceptable as persuasive support for related party transaction values. 27
Most often, this outcome has resulted not only from the financial data contained in the
transfer pricing reports but also from the importer's ability to strategically present the data in
the manner most compelling to CBP.
A subset of related party pricing issues that has a significant customs impact is retroactive
transfer pricing adjustments made between related entities at fiscal year-end. These
adjustments, generally required for direct tax purposes, often complicate the customs value of
the imported merchandise. While the adjustments may not be visible to CBP, they generally
constitute a material modification to the price actually paid or payable for the imported
merchandise and should be addressed accordingly
f. First Sale for Export
A final area of customs valuation controversy worthy of mention involves the "first sale for
export" basis of appraisement. The first sale for export concept arises in instances where
imported merchandise is the subject of multiple sales prior to importation into the U.S.; in
such multi-chain of sale transactions, the price paid or payable in an earlier sale (i.e., than
that to the U.S. importer) may serve as the basis of transaction value provided the legal
requirements of 19 U.S.C. § 1401a are met. 28
Notwithstanding that the viability of first sale for export valuation enjoys legal precedent,
CBP has long disagreed with the concept and recently sought (unsuccessfully) to adopt an
interpretation of 19 U.S.C. § 1401a that would essentially eliminate customs valuation on this
basis. 29 Accordingly, importers utilizing first sale for export as the basis of customs values
can expect to have all aspects of those transactions rigorously challenged by CBP. To
succeed in overcoming CBP's acknowledged distaste for this appraisement method, it is not
simply necessary to ensure satisfaction of all applicable legal requirements, but it is essential
that all aspects of the transactions and documentation related thereto are provided to CBP in a
clear and comprehensive manner.
IV.
Venues for Advocacy with CBP: "Painting the Picture"
Advocacy Preceding the Administrative Process
Advocacy efforts in the realm of U.S. customs valuation should be based upon the objective
of assisting the importer in determining the compliant while also operationally efficient
method to address valuation concerns before they give rise to CBP inquiry or challenges.
Accordingly, it is posited that proactive advocacy generally commences well before any CBP
administrative process. Indeed, in the post-Mod Act environment in which importers are
statutorily mandated to exercise reasonable care in all material aspects of their import
26
See Section 482 of the Internal Revenue Code.
See e.g., CBP Informed Compliance Publication, “Determining the Acceptability of Transaction Value for Related Party Transactions” at
13-16 (2007).
28
See Nissho Iwai Amer. Corp. v. United States, 982 F.2d 505 (Fed. Cir. 1992); see also CBP Field Office Instruction 3061071 (Mar. 8,
1993).
29
See Proposed Interpretation of the Expression "Sold for Exportation to the United States" for Purposes of Applying the Transaction Value
Method of Valuation in a Series of Sales, 73 Fed. Reg. 4,254 (2008).
27
activity, the role of the advocate should commence when the import transactions are initially
contemplated. Questions such as whether the anticipated transaction structure is likely to
give rise to customs valuation issues, what method of appraisement will be applicable,
whether any statutory additions apply, whether the price in a transaction involving related
parties has been influenced by the relationship, and whether any contemplated agreements
may give rise to a payment that could be dutiable, etc., are all considerations that should be
contemplated at the outset. The proactive analysis of these considerations affords the best
evidence that an importer has exercised reasonable care in the context of the prospective
import transactions.
Beyond the initial analysis of potential issues arising from anticipated transactions, the role of
the advocate continues in supporting importers in undertaking proactive measures to develop
internal controls around valuation areas known to be complex or about which CBP will
commonly inquire. By incorporating compliance measures within their existing business
operations, importers demonstrate reasonable care while simultaneously implementing
processes and internal controls that will cause minimal disruption to operations. For the
more complex valuation issues, internal documentation clearly outlining the importer's
understanding of the facts, applicable customs laws and regulations and documenting efforts
to be compliant can be developed and retained to exhibit exercise of reasonable care.
Finally, another informal opportunity to advocate the importer's perspective with CBP prior
to any administrative proceedings is to meet with the import team at the relevant port of
entry. These meetings can serve as a compelling demonstration of the importer's exercise of
reasonable care when used to introduce a new/different transaction stream, restructuring of an
existing transaction stream, or prospective implementation of new/revised compliance
measures. By informally meeting with CBP at the onset of a shift from the historical import
activity, the importer has the opportunity to educate CBP as to changes in its business
operations and this will often avert inquiries or confusion on the part of CBP.
Rules of Engagement: Advocacy in CBP's Administrative Process
In the continuum of CBP's administrative process framework, a distinction can be drawn
between those mechanisms under which CBP engages the importer versus those in which the
importer can initiate the contact. Regardless of the venue, an importer should always
approach the matter as an opportunity to present the facts as completely as possible from its
perspective and to collaborate with CBP as to the best method to resolve issues before
pursuing litigation. The common venues and opportunities for advocacy throughout the
administrative process are presented below, highlighting the types of considerations one
should have in assisting the importer in communications with CBP.
CBP’s initial inquiry or challenge of an importer's customs values declared at entry often take
the form of a CBP Form 28 Request for Information (“CF 28”) or CBP Form 29 Notice of
Action (CF 29"). 30 The standard valuation inquiries which the CBP import team can ask
30
CF 28s are aptly named as general Requests for Information issued by the import team that is reviewing and clearing the shipments at the
CBP port of entry. CBP can also issue CBP Form 29, Notice of Action, which can include a proposed action such as a value advance;
however, CBP typically issues a CF 28 initially before issuing a CF 29, thus CF 29s are grouped with CF 28s in terms of providing a general
pertain to related party pricing and the statutory additions to the price actually paid or
payable. Additionally, the CF 28 allows for ad hoc additional requests to be listed by CBP.
The particular inquiry asked by CBP and how asked (i.e., detailed or generic) should be
critically considered in framing the response. Also considered should be the motivation of
the inquirer – is the CF 28 regarding a single shipment or a transaction stream generally (i.e.,
between a particular seller and the importer), is this a new transaction for the importer so that
the import team is unfamiliar with the transaction, is the transaction documentation unclear or
incomplete, could the inquiry be part of a national inquiry mandate, could the import team be
confused? By considering the possible motivation behind the inquiry, the reply should be
tailored to address those concerns in addition to providing the substantive response.
Moreover, insofar as the importer generally has a relatively short period of time to respond to
these inquiries (i.e., 30 days for a CF 28 and 20 days for a CF 29), this time frame should be
considered at the outset in the context of compiling documentation necessary for response.
Another instance in which the importer is drawn into the administrative process by CBP
arises in the context of customs audits. Whether a "Quick Response Audit," a "Focused
Assessment" or a "Supply Chain Security Review," all of these audit afford opportunities for
proactive advocacy in responding to CBP inquiries or providing context to the importer's
business operations under CBP review. Additionally, to the extent that CBP audits can
sometimes be far-reaching and overly intrusive to the importer's operations, the advocate
must balance the added consideration of keeping CBP auditors focused on the relevant issues
and true to the initial audit parameters. In addressing valuation issues that arise during audit,
the advocate should be to seek influence how the issue is framed as this process can
sometimes dictate whether a speedy resolution is possible.
Finally, even at the last stages of the administrative process, there exists the opportunity to
advocate proactively for outcomes more beneficial to our clients. Should the importer
receive a pre-penalty notice from CBP, which is CBP’s formal notice that it contemplates the
issuance of a penalty action against the importer, the importer is afforded the right to respond
and, if appropriate, seek mitigation of the proposed penalty. In the course of petitioning CBP
for mitigation of a penalty, it is crucial to present the importer’s facts and circumstances in
the manner that best serves the importer's overall business objective, taking into
consideration that at times a mitigated penalty may be preferable to the protracted uncertainty
of legal action to resolve the dispute. Common considerations expressed, supra, should also
be reviewed at this juncture with the perspective of framing any issues that may be included
in the agency record should the matter move forward into litigation.
In contrast to the aforementioned instances, wherein the common thread is that CBP engages
the importer, there are avenues within the administrative process which afford the importer
the opportunity to initiate dialogue with CBP; these instances afford unique opportunities for
advocacy. One such administrative mechanism is by filing a protest. 31 Protests can be filed
by an importer when seeking to revise material elements relative to the import entry that have
response here. CF 28s and 29s are the primary method by which CBP can communicate with an importer and as such, often viewed as the
lowest risk-level of inquiry by CBP.
31
See 19 C.F.R § 174.0, et al. Prior to liquidation, information on an entry can be revised via the Post-Entry Amendment process (formerly
referred
to
as
the
Supplemental
Information
Letter),
which
is
a
CBP
outlined
process.
See
http://www.cbp.gov/xp/cgov/trade/trade_programs/entry_summary/general_pea/ (last visited Jan. 28, 2011). Similar support is needed for a
Post-Entry Amendment, and is included with protests by reference herein.
become final. In the context of valuation issues, importers can protest value increases
initiated by CBP via CF 29s; protests can also be used if the customs value declared upon
entry was overstated for any reason or if any allowable (and supportable) exclusions from
value were inadvertently disregarded. Under CBP regulations, an importer can only protest
an entry within 180 days from the entry’s date of liquidation.32 As most protests include an
explanation for the importer's request, this provides an excellent opportunity for advocacy.
The protest should clearly and compellingly set forth the analysis that supports the change
sought by the importer.
Another means by which the importer can engage CBP is in the form of administrative ruling
requests and requests for internal advice. 33 Administrative ruling requests generally seek a
binding decision by CBP on issues involving prospective import transactions, whereas
internal advice requests can relate to issues involving existing, pending or completed
transactions. 34 In both instances, the importer seeks CBP’s interpretation as to the treatment
of an issue limited to the specific facts and circumstances as presented by the importer.
These requests afford a significant opportunity for advocacy insofar as the petitioner can
present the facts, frame the issue, and advocate for a preferred interpretation of the governing
principles.
Yet another administrative mechanism that can be utilized to advocate the importer's
valuation methods as reasonable and compliant by design (if not by effect), is the prior
disclosure. Prior disclosures afford the importer an opportunity to voluntarily disclose to
CBP any material facts, issues or violations that impact the customs value of imported
merchandise once the entries have become final. Although these are more widely used to
report undervaluations and tender additional duties and fees, to the extent that any facts alter
the value of imported merchandise (e.g., retroactive price adjustments), they are reportable
through prior disclosure submissions to obtain penalty protection. 35 Given the potential
magnitude of these adjustments and the five year statute of limitations for customs matters,
the advocate should counsel the importer to understand the benefits of prior disclosure to
mitigate risk and penalties as well as the ability to plan for any financial impact associated
with the disclosure.
V.
Conclusion
Customs valuation is an area where achieving compliance with the applicable requirements
becomes increasingly complex due to the sophisticated nature of the global economy and the
manner in which multinational companies engage with each other. The CBP administrative
framework provides myriad opportunities to advocate the importer's position. Careful
consideration in how, when and in what manner to engage CBP on valuation issues is crucial
32
An entry typically liquidates 314 days from the date of entry and statutorily must liquidate within 1 year of entry. See 19 U.S.C. § 1504,
19 C.F.R. § 159.11(a). The protest period is 180 days and a protest must be timely filed and denied before an importer can seek judicial
remedy with the U.S. Court of International Trade. 19 U.S.C. § 1514(a) and (c)(3); 19 C.F.R. § 174.31.
33
See 19 U.S.C. § 1625, 19 C.F.R § 177.0, et al.
34
Id.
35
Prior disclosures are not addressed in detail within this paper as it is understood that it is addressed in another panel within the conference.
Briefly, however, the customs regulations provide an importer the opportunity to proactively disclose areas of non-compliance to CBP in the
form of a voluntary prior disclosure. See 19 C.F.R. § 162.74. Valid prior disclosures (i.e., identification of the entries impacted, disclosure
of the material facts or omissions that caused the violation and tender of any actual loss of duties, fees, taxes and interest) afford the
importer with the benefits of reduced penalties, often limited to interest for negligent and grossly negligent violations.
to the effective advocacy of our client’s interests as the successful resolution of such is often
due to strategic, proactive and collaborative advocacy regardless of the point within the
administrative process.
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
An Introduction to Rules of
Origin and Marking as Related
to Successful Advocacy
Before U.S. Customs and
Border Protection
Submitted by:
Moderator:
David P. Sanders
Williams Mullen
Washington, DC
Panelists:
Lars-Erik A. Hjelm
Akin Gump Strauss Hauer & Feld
LLP
Washington, DC
Maytee Pereira
PricewaterhouseCoopers LLP
New York, NY
William C. Sjoberg
Adduci, Mastriani & Shaumberg, LLP
Washington, DC
Yelena Slepak
U.S. Customs & Border Protection
New York, NY
AN INTRODUCTION TO RULES OF ORIGIN AND MARKING AS RELATED TO
SUCCESSFUL ADVOCACY BEFORE U.S. CUSTOMS AND BORDER PROTECTION
Will Sjoberg 1
As with classification and valuation, the primary purpose of U.S. Customs and Border
Protection ("CBP" or "Customs") determining the country of origin of imported merchandise is
to determine the applicable duty rate and, in turn, the duty payable. In addition to aiding CBP in
assessing duties, origin determinations are important in determining admissibility of imported
merchandise, eligibility for preferential programs, applicability of quotas, eligibility for
participation in government procurement programs, and marking. Unlike origin requirements,
the primary purpose of which is to determine the applicable duty, the purpose of marking
requirements is to inform the ultimate purchaser in the United States of the country of origin of
the merchandise. This paper is intended to provide the reader with a basic introduction to rules
of origin and marking, and note where such issues are ripe for advocacy before either CBP or the
courts.
1.
RULES OF ORIGIN
Introductory materials should always begin with a few definitions. CBP defines "country
of origin" as "the country of manufacture, production, or growth of any article of foreign origin
entering the United States. Further work or materials added to an article in another country must
effect a substantial transformation in order to render such other country the 'country of origin.'"
19 C.F.R. § 134.1(b). Thus, origin can be conferred in one of two ways: (1) if the merchandise is
wholly the growth, product, or manufacture of one particular country, or (2) if the merchandise is
the growth, product, or manufacture of more than one country, origin is conferred in the country
in which the merchandise is "substantially transformed." Origin is conferred consistently via the
first of the foregoing methods regardless of whether the applicable rule of origin is nonpreferential, i.e., no agreement conferring special treatment, or preferential. Origin is conferred
via the second of the foregoing methods by the case-specific facts, in the case of non-preferential
rules of origin, or in accordance with the language of the relevant trade agreement, in the case of
preferential rules of origin.
A.
Non-Preferential Rules of Origin
For the general, non-preferential, rule of origin used for purposes of most-favored-nation
or normal-trade-relations treatment, CBP considers merchandise to be "substantially
transformed" when it "emerges from a process with a new name, character, or use different from
that possessed by the merchandise prior to processing." United States v. Gibson-Thomsen Co.,
27 CCPA 267, 273 (1940) (establishing the "Gibson-Thomsen Test"); accord Nat'l Juice Prods.
Ass'n v. United States, 628 F. Supp. 978, 988 n.14 (Ct. Int'l Trade 1986). Whether merchandise
has been substantially transformed is a question of fact to be determined on a case-by-case basis.
1
Will Sjoberg is a partner at Adduci, Mastriani and Schaumberg, L.L.P. The views
expressed herein are solely those of the author.
Uniroyal Inc. v. United States, 542 F. Supp. 1026, 1029 (Ct. Int'l Trade 1982), aff'd, 702 F.2d
1022 (1983). 2
There is an important exception to the non-preferential case-by-case Gibson-Thomsen
Test applicable to textiles and textile products. Instead of applying the facts to determine
whether the merchandise emerges with a new name, character, or use after processing, the
country of origin of textile and textile products is conferred via a "tariff shift." Under a tariff
shift, the country of origin of a good or component of a good is considered to be the country in
which the processing occurred if the processing was sufficient to change that good or
component's tariff classification. See e.g., Bestfoods v. United States, 260 F.3d 1320, 1322 (Fed.
Cir. 2001) (citing 19 C.F.R. § 102.11). When a tariff shift method is required to confer origin,
the starting component's pre-processing tariff classification and the article's post-processing tariff
classification are set forth in a schedule, which is found, in the case of the non-preferential rule
of origin for textiles and textile products, in CBP's regulations at 19 C.F.R. § 102.21 and, in the
case of preferential rules of origin, in the language of the agreements themselves.
B.
Preferential Rules of Origin
Origin is conferred in preferential trade agreements if the merchandise is wholly the
growth, product, or manufacture of one country and, if the merchandise is wholly the growth
product, or manufacture of more than one country, by substantial transformation. Substantial
transformation is further defined by the rule of origin set forth in the particular trade agreement
and depends on (1) whether the origin issue is eligibility for duty preferences, granted pursuant
to the agreement, or (2) whether the origin issue is marking. In other words, the differences in
statutory language and purpose are primary considerations in resolving the issue. Nat'l Juice
Prods., 628 F. Supp. at 988 n.14. 3 Substantial transformation for the purpose of preferential
2
The Gibson-Thomsen Test is not necessarily applicable to proceedings under Title VII
of the Tariff Act of 1930, as amended, i.e., origin determinations in antidumping and
countervailing duty proceedings. "Commerce, under the antidumping statute, has discretion in
defining the criteria for country of origin determinations. See 19 U.S.C. §§ 66, 1677j(b); 19
C.F.R. § 134.1(b). Nonetheless, Commerce is obligated to follow prior precedent absent some
legitimate reason for departing from it. [citation omitted]." ALZ Belgium, LLC v. United States,
551 F.3d 1339, 1349 (Fed. Cir. 2009).
3
Preferential agreements may have different rules of origin for the purpose of determining the
eligibility for duty preferences and for the purpose of determining requisite marking. See, e.g.,
Madison Galleries, Ltd. v. United States, 870 F.2d 627, 632 (Fed. Cir. 1989), wherein the U.S.
Court of Appeals for the Federal Circuit recognized that, for purposes of the U.S. Generalized
System of Preferences, a product that met the 35 percent minimum value content in a beneficiary
developing country (i.e., Hong Kong) was eligible for duty preferences despite its origin for the
purposes of marking was a non-beneficiary developing country (i.e., Taiwan); see also Sassy,
Inc. v. United States, 24 C.I.T. 700, 704 (2000) (citing S. REP No. 101-252, at 43 (1990),
reprinted in 1990 U.S.C.C.A.N. 928, 971, which changed the statute to require a substantial
transformation, but did not disturb the court's reasoning that a product may be considered from
one country for purposes of duty preference eligibility and a different country for purposes of
marking). Compare General Note 12, Harmonized Tariff Schedule of the United States
(continued …)
trade agreements may take the form of minimum value content, tariff shift, or tariff shift and
regional value content.
For the purpose of duty preference agreements, origin is conferred via minimum value
content (MVC) if the value of the materials and processing originating in the beneficiary country
or countries is at least 35 percent of the appraised value of the merchandise. 4 Up to 15 percent of
the 35 percent minimum value of materials and processing may originate in the customs territory
of the United States; however, in order to include the value of materials originating in a third
country, those materials must undergo a double substantial transformation in the beneficiary
country or countries.
Origin is conferred via tariff shift (TS) if the tariff classifications of the component
materials make the requisite scheduled shift after being processed. For purposes of determining
origin for duty preferences, origin may also be conferred via a combination of tariff shift and
regional value content.
Regional value content (RVC) is the percentage of the value or net cost of the imported
good represented by the value of all originating materials in the good. Each relevant agreement
defines how to compute the values or costs needed to meet the RVC requirement. In addition,
each agreement specifies the minimum RVC required to confer origin for the purpose of
eligibility for duty preferences.
For example, an automobile's headlamp would be considered of NAFTA origin for
purposes of duty preferences if the processing in the NAFTA country results in satisfying an
applicable tariff shift or satisfying a combination of an acceptable tariff shift and regional value
content. To wit: (1) a change of the tariff classification of the component materials to
subheadings 8539.10 through 8539.49, HTSUS, from any other heading in the HTSUS (TS); or
(2) if the processing results in a change to subheadings 8539.10, HTSUS, through 8539.49,
HTSUS, from subheading 8539.90, HTSUS, whether or not there is a change from any other
HTSUS heading (TS), provided there is a RVC of not less than (a) 60 percent where the
transaction value method is used, or (b) 50 percent where the net cost method is used (TS
combined with RVC). General Note 12, HTSUS, Chapter 85, Subheading Note 123.
The eligibility rules of origin for current preferential trade agreements are as follows:
(… continued)
(HTSUS) for the rules of origin associated with duty preference eligibility of the North American
Free Trade Agreement (NAFTA) with 19 C.F.R. § 102.20 for the NAFTA marking rules of
origin.
4
"'Appraised value' means the final determination by Customs, pursuant to section 402
of the Tariff Act of 1930, as amended by the Trade Agreements Act of 1979 (TAA), of the full
value of the merchandise. 'Dutiable value' refers to that portion, if any, of the appraised value of
the imported article upon which duty is assessed." HQ 544198 (Aug. 29, 1988). See 19 U.S.C. §
1401a for methods of appraisement, e.g., transaction value.
AGREEMENT
African Growth and Opportunity Act
Andean Trade Preference Act
Andean Trade Promotion and Drug Eradication Act
Automotive Products Act
Caribbean Basin Economic Recovery Act
Compact of Free Association Act
Generalized System of Preferences
Insular Possessions of the United States
North American Free Trade Agreement
Products of the West Bank, the Gaza Strip or a Qualifying
Industrial Zone
U.S.-Australia Free Trade Agreement
U.S.-Bahrain Free Trade Agreement
U.S.-Caribbean Basin Trade Partnership Act (CBTPA)
U.S.-Chile Free Trade Agreement
U.S.-Dominican Republic-Central America Free Trade
Agreement (CAFTA-DR)
U.S.-Israel Free Trade Agreement
U.S.-Jordan Free Trade Agreement
U.S.-Morocco Free Trade Agreement
U.S.-Oman Free Trade Agreement
U.S.-Peru Free Trade Agreement
U.S.-Singapore Free Trade Agreement
ORIGIN FOR
PREFERENCE PURPOSES
MVC
MVC
MVC
TS or TS and RVC
MVC
MVC
MVC
MVC
TS or TS and RVC
MVC
TS or TS and RVC
MVC
TS or TS and RVC
TS or TS and RVC
TS or TS and RVC
MVC
MVC
MVC
MVC
TS or TS and RVC
TS or TS and RVC
Many of the foregoing agreements have special rules of origin regarding the eligibility of textiles
and textile products for duty preferences.
2.
MARKING RULES
An importer is under an obligation to ensure that "every article of foreign origin (or its
container . . .) imported into the United States shall be marked in a conspicuous place as legibly,
indelibly, and permanently as the nature of the article (or container) will permit in such a manner
as to indicate to an ultimate purchaser in the United States the English name of the country of
origin of the article." 19 U.S.C. § 1304(a); see also 19 C.F.R. Part 134. The U.S. Court of
Customs and Patent Appeals explained:
Congress intended that the ultimate purchaser should be able to
know by an inspection of the marking on imported goods the
country of which the goods is the product. The evident purpose is
to mark the goods so that at the time of purchase the ultimate
purchaser may, by knowing where the goods were produced, be
able to buy or refuse to buy them, if such marking should influence
his will.
United States v. Friedlaender & Co., 27 CCPA 297, 302 (1940).
Given that the purpose of the marking statute is to inform the "ultimate purchaser" of the
country of origin by "conspicuously" and "permanently" marking the merchandise prior to
importation, it is important that those terms be understood. In the context of the marking statute,
CBP considers the ultimate purchaser to be "the last person in the United States who purchases
the good in the form in which it was imported." 19 C.F.R. § 134.1(d). CBP may consider a
manufacturer the ultimate purchaser if it subjects the imported merchandise to a process resulting
in a substantial transformation of the imported merchandise, even though the process may not
result in new or different merchandise. Id. If the manufacturing process does not change the
identity of the imported merchandise, the consumer or user of the post-processed merchandise
may be regarded as the ultimate purchaser. Id. If the imported merchandise is sold at retail,
CBP considers the retail purchaser to be the ultimate purchaser. Id. 5
As long as the marking is conspicuous and permanent, "any method of marking at any
location insuring the country of origin will conspicuously appear shall be acceptable." 19 C.F.R.
§ 134.44(a). CBP considers marking to be "conspicuous" if the ultimate purchaser in the United
States is "able to find the marking easily and read it without strain." 19 C.F.R. § 134.41(b); see
also 19 C.F.R. § 134.1(k) ("'Conspicuous' means capable of being easily seen with normal
handling of the article or container."). CBP considers marking to be "permanent" if it is "at least
sufficient to insure that in any reasonably foreseeable circumstance, the marking shall remain on
the article (or its container) until it reaches the ultimate purchaser unless it is deliberately
removed." 19 C.F.R. § 134.41(b).
There are exceptions to the general proposition that any method of conspicuous marking
shall be acceptable to CBP. For example, CBP considers paper sticker labels and tags acceptable
forms of marking only if they are affixed in a conspicuous place and in a manner which assures
that, unless deliberately removed, they will remain on the merchandise until it reaches the
ultimate purchaser. 19 C.F.R. §§ 134.44(b) and 134.44(c). CBP requires that certain
merchandise, e.g., pipe and fittings, gas cylinders, manhole covers, knives, scientific and
laboratory instruments, and watches, be marked in a specific manner, e.g., die-stamping,
engraving, or by means or metal plates which are securely attached by means of welding, rivets,
or screws. 19 U.S.C. §§ 1304(c)-(e); 19 C.F.R. § 134.43. Note that post-entry manipulation or
repacking must not obscure or conceal the marking and, if the post-entry merchandise is
manipulated or repacked, CBP requires the importer to file a written certification that the
marking will not be obscured or concealed. 19 C.F.R. § 134.26.
Once the method of marking is determined, the next step is to determine the form of
marking. CBP requires that the country of origin be indicated in the full English name of the
country, unless CBP has previously approved an abbreviation or alternative. 19 U.S.C. §
1304(a); 19 C.F.R. § 134.45(a). 6 In the case where a country other than the country of origin of
5
Preferential trade agreements, e.g. NAFTA, may contain provisions that do not
necessarily conform to the foregoing definition of the ultimate purchaser.
6
Some preferential trade agreements, e.g., NAFTA, allow the country of origin to be
marked in any of the signatories' official languages.
the imported merchandise appears on the merchandise or its container and the name of that
country may cause confusion as to the country of origin of the merchandise, "there shall appear
legibly and permanently in close proximity to such words, letters or name, and in at least a
comparable size, the name of the country of origin preceded by 'Made in,' 'Product of,' or other
words of similar meaning." 19 C.F.R. § 134.46. Where imported merchandise is the result of an
assembly operation, which confers origin, CBP allows the assembled merchandise to be marked
as follows: "(1) Assembled in (country of final assembly); (2) Assembled in (country of final
assembly) from components of (name of country or countries of origin of all components); or (3)
Made in or product of (country of final assembly)." 19 C.F.R. 134.43(e).
There are also exceptions to the general proposition that all imported merchandise must
be marked with its country of origin. These exceptions to the marking statute are set forth in 19
U.S.C. § 1304(a)(3) and 19 C.F.R. § 134.32, the most common of which are the following: (1)
the containers will reasonably indicate origin (an exception to the exception may exist if the
imported merchandise is to be repacked after leaving CBP custody, and the containers in which
the merchandise is repacked is marked with the country of origin (19 C.F.R. § 134.34)); (2) when
the merchandise is imported for use by the importer and not intended for sale in its imported (or
any other) form; and (3) when the ultimate purchaser must necessarily know the origin by reason
of the character of the merchandise even though not marked. Specific exceptions to the marking
statute are set forth in 19 C.F.R. § 134.33 (the "J-List Exceptions") wherein such items as works
of art, livestock, paper stock, and Christmas trees are exempted from marking; however, if the
merchandise is imported in a container, the outermost container is required to be marked with the
country of origin. 19 C.F.R. § 134.33. 7
3.
SUCCESSFUL ADVOCACY IN ORIGIN AND MARKING ISSUES
Successful advocacy of origin and marking issues, as with many customs issues, begins
before the merchandise enters the United States. The prospective importer or its authorized
agent has the ability to establish the country of origin or acceptable methods or forms of marking
by filing a formal pre-importation ruling request with CBP. See 19 C.F.R. Part 177. If the
merchandise has already entered the United States, the importer may determine whether the
county of origin or marking it is using is acceptable to CBP by filing a request for internal advice
at the port through which the merchandise entered the United States, id.; however, filing such a
request would not likely advance the position of your client because, in such a case, the
merchandise has already entered the United States and CBP has not rendered an adverse decision
(See below for a discussion of filing an administrative protest). Regardless of whether the
importer files a ruling request or a request for internal advice, the request must clearly and
comprehensively describe the facts and take a position, which is supported by both the facts and
any relevant administrative or judicial precedent. Simply requesting CBP to determine the
7
Note that certain trade agreements contain a de minimis exception whereby the origin
of a component that does not undergo substantial transformation in the processing country is not
required to be marked on the merchandise. See, e.g., 19 C.F.R. § 102.13 wherein the origin of
non-originating materials that comprise no more than 7 percent of the value of the post-processed
merchandise "shall be disregarded in determining the country of origin [for purposes of the
NAFTA marking rule]."
proper country of origin, or how merchandise should be marked, would certainly result in a
response, but not necessarily a response beneficial to your client. It is important to establish email and telephone communication with CBP at headquarters or at the port of entry in an effort
to shorten CBP's response time, to ensure that there are no factual or legal misunderstandings,
and to advocate on behalf of your client.
If the ruling letter or internal advice was adverse to your position and you believe your
client has a legally supportable position, the next opportunity to advocate that position is through
an administrative protest. See 19 C.F.R. Part 174. Once merchandise has entered the United
States, the importer can file a protest with CBP contesting CBP's origin or marking
determination, the deadline for which is 180 days after liquidation. See 19 U.S.C. §§ 1514(a)(2)(a)(5) (list of the legal bases on which to file protests related to origin and marking issues); 19
U.S.C. § 1514(c)(3) (establishing the 180-day post-liquidation deadline to file a protest). The
protesting party is allowed to supplement its protest at any time prior to CBP's disposition of the
protest. 19 C.F.R. § 174.28. With limited exception, an administrative protest is necessary to
obtain the jurisdiction of the U.S. Court of International Trade ("CIT").
A protest should almost always include a request for further review, assuming the criteria
for such a review are present. Assuming the port decides that the protest should be denied, if
CBP's decision, which elicited the protest, is: (1) inconsistent with a prior CBP decision; (2) is an
issue of first impression for CBP; (3) is consistent with a prior CBP decision, but presents novel
facts or legal arguments; or (4) is alleged to involve issues that CBP headquarters refused to
address in a request for internal advice, the protest should be forwarded to CBP headquarters for
further review. 19 C.F.R. §§ 174.23-174.25. The request for further review should include a
request to meet with the relevant office at CBP headquarters in the event that the office agrees
with the port that the protest should be denied. Such a meeting is an additional opportunity to
advocate on behalf of your client.
Assuming the ruling letter was adverse or the protest was ultimately denied, the next
opportunity to advocate on behalf of your client is before the CIT. The most important
consideration is determining the basis for the court's jurisdiction. The common basis is 28
U.S.C. § 1581(a), which confers jurisdiction over any action to contest the denial of a protest. If
CBP's decision was not protested, the remaining relevant jurisdictional bases are 28 U.S.C. §
1581(h) and § 1581(i). Jurisdiction under 28 U.S.C. § 1581(h) is only appropriate if (1) the issue
was subject to a ruling request, (2) the merchandise has not entered the United States, and (3) the
plaintiff is able to demonstrate to the CIT that it would be irreparably harmed unless given an
opportunity for judicial review prior to the merchandise entering the United States. 8 Jurisdiction
is available under § 1581(i) when the issue regards (1) revenue from imports or tonnage; (2)
tariffs, duties, fees, or other taxes on the importation of merchandise; (3) embargoes or other
quantitative restrictions on the importation of merchandise; or (4) administration and
enforcement with respect to matters referred to in (1)-(3) of § 1581(i) and §§ 1581(a) and
1581(h). However, that jurisdictional provision is only appropriate when other avenues of
jurisdiction are manifestly inadequate or, because of special circumstances, necessary to avoid
8
If jurisdiction is appropriate under 28 U.S.C. § 1581(h), such jurisdiction is limited to
declaratory relief (and not, for example, injunctive relief). See 28 U.S.C. § 2643(c)(4).
extraordinary and unjustified delays caused by the exhaustion of administrative remedies. Am.
Ass'n of Exporters and Importers v. United States, 751 F.2d 1239, 1246 (Fed. Cir. 1985). The
filing of a summons and complaint based on a denied protest should always be considered the
rule, and going to court without exhausting administrative remedies the exception.
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Hypotheticals
Submitted by:
David P. Sanders
Williams Mullen
Washington, DC
Georgetown CLE—Customs I
March 2, 2011
David P. Sanders, Williams Mullen
Hypothetical #1—Fountains Galore Inc.
Fountains Galore Inc. (“FGI”) is a U.S. corporation that designs, manufactures, imports
and sells various products, most of which incorporate a fountain or similar devices involving
running water or other liquids. FGI utilizes unrelated third party manufacturers in China and
also owns a Maquiladora facility in Monterrey, Mexico. The Mexican facility has a
manufacturing and assembly plant, and also maintains a large warehouse that serves as a
distribution center (“DC”) for North America. Parts and components for use in FGI’s
manufactured and assembled products are imported directly into Mexico from various countries.
The same items are also used as spare and replacement parts and components—so FGI maintains
a spare parts inventory in its Mexico warehouse as well.
One of FGI’s new products is a decorative, filtered water drinking fountain system,
marketed as the “Paradise Quencher” (“PQ”) system. It can be ordered with various options, but
in all cases it includes a pump, filtering apparatus, holding tank, reinforced plastic tubing and a
water control assembly (valve) that the user activates by pushing a button to start the flow of
water, and releasing it to stop the water. The options relate to the appearance of the drinking
fountain reservoir and type of mounting, wall or surface, and the housings required to cover the
various operational components for wall or surface mounting of the system. The following is a
breakdown of the components of the PQ system and their countries of origin: Pump—China (the
word “China” stamped on the bottom of the pump), water control valve—Germany (the word
“Germany” stamped on the valve body); filtering apparatus—Mexico; holding tank—Mexico;
reinforced plastic tubing—Viet Nam; decorative trim kits ranging from mini-rock garden
reservoirs for the horizontal surface mounts incorporating a drain, to vertical wall mount
components comprised of a stainless steel back plate and reservoir with drain—manufactured in
Mexico.
A recent shipment of PQ systems (complete kits of all necessary components including
trim options) was entered into the U.S. by FGI, destined for the DC of one of its large retail
customers located in Las Vegas. NAFTA tariff preference was claimed on entry and the
outermost retail carton of each PQ system was marked “Assembled in Mexico.” A separate
shipment of only pumps and control valves from the Mexico DC was entered into the U.S. and
sent to FGI’s corporate offices in Denver, Colorado, where it maintains a small warehouse. The
entered classification of the components was the same tariff number as the complete PQ systems.
NAFTA was not claimed on the pump/valve entry but the country of origin was listed on the
accompanying invoice as Mexico and the cartons holding the pumps and valves were marked
with the FGI Maquila name, and the geographical indicator, Monterrey, MX.
U.S. Customs and Border Protection (“CBP”) in Dallas processed both entries. For the
first entry of PQ systems, CBP sent FGI via its broker a CF-28, Request for Information,
requesting the following: (1) supporting information about the tariff classification of the PQ
system kits; (2) copies of NAFTA certificates; and (3) an explanation of how the kits qualified
for NAFTA preferential treatment.
The company’s compliance manager recently left the company. The company’s VP
contacts you, the company’s outside counsel, after speaking with the customs broker. The
broker just learned about the customs compliance manager’s departure when he called the
NOTE: The names, situations and characters depicted in the above hypothetical scenario are fictitious and presented for
educational purposes only. Any connection to actual companies or individuals is coincidental. This presentation and materials
do not constitute legal advice by Georgetown CLE or any of the members of the panel regarding any specific matter. If
questions, contact dsanders@williamsmullen.com.
Georgetown CLE—Customs I
March 2, 2011
David P. Sanders, Williams Mullen
compliance manager to ask about the status of FGI’s response to the pending CF-28 that is due in
4 days. The VP requests your assistance in responding to CBP and any other guidance you
might suggest.
Identify the issues raised by the above scenario and discuss possible approaches to
handling this matter and advocacy before CBP on behalf of FGI.
NOTE: The names, situations and characters depicted in the above hypothetical scenario are fictitious and presented for
educational purposes only. Any connection to actual companies or individuals is coincidental. This presentation and materials
do not constitute legal advice by Georgetown CLE or any of the members of the panel regarding any specific matter. If
questions, contact dsanders@williamsmullen.com.
Georgetown CLE—Customs I
March 2, 2011
David P. Sanders, Williams Mullen
Hypothetical #2 —GadgetCo
GadgetCo, a multinational corporation, imports a variety of finished goods including
computer, electronic and telecommunications products into the United States. Through its
Montreal-based Research & Development Center, which opened five years ago, new products
are designed and current products are re-engineered and improved to take advantage of the latest
in semiconductor technology. One year ago, GadgetCo opened a new R&D facility in Seattle,
Washington. Today, from both the Montreal and the Seattle R&D Centers, designs and
specifications are provided to GadgetCo’s various related manufacturing plants and unrelated
third-party contract manufacturers in Asia and Eastern Europe. GadgetCo monitors its vendors
closely to assure strict adherence to prescribed specifications.
The R&D centers are part of a cost sharing arrangement between GadgetCo US,
GadgetCo Canada, GadgetCo Europe, GadgetCo Japan and GadgetCo Australia. Each entity
pays its share of R&D costs based on the quantity of products sold in each respective market.
This information—the respective share for each GadgetCo entity—is not available until three
months after the year-end close. Not all of the complex technology incorporated in GadgetCo
products is developed by GadgetCo. For about twenty-five percent (25%) of its finished good
imports, GadgetCo pays fees and royalties to numerous licensors for use of their technology,
trademarks, and in some cases, both—for trademarks and accompanying technology.
GadgetCo’s Import Compliance Manager, Mack Attack, just learned that since the R&D
Centers began operations five years and one year ago, respectively, nothing relating to the
GadgetCo US’s cost sharing payments was reported to CBP.
The day after learning about GadgetCo’s R&D cost sharing payments, Mack receives a
call from Andrea Auditor of the Regulatory Audit Division of CBP advising that Gadget Co. has
been selected for a Focused Assessment and suggesting possible dates to schedule the opening
conference. Mack calmly tells the CBP Auditor that he will need to check calendars of the
individuals who will be involved in the FA and get back to her.
Mack immediately calls the company’s General Counsel to inform him of the impending
audit and mentions his concerns about the cost sharing payments. The GC contacts you and
requests that you attend a meeting tomorrow at the company’s offices to discuss the FA and
Gadget Co.’s concerns about compliance.
Identify the issues raised by the above scenario and discuss possible approaches to
advocacy in connection with the pending FA.
NOTE: The names, situations and characters depicted in the above hypothetical scenario are fictitious and presented for
educational purposes only. Any connection to actual companies or individuals is coincidental. This presentation and materials
do not constitute legal advice by Georgetown CLE or any of the members of the panel regarding any specific matter. If
questions, contact dsanders@williamsmullen.com.
2011 INTERNATIONAL TRADE UPDATE
Successful Advocacy in
Customs Administrative
Practice: Customs and
Border Protection
Penalties PowerPoint
Submitted by:
Lars-Erik A. Hjelm
Akin Gump Strauss Hauer & Feld LLP
Washington, DC
Customs 101 For 2011
Successful Advocacy in Customs Administrative
Practice: Customs and Border Protection Penalties
Presented By:
Lars-Erik A. Hjelm
March 1, 2011
Customs 101
Georgetown CLE
Seminar
© 2005 Akin Gump Strauss Hauer & Feld LLP. All Rights Reserved. Privileged and confidential.
Compliance Landscape and
Client Considerations
 The Broad Compliance Landscape: Money and
Liability At Stake
 What Parties Are Responsible For Compliance?
 Sanctions – What Are The Penalties?
 Infrastructure Investment – What Types Of Investments
Are Required?
 What Is The Bottom Line – How Much Do The
Investments Cost?
 What Are the Reputational Concerns?
1
1
Customs and Border Protection (CBP) Penalties
 Goals:
1. Understand the Basic Customs Civil Penalty Statute
2. Understand How Customs Issues Penalty Claims
3. Learn How to Respond to Customs Penalties
2
Customs and Border Protection (CBP) Penalties
 Vocabulary: Define “CBP Penalty:” A Civil CBP Claim for
Money Damages In Addition to the Payment of Any Required
Duties, Fees, and Taxes
 All CBP Penalties Have A Statutory Basis
 19 U.S.C. § 1592 - Penalties for the Failure to Exercise
Reasonable Care in the Import and Entry Process – CBP Issues
These For Fraud, Gross Negligence, and Negligence
 This Is the Primary CBP Civil Penalty Statute
 It Has a Criminal Component – No Double Jeopardy
 CBP Uses this Statute to Penalize Importers and Their Agents
for Errors in the Importing and Entry Process – Purpose Is
Remedial and Deterrent
 Also Permits Recovery of Duties, Fees, or Taxes for
“Liquidated” Entries
3
2
Customs and Border Protection (CBP) Penalties
 Practice Tips:
 Become Familiar With the Language of the Statute
 Become Familiar With the Language of the Regulations that
Implements the Statute
 Know that CBP Also Issues Rulings, Directives, and Other
Publications that Interpret the Statute
 Know that the Courts (CIT and CAFC) Are the Final Arbiter
of What the Statute and Regulations Mean
4
Customs and Border Protection (CBP) Penalties
Elements of a Violation of Section 1592
 A Person Makes A False Statement, Oral or Written, an
Omission, Or a False Act or Practice
 In Connection With the Entry or Introduction or Attempted Entry
or Attempted Introduction of Merchandise Into the United States
 And Such Statement, Act or Omission, Is Material
 And Such Statement, Act or Omission, Resulted from Fraud,
Gross Negligence, or Negligence
 Persons that Aid or Abet Are Also Subject to Penalties
 CBP Defines “Material” Very Broadly
 A Document, Statement, Act, or Omission Is Material If it Has the
Capability to Influence a CBP (or Other Government Agency)
Decision or Action
5
3
Customs and Border Protection (CBP) Penalties
Examples of Material False Statements, Acts or Omissions
 Improper Tariff Classification and Rate of Duty
 Incorrect Basis of Appraisement
 Under or Over-Valuation
 Failure to Satisfy Condition of Admissibility (e.g., License)
 Failure to Pay Estimated Duties (Including AD/CVD)
 Failure to Report Source, Origin, or Quality of Merchandise
 Infringement of Trademark and Copyright Laws
6
Customs and Border Protection (CBP) Penalties
Definitions of Fraud, Gross Negligence, and Negligence
 Fraud Is A Material False Statement, Omission, or Act
Committed Knowingly (i.e., voluntarily and intentionally)
 Gross Negligence Is A Material False Statement, Omission, or
Act Committed With Actual Knowledge of or Wonton Disregard
for the Facts and Indifference to Legal Obligations
 Negligence Is the Failure to Exercise Reasonable Care In
Ensuring that Statements And Acts Are Correct
Burdens of Proof
 Fraud – CBP Must Show Clear and Convincing Evidence
 Gross Negligence – CBP Must Show a Preponderance of the
Evidence
 Negligence – CBP Must Show Falsity and Burden then Shifts to
Alleged Violator
7
4
Customs and Border Protection (CBP) Penalties
Statute of Limitations and Waivers
 5 Year Rule
 Fraud – 5 Years from the Date of Discovery
 Gross Negligence and Negligence – 5 Years from the Date of
Entry
 CBP’s Policy to Obtain Waivers Where Less than One Year
Remains Under the Statute of Limitations
8
Customs and Border Protection (CBP) Penalties
Penalty Amounts: Statutory Ceilings
Fraud –Domestic Value of the Imported Merchandise (Not
the Entered Value!)


Gross Negligence:

Revenue Loss – Domestic Value or 4 Times the Loss of
Revenue, Whichever Is Less

Non-revenue Loss – 40% of the Dutiable Value

Negligence:

Revenue Loss – Domestic Value or 2 Times the Loss of
Revenue, Whichever Is Less

Non-revenue Loss – 20% of the Dutiable Value
9
5
Customs and Border Protection (CBP) Penalties
Pre-Penalty and Penalty Notices
 The Fines, Penalties, and Forfeitures (FP&F) Officer Issues
Pre-Penalty and Penalty Notices to Alleged Violators
 The Penalty Notices Will Be Based on CBP Officer, Import
Specialist, or Special Agent Referrals
 Special Agent Referred Cases Are Very Sensitive – Sometimes
Have a Criminal Component
 There May Be a Chance to Intervene Before the Issuance of a
a Pre-Penalty Notice
10
Customs and Border Protection (CBP) Penalties
Practice Tip: Due Process Considerations
 Make Sure that Penalty Notices Satisfy Due Process and Allow
the Alleged Violator to Contest the Notice:
 The Law Violated
 The Specific Acts or Omissions
 The Merchandise and the Circumstances of the Entry
 The Entry Numbers
 The Loss of Revenue
11
6
Customs and Border Protection
(CBP) Penalties
Time Periods for Responding To Penalty Notices
 Generally, 30 Days Until Unless An Extension Is Obtained
 Exception: If 1 Year or Less Remains on the Statute of
Limitations, the Response Period Can Be Shortened to 7 Days
 Rule of Thumb: Obtain Extension to Gather Facts and
Assemble Arguments
12
Customs and Border Protection
(CBP) Penalties
Responding to Penalty Notices: Petitions for Remission/Mitigation
 These Are the Most Common Method to Challenge CBP
Penalty Notices
 Based On the Pardon Power of the Executive Branch
 Vocabulary: Distinction Between Remission and Mitigation.
Duties Cannot Be Mitigated!!
 CBP Does Not Typically Grant Petitions to Remit But Often
Mitigates Claims
13
7
Customs and Border Protection
(CBP) Penalties
Mitigation Factors – Focus On These in Petitions
 Contributory Customs Error
 Cooperation With Investigation
 Immediate Remedial Action
 Inexperience in Importing
 Prior Good Record
 Inability to Pay the Customs Penalty
 Customs Knowledge
14
Customs and Border Protection
(CBP) Penalties
Mitigation Ranges
 Fraud: Revenue Loss Case – 5 to 8 Times the LOR. NonRevenue Loss – 50% to 80% of the Dutiable Value.
 Gross Negligence: Revenue Loss Case - 2.5 to 4 Times the
LOR. Non-revenue Loss – 25% to 40% of Dutiable Value.
 Negligence: Revenue Loss Case – 0.5 to 2 Times the LOR.
Non-revenue – 5% to 20% of the Dutiable Value.
 Technical Violations (minimal impact) -- $1,000 to $10,000.
15
8
Customs and Border Protection (CBP) Penalties
Prior Disclosure Benefits
 To Disclose the Circumstances of a Violation Prior to or Without
Knowledge of the Commencement of a Formal Investigation
 Benefit: Statutorily Reduced Penalties – Unlike Other
Government Agencies’ Disclosure Benefits, Which Are Often
Discretionary and Not Statutorily Required (e.g., Office of
Foreign Assets Control, Bureau of Industry and Security and
the Directorate of Defense Trade Controls).
 Practice Tip: Engage With Clients Prior to Any Discussions or
Communications With CBP When the Company Discovers a
Potential Violation – i.e., a Material False Statement or
Omission n Connection With the Entry or Introduction or
Attempted Entry or Attempted Introduction of Merchandise Into
the United States
16
Customs and Border Protection (CBP) Penalties
Where to Obtain More Information
 CBP Website: “Reasonable Care” Informed Compliance
Publication - A Checklist for Ensuring Compliance and
Reducing the Exposure to a Penalty
 Books and Treatises
 Articles
 Online Resources Addressing Customs Law and Procedure
17
9
Questions?
Lars-Erik A. Hjelm
lhjelm@akingump.com
202-887-4175
18
10
III
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Litigation in the United
States Court of
International Trade:
Selecting and Setting up
Issues
Submitted by:
T. Randolph Ferguson
Sandler, Travis & Rosenberg, P.A.
San Francisco, CA
LITIGATION IN THE UNITED STATES COURT OF INTERNATIONAL TRADE:
SELECTING AND SETTING UP ISSUES
T. Randolph Ferguson*
I. Background- The Customs Process Through “Liquidation” of the Entry
A. Entry
B. Post Release Admissibility Determinations and Redelivery Orders
C. Liquidation of the Entry
II. Jurisdiction of the Court of International Trade, Generally:
A. Actions Commenced Against the United States
1. 28 U.S.C. § 1581: Civil Actions against the United States and Agencies and
officers thereof
2. Standing to commence a Civil Action: 28 U.S.C. § 2631
3. Exhaustion of administrative remedies required for jurisdiction
a. Protests—U.S.C. § 1514
1. Matters which may be protested
2. Right and Standing to protest
3. Caution: Premature protest will be denied
4. Payment of all duties and taxes in an Action to Recover Duties is
Prerequisite to Jurisdiction in actions concerning the assessment and
seeking refund of duty under 28 U.S.C. § 1581(a)
b. Participation in ITA and ITC Proceedings—19 U.S.C. § 1516a
4. Residual Jurisdiction Limited Jurisdiction on matters not subject to
Administrative Remedies—28 U.S.C. 1585(i)
5. Burden of Proof
a. Presumption of correctness
b. Presumption of regularity
c. Deference
1. Chevron Deference
2. Skidmore Deference
B. Judicial Review of Enforcement Acts for collection of penalties, liquidated
damages and duties
1. Standards of Review in Enforcement Cases:
a. Penalty Cases – De Novo Review
*
Mr. Ferguson is the Managing Counsel- West Coast, Sandler, Travis & Rosenberg, P.A. The author gratefully
acknowledges the editing assistance provided by Arthur Purcell, Elise Shibles, Tiffany Martinez and Bianka
Noguera. © 2011, T. Randolph Ferguson.
b. In liquidated damages cases there is no De Novo review
c. In duty collection cases there is no De Novo review
2. Defenses that may and may not be raised in Enforcement Claims:
a. Defenses available in Penalty Claims
b. Defenses to Liquidated Damages Claims
c. Tactics in Anticipation of Actions initiated by the United States in
enforcement actions
d. Defenses to Claims for Duties 28 U.S.C. 1585 (2) or (3)
C. Counter Claims, Cross Claims and Third-Party Claims- 28 U.S.C. § 1583
D. Equitable Relief—All Powers in Law and Equity and Pendant Jurisdiction 28
U.S.C. § 1585
******************************************************************************
Introduction
The purpose of this paper is to provide the reader with a basic understanding of the
Customs import process and the administrative and judicial remedies available to those
aggrieved by that process. It is by no means an exhaustive treatise on any point. Instead, it is the
hope of this writer that it will provide the reader with the necessary foundation to recognize basic
issues of Customs law and the judicial solutions as they arise in transactions with Customs and
the other government agencies responsible for the administration of international trade.
I. Background - The Customs Process Through “Liquidation” of the Entry
A. Entry
By way of background, an importer enters merchandise into the commerce of the United
States by filing a formal entry with the United States Customs and Border Protection commonly
referred to as “CBP” (hereinafter “Customs”). The “entry” consists of a required set of
documents (invoices, packing list, bill of lading, and certifications if required) and declarations
by which the importer declares the value and classification with the attendant rate of duty on the
imported merchandise. At the same time, the importer makes a deposit with Customs of the
“estimated duties” on the merchandise.
At or prior to entry Customs may also make a determination as to the admissibility of the
merchandise and detain the merchandise pending a decision as to whether the merchandise
consists of “prohibited or restricted merchandise.” 1 If the merchandise has not been detained,
the importer posts a customs bond to secure compliance with the importer’s obligation to pay all
1
Prior to release of merchandise under bond, the imported merchandise may be detained by Customs pending a
determination of admissibility. If the merchandise is determined to be “prohibited or restricted” it may be excluded
or seized. See 19 C.F.R. § 12. For example, merchandise suspected to be counterfeit or in violation of a registered
trademark is most often detained prior to its release. 19 C.F.R. § 133.
additional duties which might be assessed in the future when the entry is finally “liquidated”. A
discussion of the “liquidation process” follows. The bond also covers the obligation to return any
merchandise later determined by Customs or another Federal agency (i.e. the FDA) to be
inadmissible into the commerce of the United States. In the overwhelming majority of cases, the
merchandise is released under bond to the importer. Upon receipt of the merchandise, under the
terms of the customs bond, the importer has a minimum 30 day conditional release period during
which the merchandise may be ordered redelivered by Customs on issues of admissibility. 19
C.F.R. § 113.62
B. Post Release Admissibility Determinations and Redelivery Orders
Thereafter, during the minimum 30 day conditional release period established by the
bond or the end of any other conditional release period established by regulation, if Customs
makes the determination that the merchandise is inadmissible as being imported contrary to law,
Customs will issue a “Notice of Redelivery” and order the merchandise redelivered under the
provisions of the customs bond posted at the time of entry. If the merchandise is found to be
improperly marked with the Country of Origin of the merchandise, Customs will order the
merchandise to be redelivered for exportation or destruction unless, within the redelivery period,
the importer undertakes the necessary steps to properly mark the subject merchandise.
The importer may file a formal administrative “protest” (See following discussion
concerning “Protests”) against the decision to order the merchandise returned to Customs
custody for exportation or destruction or proof or marking. The failure to respond to a timely
order for redelivery (i.e. one issued within 30 days of release or the end of any conditional
release period), will result in the assessment of liquidated damages under the bond. A failure to
file a protest against the finding of inadmissibility and the redelivery order will preclude the
importer from later defending the consequential demand for liquidated damages on grounds
which challenge the correctness of the underlying basis for the redelivery order in an
enforcement action to collect such damages in the Court of International Trade. Defense of
liquidated damage assessments is discussed later in this paper.
Practice Note: In order to preserve the importer’s right to challenge the correctness of the
decision to issue the notice to redeliver merchandise, a protest should be filed. After a protest
has been filed, any claim of the United States (Customs) for collection of liquidated damages (for
a failure to redeliver) generally can be stayed by the United States Court of International Trade
(“CIT”) pending resolution of the administrative or subsequent judicial action on the issue of
admissibility. As will be discussed below, with regard to the scope of judicial review, claims for
liquidated damages in the CIT are limited in a review to whether Customs ordered the
merchandise redelivered under the bond and whether the conditions of the order were met. The
Court will not look into the underlying validity of the redelivery Order. That inquiry may only be
raised by protest and in subsequent judicial review of the protest determination by Customs. The
two actions may run simultaneously, and often do, in the CIT with the liquidated damages action
being stayed pending a decision on the denial of the protest challenging the underlying basis for
ordering the merchandise redelivered in the first instance.
C. Liquidation of the Entry
After the entry of the merchandise, Customs has one year from the date of entry,
extendable to no more than four years (with the exception noted below), from the date of entry
“liquidate” the entry. The liquidation of an entry is final determination by Customs as to the
classification, duty rate and the value of the merchandise. In other words, “liquidation” is the
“final reckoning” as to the duties due on the imported merchandise. If liquidation has not
occurred within the prescribed period, the entry “liquidates by operation of law at the rate and
value asserted by the importer at the date of entry”. See Pagoda Trading Corp. v. United States
804 F.2d 665 (Fed. Cir.1986).
The only exception to the “one year / no more than four year” rule is when liquidation of
the entry as been “suspended” by “operation of law” or court order which occurs most often on
entries of merchandise subject to antidumping and countervailing duty orders. See 19 U.S.C. §
1504. When an entry is “suspended,” liquidation remains on “hold” until the underlying
administrative and/or court action is completed. In antidumping and countervailing duty cases,
an entry not liquidated within six months following the removal of suspension of liquidation is
“deemed liquidated” by operation of law2. See International Trading v. United States, 110 F.
Supp. 2d 977 (Ct. Int’l Tr. 2000) (“Int’l Trading I”) , aff’d in Int’l Trading Co. v. United States,
281 F.3d 1268 (Fed. Cir. 2002) (“Int’l Trading II”), reh’g denied, 2002 U.S. App. LEXIS
11482.)
Assuming that Customs has properly extended or suspended the liquidation and the entry
has not liquidated by operation of law, if Customs agrees with the importer’s asserted duty rate
and value the entry liquidates “No Change.” If Customs believes that the classification, rate of
duty or value declared at entry is incorrect, Customs will recalculate the duties (these are called
“Liquidated Duties”) and either issue a refund or a bill for the additional due duties over the prior
estimated duties deposited at the time of entry, plus interest. Thereafter, the importer has 180
days from the date of liquidation to file a formal protest with Customs under the provisions of 19
U.S.C. § 1514 and 19 C.F.R. § 174.0 et. seq.
II. Jurisdiction of the Court of International Trade, Generally:
A. Actions Commenced Against the United States
Pursuant to 28 U.S.C. § 1581, the CIT has exclusive jurisdiction over matters concerning
the final decisions of Customs concerning the appraisement of merchandise, the classification
and attendant rate of duty and the amount of duties chargeable; any charge of exaction by the
Secretary of the Treasury; the exclusion of merchandise; the liquidation or reliquidation of an
entry; Customs refusal to pay drawback. Each of the foregoing is a matter subject to formal
2
Deemed Liquidation.” Any entry for which liquidation has not been properly extended by Customs or suspended
before the first anniversary of the date of entry, liquidates by operation of law at the rate and value asserted by the
importer at the time of entry under the provisions of 19 U.S.C. 1504(a). Liquidation by operation of law is also
known as “deemed liquidation.” An entry deemed liquidated is subject to protest by the importer in instances in
which the importer was required to enter the merchandise at a value, or under a classification or at a rate of duty at
the time of entry with which he disagrees.
protest under the provisions of 19 U.S.C. § 1514. The CIT also has jurisdiction over trade
matters and unfair competition involving the proceedings and agency determinations underlying
the assessment of countervailing and antidumping duties as well as remedies available to
adversely affected domestic industries. The CIT has jurisdiction to review any adverse decision
against a customhouse broker or its license. Under certain circumstances upon a showing of
irreparable injury, the Court will review prospective decisions concerning the entry of
merchandise, arising out of a pre-importation ruling issued by Customs.
In addition to the above, the CIT has jurisdiction to review certain, limited other matters
not subject to the administrative remedies otherwise reviewable by protest, participation in unfair
trade competition proceedings or other proceedings required by law. An annotated version of 28
U.S.C. § 1581 which identifies the subject of the referenced statutes is as follows:
1. 28 U.S.C. 1581: Civil Actions against the United States and Agencies and officers
thereof:
The Court of International Trade has exclusive jurisdiction of any civil action
commenced to contest or review:
(a) the denial of a protest (19 U.S.C. 1515) filed under the provisions of 19 U.S.C.1514;
(b) the denial of the petition of a U.S. Domestic manufacturer to contest the classification
or appraisement of imported merchandise 19 U.S.C. 1516;
(c) the final determination in a countervailing duty (19 U.S.C. 1671a(c)) or an
antidumping duty (19 U.S.C. 1673a(c)) proceeding (19 U.S.C. 1516A);
(d) the final determination of the Secretary of Labor or the Secretary of Commerce
concerning eligibility of workers, of firms, of communities, and of agricultural
commodity producers for adjustment assistance under the Trade Act of 1974;
(e) the final determination of the Secretary of the Treasury under the Government
Procurement provisions of the Trade Agreements Act of 1979;
(f) the decision of the administrating authority (the Secretary of Commerce or other
officer) or the United States International Trade Commission to make confidential
information available under protective order to participants in countervailing and
antidumping proceedings under the provisions of 19 U.S.C. 1677(c)(2);
(g) the decision to deny or revoke or suspend a customs broker license or permit or
impose a penalty against a customs broker under 19 U.S.C. 1641subsections (b),(c)
or (d); or the decision to deny, suspend, or revoke accreditation of a private laboratory
under 19 U.S.C. 1499(b);
(h) the pre-importation decision on a pre-importation ruling made by the Secretary of the
Treasury, including the decision not to issue a ruling or change a ruling concerning
the classification, valuation, rate of duty, marking, restricted merchandise, entry
requirements, drawback, vessel repairs or similar matters but only if the commencing
party can demonstrate to the court that he would be irreparably harmed unless given
an opportunity to obtain judicial review prior to such importation;
(i) in addition to the jurisdiction conferred in subsections (a) to (h) and subject to the
exception in subsection (j) the CIT as jurisdiction to review the actions or failure to
act of the United States, its agencies or officers that arise out of any law of the United
States providing for (1) revenue from imports or tonnage; (2) tariffs, duties, fees, or
other taxes on the importation of merchandise for reasons other than the raising of
revenue; (3) embargos and other quantitative restrictions on the importation of
merchandise for reasons other than the protection of the public health or safety; or (4)
administration and enforcement with respect to the matters referred to paragraphs (1)
– (3) of this subsection and subsections (a) – (h) of this section. This subsection does
not confer jurisdiction over antidumping or countervailing duty determinations which
are reviewable under 19 U.S.C. § 1516A or by a bi-national panel under the NAFTA
or the United States-Canada Free Trade Agreement;
(j) No jurisdiction over a civil action arising under 19 U.S.C. § 1305 concerning the
importation of immoral articles.
2. Standing to commence a Civil Action: 28 U.S.C. § 2631
(a) To challenge a denied protest under 19 U.S.C. § 1515, the party who filed the
protest under 19 U.S.C. § 1514 or the surety on the transaction covered by the
protest has standing.
(b) To challenge a denied petition by a domestic manufacturer for classification or
valuation of [competitive] imported merchandise, the domestic manufacturer
petitioner has standing
(c) To challenge the final results of a countervailing or antidumping proceeding, any
party who participated in the proceeding has standing to standing.
(d) (1)To challenge a final determination by the Secretary of Labor as to the
qualification of workers for trade adjustment assistance, any worker, group of
workers or certified or recognized union has standing if it has applied for
assistance and is aggrieved by the final determination; (2) To challenge the final
determination of the Secretary of Commerce as to the qualification of a firm for
trade adjustment assistance, any firm or its representative or any other interested
domestic party has standing if the firm or any other interested domestic party has
applied for assistance and is aggrieved by the final determination.
(e) To challenge a final determination concerning government procurement under the
Trade Agreements Act, any person who was a party-in-interest in the proceeding
has standing.
(f) To challenge the denial of an application for confidential information from the
ITA or ITC, any interested party whose application was denied has standing.
(g) With regard to challenging (1) the denial or revocation of a customs broker’s
license or permit or (2) to suspend or revoke a customs broker’s license or permit
or impose a monetary penalty in lieu thereof; or (3) or to deny or suspend or
revoke accreditation of a private laboratory, any person against whom the
decision was issued has standing.
(h) To challenge a decision on a pre-importation ruling, any person who, if he had
imported the goods would have had standing to protest and challenge the denial of
such protest under 28 U.S.C. § 1581(a) has standing to challenge the decision on
the pre-importation ruling.
(i) Any person aggrieved by agency action within the meaning of section 702 of title
5.
(j) Intervention – Any person who would be adversely affected or aggrieved by a
decision in a civil action pending in the Court of International Trade may, by
leave of Court intervene in such action excepta. No person may intervene in a civil action under 515 or 516 of the Tariff
Act concerning importer protests and petitions by domestic interested
parties;
b. Only an interested who were also party to the antidumping or
countervailing duty proceeding under 19 U.S.C. § 1516a may intervene
and may intervene as a matter of right (i.e. without leave of Court)
c. Only a person who was a party to the investigation may intervene in
litigation concerning the disclosure of confidential information in an
antidumping or countervailing duty proceeding and such person may
intervene as a matter of right.
(k) Provides the definitions of (1)“interested party” and (2)“party at interest” as used
throughout 28 U.S.C. 2631.
3. Exhaustion of administrative remedies required for jurisdiction:
The question of litigation in the CIT depends almost entirely on the question of whether
the party plaintiff has exhausted his administrative remedies. See 28 U.S.C. § 2637. If the party
has not exhausted his administrative remedies, the Court has no jurisdiction to review the agency
decision. See, e.g.,American Association of Exporters and Importers- Textile and Apparel Group
v. United States, 751 F.2d 1239 (Fed. Cir. 1985).
a. Protests – 19 U.S.C. § 1514
The administrative remedy to contest an increase in duties upon liquidation of the entry is
the filing of a protest within 180 days of the date of liquidation under the provisions of 19 U.S.C.
1514. The protest remedy is prerequisite to jurisdiction in the Court of International Trade.
American Air Parcel Forwarding Co, Ltd. v. United States, 6 C.I.T. 146, 573 F. Supp 117
(1983). If the 19 U.S.C. § 1514 protest remedy is available but has not been acted upon in a
timely manner by the filing of a protest against the contested Customs decision, the United States
Court of International Trade is without jurisdiction to hear the dispute. Computime, Inc. v. United
States, 8 CIT 259, 601 F.Supp.1029, (1984), aff’d, 772 F.2d 874.
1. Matters which may be protested:
(i) The appraised value of merchandise;
(ii) The classification and rate and amount of duties chargeable;
(iii) All charges or exactions of whatever character within the jurisdiction of the Secretary of
the Treasury;
(iv) The exclusion of merchandise from entry or delivery or a demand for redelivery to customs
custody under any provision of the customs laws; except a determination appealable under
[the Unfair Practices In Import Trade (patent violation, etc.] section 1337 of this title;
(v) The liquidation or reliquidation of an entry or reconciliation as to the issues contained
therein, or any modification thereof;
(vi) The refusal to pay a claim for drawback; or
(vii) The denial of a claim made under 1520(d) [concerning a post entry FTA claim to modify
an entry to assert a duty preference on the imported merchandise.
2. Right and Standing to Protest
The party filing the protest must be the importer, the consignee, or the agent of the person
paying such charge or exaction. See U.S. v. Wedemann & Godknecht, Inc., 62 C.C.P.A.
86, 515 F.2d 1145, (Cust. & Pat. App. 1975)
3. Caution: Premature Protests Will Be Denied
It is most important to note that when a challenge to the assessment of duties is involved
(with the narrow exception of prospective duties anticipated as the result of a preimportation ruling which would result in irreparable harm –See 28 U.S.C. 1581(h), supra)
a protest may not be filed prior to liquidation of the entry. A protest against duties filed
prior to liquidation of an entry is untimely as being premature and the protest must be
denied. Practice Note: For example, if, at the time of entry, Customs rejects the entry and
requires a change in classification or rate of duty or value against which the rate is
applied to calculate estimated duties before accepting the entry, the importer must wait
for liquidation of the entry before the issue can be effectively protested. See U.S. v
Reliable Chemical Co, 66 C.C.P.A. 123, 605 F.2d 1179.
4. Payment of All Duties and Taxes In An Action to Recover Duties Is
Prerequisite To Jurisdiction In Actions Concerning the Assessment
and Seeking Refund Of Duty under 28 U.S.C. § 1581(a):
Once a party has exhausted the administrative remedy of protesting and the protest has
been denied with a negative determination concerning the classification or valuation issue, the
party has 180 days from the date of the mailing of the protest decision to pay all of the duties due
plus interest accrued thereon and to file a summons in the CIT. (See 28 U.S.C § 2637(a));
American Air Parcel Forwarding Co, Ltd. v. United States, 6 C.I.T. 146, 573 F. Supp.
117(1983); Dazzle Mfg., Ltd. v United States, 21 C.I.T. 827, 828, 971 F. Supp. 594, 596 (1997).
A failure to pay all the duties and taxes prior to the commencement of the action which occurs
by filing a summons with the Court will deprive the Court of jurisdiction to hear the merits of the
case. See Great American Insurance Company, etc. v. United States, 710 F. Supp. 2d 1346 (CIT
2010) (an action in the CIT is commenced by the mailing of the summons in accordance with the
rules of the CIT while duties are paid upon receipt). On the other hand, duties are paid upon
receipt by Customs and not upon mailing.) In Great American, the surety mailed the duties and
the summons on the same day. Because duties are required to be paid to Customs prior to the
commencement of the action (mailing of the summons), the receipt of the duties by Customs
two days after the mailing of the summons resulted in depriving the Court of jurisdiction.
A failure to pay all duties due plus accrued interest is fatal to jurisdiction of the Court.
However, the Court has exercised its equitable powers and has allowed jurisdiction over some
entries covered by a denied protest where the protestant has paid some but not all of the duties
due plus interest on the entries covered by the protest. In that case, the court exercised
jurisdiction over only those entries for which all duties and interest were paid and rejected
jurisdiction on the entries with unpaid or partially paid duties plus interest. See: Mercado
Juarez/Dos Gringos and Don Bowden v United States, 796 F. Supp. 531 (CIT 1992)
b.
Participation in ITA and ITC Proceedings – 19 U.S.C.§ 1516a
There are matters arising in the customs and trade laws that are not subject to protest
under the limitations set forth in 19 U.S.C. § 1514. For example, the decisions of the Department
of Commerce, International Trade Administration (the “ITA”) in determining and publishing
Final Orders in Antidumping and Countervailing Duty cases and The Final Results of Annual
Administrative Review of those orders are not protestable. Instead, the administrative remedy
required for jurisdiction and standing in the CIT is participation in the underlying antidumping
duty proceeding (19 U.S.C. § 1673a(c)) or countervailing duty proceeding (19 U.S.C. §
1671a(c)) before the International Trade Commission (“ITC”) or the ITA. (See 19 U.S.C. §
1516a(d) and 28 U.S.C. § 1581(c)). “Participation” requires more than filing a mere notice
appearance and application for documents under the APO (administrative protective order), even
more than participating in inter-party discussions. “Participation” requires at least the written
submission of documents and argument. See 19 C.F.R. 351.102. Without written submissions,
mere notice of appearance and applying for review of documents and inter-party discussion will
not rise to the level of “participation” required for standing to challenge an agency’s final
determination in the Court of International Trade either through a direct action under 28 U.S.C.
1581(b) or through interpleading into another party participant’s action. Nucor Corporation v
United States, Slip Op. 516 F. Supp. 2d 1348.
Upon publication in the Federal Register of the Final Order setting the rates of
antidumping or countervailing duty or the Final Results of Administrative Review, upholding or
amending the rates set in the Final Order, the aggrieved party has 30 days to file an action on the
record of the proceeding in the CIT (See 19 U.S.C. § 1516a(1)). Thereafter the court has the
jurisdiction to review the record and determine whether the agency acted in accordance with the
law in making its determination. In the interim, upon application by the plaintiff, the court has
the power to grant a preliminary injunction to restrain both the Department of Commerce and
Customs from carrying out the assessment of the disputed antidumping or countervailing duty
until the matter has been reviewed and adjudicated by the Court pursuant to 19 U.S.C. §
1516a(c)(2). During the course of the judicial review of the agency determination and record
upon which the determination was based, the CIT has the power to remand the matter to the
agency to correct errors or to supplement the agency’s reasoning and support for its original
decision.
There is an exception to the rule that antidumping duties and countervailing duties are
not the proper subject of a protest under Section 19 U.S.C. § 1514. As a general rule, the CIT has
held that the role of Customs in the antidumping process is “[s]imply to follow Commerce’s
instructions in collecting deposits of estimated duties and in assessing antidumping duties,
together with interest, at the time of liquidation.” Customs Headquarters Ruling (“HQ”) HQ
229413 (March 12, 2002); HQ 225382 (July 3, 1995); Mitsubishi Electronic America Inc. v.
United States, 44 F.3d 973 (Fed. Cir. 1994). However, if Customs fails to follow the instructions
of the Department of Commerce, that failure may be subject to protest under 19 U.S.C. §1514.
See, e.g., ABC International Traders, Inc. v. United States, 19 CIT 787, 791 (1995)( “... [c]laims
[that Customs erroneously liquidated certain entries and failed to follow Commerce’s liquidation
instructions] may be brought before the court under 28 U.S.C. §1581(a)(1988), after denial of
protests by Customs.”); see also, American Hi-Fi International, Inc. v. United States, 936 F.
Supp. 1032, 1037 (Ct. Int’l Trade 1996) ([j]urisdiction for actions challenging Customs’ failure
to follow Commerce’s actual liquidation instructions ... is found under 28 U.S.C. § 1581(a)).
4. Residual Jurisdiction Limited Jurisdiction on Matters Not Subject to Administrative
Remedies – 28 U.S.C. § 1581(i)
The CIT will not grant jurisdiction under § 1581(i) over a matter in which the issue could
have been protested or subject to some other administrative remedy. Jurisdiction under 1581(i)
is applied only when the decision, the action, or the failure to act has no administrative remedy.
For example, after publication of a favorable court decision on an antidumping challenge
which had been initiated timely in the CIT by a participant in the underlying proceeding (i.e.
within 30 days of publication of the agency determination pursuant to 19 U.S.C. § 1516a),
another party who did not participate in the underlying antidumping proceedings under section
19 U.S.C. § 1673a –which in turn would have allowed him jurisdiction under 28 U.S.C. § 1581
(c) - could not obtain jurisdiction under 1585(i) because he failed to pursue his remedy under 19
U.S.C. 1516a(1) by participating in the underlying proceeding (See JCM Ltd. v. United States,
23 CIT 121 (1999), aff’d, 210 F.3d 1357 (Fed. Cir. Appeal No. 99-1380 (2000). In JCM, the
Court of Appeals for the Federal Circuit (“CAFC”) points out In the antidumping context, Congress has prescribed a clear, step-by-step
process for a claimant to follow, and the failure to do so precludes it from
obtaining review of that issue in the Court of International Trade. See
Sandvik Steel Co. v. United States, 164 F.3d 596, 599-600 (Fed. Cir. 1998);
see also National Corn Growers Ass'n v. Baker, 840 F.2d 1547, 1555-57
(Fed. Cir. 1988). "Section 1581(i) jurisdiction may not be invoked when
jurisdiction under another section of § 1581 is or could have been available,
unless the remedy provided under that other subsection would be manifestly
inadequate." Norcal/Corsetti Foods, Inc. v. United States, 963 F.2d 356, 359
(Fed. Cir. 1992) (quoting Miller & Co. v. United States, 824 F.2d 961, 963
(Fed. Cir. 1987). To allow a party to elect to proceed under section 1581(i),
without having first availed himself of the remedy provided by section
1581(c), would undermine the integrity of the clear path Congress intended
a claimant to follow. In the words of the analogous American Air Parcel
Forwarding Co. v. United States, 718 F.2d 1546, 1550 (Fed. Cir. 1983), "the
traditional avenue of approach to the court . . . was not intended to be so
easily circumvented, whereby it would become merely a matter of election
by the litigant. By artful pleading alone a litigant would be able to change
the entire statutory scheme Congress has established."
5. Burden of Proof
(a) Presumption of Correctness
Customs’ decisions on matters of classification enjoy a statutory presumption of
correctness, and the burden of proving otherwise rests upon the party challenging such decisions.
28 U.S.C. § 2639(a). However, the presumption of correctness “does not add evidentiary weight;
it simply places the burden of proof on the challenger.” See Anhydrides & Chems., Inc. v.
United States, 130 F.3d 1481, 1486 (Fed. Cir. 1997). The presumption of correctness applies
only to the factual basis of such decisions, and not to their legal component, with respect to
which the CIT exercises de novo review. See Universal Elecs., Inc. v. United States, 112 F.3d
488, 492 (Fed. Cir. 1997) as cited by the CIT in The Pillsbury Company v. United States, 341 F.
Supp.2d 1290 (CIT 2004)
(b) Presumption of Regularity
Customs officials are “entitled to a presumption that that their duties are performed in the
manner required by law.” Prosegur, Inc. v United States, 25 CIT 364, 140 F.Supp.2d 1370, 1375
(2001) citing International Cargo & Surety, Ins. Co. v. United States, 15 CIT 541, 544, 779 F.
Supp. 174, 177 (1991). A “naked assertion” that the government official has not performed his
duty does not rebut the presumption.” Proseguer, 25 CIT at 376. The presumption arises in
matters in which the plaintiff complains that customs failed to do a task required by law; for,
example, a claim that Customs failed either to extend the period of liquidation or to give notice
of an extension or suspension of the period for liquidation. In such cases, the entries would
liquidate by operation of law at the rate and value asserted by the importer at the time of entry.
The importer could protest under 19 U.S.C. § 1514(a)(5) any liquidation attempted more than
one year after the date of entry as being untimely under 19 U.S.C. § 1504 and voidable. If the
protest were denied, the importer could pay the liquidated duties and sue for refund under 28
U.S.C. § 1581(a) asserting the claim that the entry had previously liquidated by operation of law
at the rate and value entered.
In the alternative, the importer could simply refuse to pay the bill on the grounds of
untimely liquidation and the resultant liquidation by operation of law, wait to be sued by the
government under 28 U.S.C. § 1582(3), and then assert untimely liquidation/deemed liquidation
as grounds for a valid defense. See United States v. Cherry Hill Textiles and International Cargo
and Surety Insurance Co. 111 F3d 1550 (1997). Please note, however, that void liquidation is
the only otherwise protestable issue that one is allowed to raise as a defense in an enforcement
collection action. All other duty related and admissibility related issues must be protested and
cannot be raised as a defense in an enforcement action to collect duties or liquidated damages.
(c ) Deference
(1) Chevron Deference
In the case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S.
837 (1984), the Supreme Court set up a two step test to determine whether a federal agency’s
interpretation of a statute is entitled to deference:
(1) "First, always, is the question whether Congress has spoken directly to the precise
question at issue. If the intent of Congress is clear, that is the end of the matter; for the court as
well as the agency must give effect to the unambiguously expressed intent of Congress."
"If the Court determines Congress has not directly addressed the precise question at issue,
the court does not simply impose its own construction of the statute . . . Rather,
(2) “[I]f the statute is silent or ambiguous with respect to the specific question, the issue
for the court is whether the agency's answer is based on a permissible construction of the
statute.”
Chevron U.S.A. v. NRDC, 467 U.S. 837, 842–843 (1984). So long as the agency’s
interpretation of an ambiguous statute is reasonable, the agency’s interpretation prevails under
Chevron. Customs regulations receive the highest deference because they are preceded by notice
and opportunity for comment under the Administrative Procedures Act (“APA”), 5 U.S.C. § 552,
they carry the force of law and they are intended to clarify rights and obligations. See: United
States v. Haggar Apparel Co., 526 U.S. 380 (1999) which held that “The customs regulations
may not be disregarded. Application of the Chevron framework is the beginning of the legal
analysis, and the Court of International Trade must, when appropriate, give regulations Chevron
deference.”
(2) Skidmore Deference
On the other hand, Customs ruling letters on classification do not receive Chevron
deference nor do classification decisions on liquidation. However, in United States v. Mead
Corp., 533 U.S. 218 (2001), the Supreme Court held that [a] ruling [letter] is eligible to claim
respect according to its persuasiveness under Skidmore v. Swift & Co, .323 U.S. 134 (1944).
In the case Skidmore, the Supreme Court held that “that the rulings, interpretations, and
opinions of the administrative agency, while not controlling upon the courts by reason of their
authority, do constitute a body of experience and informed judgment to which courts and
litigants may properly resort for guidance. The weight of such a judgment in a particular case
will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its
consistency with earlier and later pronouncements, and all those factors which give it power to
persuade, if lacking power to control.” Thus, was born “Skidmore Deference,” which gave
deference under appropriate circumstances to agency determinations that did not rise to the level
of regulations.
B. Judicial Review of Enforcement Acts for collection of penalties, liquidated
damages and duties
28 U.S.C. 1582 Civil Actions Commenced By the United States:
The CIT has exclusive jurisdiction of any civil action which arises out of an import
transaction and which is commenced by the United States:
(1) To recover a civil penalty under 19 U.S.C. § 1592 (Penalties for Fraud, Gross
Negligence and Negligence in connection with an entry of merchandise); 19 U.S.C.
1593a (Penalties for False Drawback Claims); 19 U.S.C. § 1641(b)(6) (Customs
Brokers - Prohibited Acts) 19 U.S.C. § 1641(d)(2)(A) (Customs Brokers Disciplinary
Proceedings – Monetary Penalty); 19 U.S.C. § 1704(i)(2) (Revocation or Refusal of
Vessel Registry for Smuggling Activities) and 19 U.S.C. § 1734(i)(2);
(2) To recover on a bond relating to the importation of merchandise required by the laws
of the United States or by the Secretary of the Treasury (i.e. Civil actions to collect
Liquidated Damages and penalties prescribed in the customs bond provisions of the
Customs Regulations 19 C.F.R. § 113.62 et. seq.)
(3) To recover customs duties (i.e. See 19 U.S.C. § 1592(d))
1. Standards of Review In Enforcement Cases:
(a) Penalty Cases – De Novo Review
In 19 U.S.C. § 1592 cases (“592 cases”) concerning penalties imposed for fraud,
negligence and gross negligence in connection with an entry, and 19 U.S.C. 1595a (“595A) cases
concerning penalties for importations made contrary to law, as well as most other cases
involving penalties, the court has de novo review authority. The court has the authority to review
the facts, and the law and to remit or cancel penalties. See United States v. National
Semiconductor Corp., 30 CIT 1428; 496 F.3d 1354 (Fed. Cir. 2008). The factors that the CIT
may consider when determining the appropriateness of a civil penalty for a violation of customs
laws are set out by the court in United States v. Complex Mach. Works, 83 F. Supp. 2d 1307,
1315 (Ct. Int’l Tr. 1999). The Complex Mach. Works factors are:
“(1) the defendant’s good faith effort to comply with the statute; (2) the degree of
culpability involved; (3) the defendant’s history of previous violations; (4) the
nature of the public interest in ensuring compliance with the applicable law; (5)
the nature and circumstances of the violation; (6) the gravity of the violation; (7)
the defendant’s ability to pay; (8) the appropriateness of the size of the penalty
vis-à-vis the defendant’s business and the effect of the penalty on the defendant’s
ability to continue doing business; (9) the economic benefit gained by the
defendant through the violation; (10) whether the party sought to be protected by
the statute is elsewhere adequately compensated for the harm; (11) the degree of
harm to the public; (12) the value of vindicating agency authority; (13) whether
the penalty shocks the conscience of the court; and (14) such other matters as
justice may require.” Complex Mach. Works, 83 F. Supp. 2d at 1315.
(b ) In Liquidated Damages Cases There Is No De Novo Review
In liquidated damages cases, the court does not exercise de novo review. The court’s
inquiry is generally limited to (1) verifying that a bond was in place securing a bonded obligation
(2) making the factual determination as to whether (1) the bond was breached by some act, or
failure to act, on the part of the importer / principal and (3) that the United States performed all
acts required of it to secure the obligation under the bond. The court will not look behind the
decisions of the Customs Officer as to the amount of liquidated damages assessed so long as the
liquidated damages do not exceed the liquidated damages set forth in the bond. The court will
not substitute its judgment to mitigate the liquidated damages for the decision of the customs
officer either not to mitigate or his decision as to the level of mitigation. United States v.
Imperial Food Imports, 660 F. Supp. 958 (1987). In that case the Court would not look behind
the Redelivery Order and question the validity of the F.D.A. decision that the imported shrimp
was adulterated and therefore, inadmissible. The court also exercised its equitable jurisdiction
under 28 U.S.C. 1585 and awarded pre-judgment interest on the liquidated damages from the
date of the final demand upon surety. 660 F. Supp. 958 at 961; aff’d, 834 F.2d 1013 (“…in cases
such as this in which no statute specifically authorizes an award of prejudgment interest, such an
award lies within the discretion of the court as part of its equitable powers.) The leading CIT
case on pre-judgment interest is United States v. Goodman, 572 F. Supp. 1284 (Ct. Int’l Tr.
1983).
(c). In duty collection cases there is no De Novo review
The court does not exercise de novo review of the underlying decision upon which the
duty claim is made. The only issues that the court may look at in a duty collection case is as to
whether the proper party or parties who have actual liability for the duties (i.e. the importer
and/or his surety) are before the court.
2. Defenses That May and May Not Be Raised In Enforcement Claims:
(a) Defenses Available In Penalty Claims:
(1) With regard to defenses that may be raised in a penalty case, the
criterion laid down in the Complex Mach. Works case, supra, is instructive and
will be helpful.
(2) The five year statute of limitations (19 U.S.C. § 1621) on penalties
and the collection of lost revenue is always worth examining.
(3) Today, more and more penalty cases are arising out of Customs’
liquidation activities. By this I mean, as Customs reviews an entry for liquidation,
if Customs disagrees with the value calculation or the classification/rate of duty
asserted at the time of entry and, upon liquidation, assesses a higher rate of duty,
Customs has the power to go back to all entries made during the prior 5 year
period (See 19 U.S.C. § 1621- Limitation on Actions) and collect lost revenue
under 19 U.S.C. § 1592(d) and assess a penalty based upon a multiple of the
calculated loss of revenue under 19 U.S.C. § 1592 for fraud, gross negligence or
negligence in making the declarations concerning the value and classification of
the merchandise at the time of entry. For that reason, if the importer disagrees
with the liquidation decision underlying the penalty case, the importer is well
advised to immediately protest that liquidation decision and to carry the protest
through to judicial review simultaneously with the progress of any corollary
penalty case. I addition, in order to protect his future interests, the importer should
continue to protest the on-going application of that liquidation decision on
subsequent entries until the matter has been adjudicated.
( b) Defenses to Liquidated Damages Claims
Liquidated Damages claims are actions on a bond under 28 U.S.C. § 1582(2):
(1)
Liquidated Damages are creatures of the specific terms of the
customs bond which was posted to secure the release of merchandise entered
through Customs into the commerce of the United States .See 19 C.F.R. § 113.62
et. seq. Claims for liquidated damages in excess of the penal value of the bond are
limited to the penal value of the bond.
(2)
Compliance is always a defense to a claim for liquidated damages
under a customs bond.
(3)
Exhaustion of the bond by payment of liquidated damages in
whole or in part either by the principal or by the surety on the instant claim or on
another prior claim is a defense. However this is not true with regard to the
payment of duties because the obligation to pay all duties is a personal obligation
of the importer arising under 19 U.S.C. § 141.1(b), which is independent of and in
addition to any obligation to pay duties arising under the bond.
(4.)
Procedural Defenses: If the action involves a failure of the
importer to redeliver merchandise in response to an order to redeliver such
merchandise for marking, exportation or destruction, the failure of Customs to
issue the order to redeliver within 30 days of the release of the merchandise or
within 30 days of any other conditional release period authorized by statute or
regulation is a completed defense to the claim. An untimely order to redeliver
merchandise cannot and does not obligate the bond.
(c) Tactics in Anticipation of Actions Initiated by the United States in
Enforcement actions:
Seizure and Forfeiture Actions:
Although actions concerning the seizure and forfeiture of merchandise are under the
jurisdiction of the district courts under 19 U.S.C. 1604, 1607 and 1608, the CIT will still have
jurisdiction under 28 U.S.C. § 1581(a)to review the propriety of the seizure if a protest under 19
U.S.C. § 1514 has been timely filed against the exclusion of the merchandise prior to the seizure
of the merchandise.
The CIT has jurisdiction over merchandise that has been deemed inadmissible and
excluded when the determination of inadmissibility and exclusion has been protested. However,
once the goods have been seized for purposes of forfeiture, the CIT does not have jurisdiction.
After merchandise has been seized and forfeited – a challenge to seizure and forfeiture is within
the jurisdiction of the district courts. See CDCOM (U.S.A.) Int’l Inc. v. United States, 21 CIT
435, 963 F. Supp 1214, (1997). Once goods have been seized for an alleged trademark violation,
a protest filed after the seizure will not give the Court of International jurisdiction. After Seizure
for an alleged trademark violation, the United States districts courts have exclusive jurisdiction.
Tempco Marketing v. United States, 21 CIT 191, 957 F. Supp. 1276, (1997).
(d ) Defenses to Claims for Duties 28 U.S.C. 1582 (2) or (3)
If the claim is for unpaid liquidated duties, unless the liquidated duty assessment has been
protested and the protest is either pending or its denial is before the Court under 28 U.S.C.
1581(a), the Court does not have jurisdiction to look behind the basis or calculation of the claim.
The only exception is the Court’s ability to re-examine whether the liquidation upon which the
claim is based is void or voidable as a result of a prior liquidation by operation of law. See,
supra, the decision in and reference to the Cherry Hill case.
Equitable estoppel is not available against the United States in any action to collect
duties, See United States v Federal Insur. Co. and Cometals, Inc., 5 Fed, Cir. (T) 16, 805 F.2d
1012, (1986).
C. Counter Claims, Cross Claims and Third-Party Claims- 28 U.S.C. § 1583
28 U.S.C. § 1583 provides that the CIT has jurisdiction over counterclaims, cross claims
and third-party actions if such claim or action involves the imported merchandise that is the
subject of the underlying action over which the Court has original jurisdiction under 28 U.S.C. §
1581 or 1582. The CIT also has jurisdiction over counterclaims, cross claims and third-party
actions if such action is to recover upon a bond or customs duties relating to the merchandise
over which the Court has original jurisdiction under 28 U.S.C. § 1581 or 1582.
This provision is most commonly used by sureties against the principal when surety has
been sued by the government for performance on the bond for the recovery of duty or for
liquidated damages. See United States v. Mizrahie, 9 CIT 142 606 F. Supp. 702, (1985). Even if
the main enforcement action has been dismissed on grounds other than original jurisdiction, the
court may continue to hear the counterclaim, cross claim and third-party action. See United
States. v. Mecca Export Co., 19 CIT 644, 647 F. Supp. 924, (1986).
D. Equitable Relief—All Powers in Law and Equity and Pendant Jurisdiction 28
U.S.C. § 1585.
28 U.S.C. § 1585 confers upon the CIT all the powers in law and equity of the district
courts of the United States. This provision affords the court the ability to grant equitable relief,
See American Air Parcel, supra, 6 CIT 146, 573 F.Supp 117; and to grant injunctive relief See
Manufacture De Machines Du Haut-Rhin v Von Raab, 6 CIT 60, 569 F. Supp. 877, (1983).
Supplemental Jurisdiction -28 U.S.C. § 1367. The Court of International Trade recently
issued an opinion in Sioux Honey, et al v United States and Hartford Insurance, et al., 700 F.
Supp. 2d 1330 (CIT 2010) in which supplemental jurisdiction is hotly contested between the
plaintiff and the surety defendants. The Court provides an exhaustive review of the issue whether
the Court of International Trade has the supplemental jurisdiction to hear plaintiff’s class action
claims against the surety defendants for the recovery of money damages on claims of
negligence, unjust enrichment and other like claims arising out of the same 18 U.S.C. § 1581
transactions over which the Court would have jurisdiction. The Court held that the CIT has the
power to exercise common-law supplemental jurisdiction under 28 U.S.C. § 1585. Admitting
that “it is a close question” the court held that sections 1367 and 1585 together confer upon the
Court of International Trade the authority to exercise the statutory supplemental jurisdiction that
section 1367 describes. Section 1367(a) provides (with certain exceptions) that “in any action of
which the district courts have original jurisdiction, the district courts shall have supplemental
jurisdiction over all other claims that are so related to claims in the action within such original
jurisdiction that they form part of the same case or controversy under Article III of the United
States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder
or intervention of additional parties.” Notwithstanding, the Court found against all plaintiff’s
claims on issues of either standing or a failure to state a claim for relief under the common law
causes of action. The matter is currently on appeal in the Court of Appeals for the Federal Circuit
(CAFC Appeal No. 2011-1040).
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
The Importance of a Well
Drafted Scheduling Order
to an Orderly Discovery
Process
Submitted by:
Jason M. Kenner
U.S. Department of Justice
New York, NY
THE IMPORTANCE OF A WELL DRAFTED SCHEDULING ORDER TO AN ORDERLY
DISCOVERY PROCESS
Trade and Customs Law: Basics You Need To Know
Georgetown University Law Center
March 2, 2011
By:
Jason M. Kenner 1
The Court of International Trade (CIT) is a specialized court dealing with Customs and
international trade matters. It is important to keep in mind, however, that while the subject
matter in the CIT may be unique, the manner in which cases are litigated is not. As in other
courts, cases are prepared for disposition through carefully planned and executed discovery. This
can include interrogatory requests, notices to admit, depositions and expert exchanges. While
many new lawyers spend countless hours painstakingly drafting discovery requests and deposition
questions, quite often the same type of attention is not paid to the scheduling order which will govern
a case’s entire discovery process. Inattention to the exact provisions of a scheduling order can lead to
hours of work later on.
I know from my own experience that many times scheduling orders are quickly cobbled
together without much thought given to the ramifications the order’s language will have on discovery.
It is not until well into the discovery period that problems develop because the scheduling order was
ambiguously drafted or failed to cover all aspects of discovery. These problems often lead to
discovery disputes, extra costs, motion practice and an unnecessary drain on both the Court’s and the
litigant’s resources.
A well thought out and meticulous prepared scheduling order entered at the beginning of
discovery providing dates certain for all aspects of discovery. This can prevent myriad problems
later on ensuring that the discovery phase of a case is as efficient as possible. This in turn can
help ensure that you are prepared for motions or trial while preventing burdening the court with
avoidable discovery motions.
As such, it is very important to take the same time and consideration into crafting a
scheduling order with which one crafts every other legal document.
THE PROCESS OF CREATING A SCHEDULING ORDER:
1
The author is a trial attorney in the International Trade Field Office, Civil Division,
United States Department of Justice. The author greatly acknowledges the assistance of fellow
ITFO Trial Attorney Beverly Farrell in the drafting of this paper. This paper does not necessarily
represent the views of the Government.
The scheduling order provides structure and certainty to the discovery process. When thoughtfully created, the
scheduling order can facilitate the orderly progression of discovery, and prevent disputes, the duplication of work and surprises
later on. The creation of a scheduling order begins with a discovery conference between all parties to the action.
PURSUANT TO THE RULES OF THE COURT OF INTERNATIONAL TRADE PARTIES MUST CONFER AND
ATTEMPT TO CREATE A MUTUALLY SATISFACTORY DISCOVERY PLAN
Discovery Conference:
The discovery conference is the first opportunity for the parties to sit down, consider the
case, whether it may be settled, and raise discovery issues that may come up and provide for their
orderly resolution.
USCIT R. 26(f) requires the parties to confer regarding planning for discovery.
During this conference, the parties must confer to discuss the nature and basis of
their claims and defenses and the possibilities for a prompt settlement or resolution of the case, to
make or arrange for disclosures required by Rule 26(a)(1), and to develop a proposed discovery plan.
Pursuant to Rule 26(f)(3) the topics discussed at a discovery plan should include:
a)
What changes should be made in the timing, form, or requirements for
disclosures under 26(a), including a statement of when initial disclosures were
made or will be made;
b)
The subjects on which discovery may be needed, when discovery should be
completed, and whether discovery should be conducted in phases or be limited
to or focused on particular issues;
c)
any issues about disclosure or discovery of electronically stored information,
including the form or forms in which it should be produced;
d)
any issues about claims of privilege or of protection as trial preparation
materials, including - if the parties agree on a procedure to assert these claims
after production - whether to ask the court to include their agreement in an
order;
e)
what changes should be made in the limitations on discovery imposed under
these rules, and what other limitations should be imposed; and
f)
any other orders that the court should issue under rule 26(c) or under Rule
16(b) and (c).
Generally, pursuant to Rule 26(f)(1) the parties must conduct this conference, as
soon as practicable, and in any event at least 21 days before a scheduling conference is to be held
or a scheduling order is due under Rule 16(b). (Pursuant to Rule 16(b), the assigned Judge after
receiving the parties 26(f) report, or holding a scheduling conference to discuss the litigation dates for
the action, then must issue a scheduling order as soon as practicable, but in no event more than 90
days after assignment.)
The attorneys of record are jointly responsible for arranging and being present or
represented at the conference, for attempting in good faith to agree on the proposed discovery plan,
and for submitting to the court within 14 days after the conference a written report outlining the
plan. The Court may order that the parties or attorneys attend the conference in person.
When completing a rule 26(f) report it is wise to deal up front with all possible discovery
issues that may arise. For example, the parties may want to consider whether they want to protect
expert report drafts by agreeing to be bound by Rule 26(b)(4)(B) of the Federal Rules of Civil
Procedure 2.
ONCE THE PARTIES HAVE AGREED UPON A MUTUALLY SATISFACTORY
DISCOVERY PLAN THEY MUST TURN TO PREPARING A SCHEDULING
ORDER THAT WILL GOVERN THE AGREED COURSE OF DISCOVERY
A scheduling order is a court order that, if possible has been mutually agreed upon by the
parties, and entered by the Court. This order will then provide the structure for the ensuing discovery
phase of the case. Given the parties cooperation in fashioning a discovery plan, it is logical for them
to work together in preparing a proposed scheduling order for the Court’s signature.
Pursuant to the rules of the Court in International Trade a scheduling order must
“limit the time to join other parties, amend the pleadings, complete discovery, and file and hear
motions.” Rule 16(b)(3)(A).
In addition to what is expressly required, pursuant to rule 16(b)(3)(B) a scheduling order may
also:
2
Generally speaking Rule 26(b)(4)(B) of the Federal Rules of Civil Procedure as
Amended December 2010, protects draft reports, regardless of the form. Amended Rule
26(b)(4)(C) protects communications between counsel and their expert. However, excluded
from protection are those communications that relate to compensation of the expert, identify facts
or data relied upon by the expert in reaching his or her opinions, or identify assumptions relied
upon by the expert in reaching his or her opinions.
(I)
modify the timing of disclosures under Rules 26(a) and 26(e)(1);
(ii)
(iii)
modify the extent of discovery;
provide for disclosure or discovery of electronically stored information;
(iv)
include any agreements the parties reach for asserting claims of privilege or of
protection as trial preparation material after information is produced;
(v)
set dates for conferences before submission of the action for final disposition,
a final post assignment conference, and trial or submission of a dispositive
motion; and
(vi)
include any other appropriate matters.
Because Rule 16(b)(4) provides that the scheduling order may be modified only with the
consent of the judge and only for good cause, it is crucial that the parties prepare a robust scheduling
order designed to address all anticipated issues that may arise in a given case. This will help ensure
that the parties know exactly what is expected of them and when, ensuring against an unwitting
discovery violation that may damage a party’s case.
PREPARING A PROPOSED SCHEDULING ORDER:
While the rules of the CIT only expressly require a scheduling order to “limit the time to join
other parties, amend the pleadings, complete discovery, and file and hear motions,” it can be drafted
to govern almost all common discovery issues. As such, when approaching a scheduling order a party
must first decide how much certainty and structure it would like during discovery the phase of the
litigation.
Expert Witnesses:
Expert witnesses are any witnesses who have knowledge outside of the
understanding of the average person due to schooling, experience, training etc. Federal Rule of
Evidence 702. Expert witnesses are appropriate when expert testimony would aid the finder of fact.
Federal Rule of Evidence 702. Whether it be an accountant in a valuation case or a food science PhD in a classification
case, litigation in the CIT often entails the use of expert testimony. However, expert testimony is the province of both the CIT
Rules and the Federal Rules of Evidence. In addition to satisfying Rule 702 of the Federal Rules of Evidence pertaining to expert
testimony, a party must also comply with USCIT Rule 26 by providing an expert disclosure. Failure to follow both sets of rules
thereby forcing the Court to reopen discovery, strike an expert, or limit the expert’s testimony may result in surprises after the
discovery period has closed. Therefore, it is wise for parties to discuss how expert discovery will be dealt with and provide for
the same in the scheduling order.
Expert disclosure should be made pursuant to the applicable scheduling order,
or if silent, at least 90 days prior to trial. USCIT Rule 26(a)(2)(c).
Per USCIT Rule 26(a)(2)(B), expert disclosures must include a written expert report. An
expert report must contain:
(I)
a complete statement of all opinions the witness will express and the
basis and reasons for them;
(ii)
the data or other information considered by the witness in forming
them;
(iii)
any exhibits that will be used to summarize or support them;
(iv)
the witnesses qualifications, including a list of all publications
authored in the previous 10 years;
(v)
a listing of all other cases in which, during the previous four years, the
witness has testified as an expert at trial or by deposition;
(vi)
a statement of the compensation to be paid for the study and the
testimony in the case.
A party may depose any person who has been identified as an expert whose opinions may be
presented at trial. USCIT Rule 26(b)(4)(A). If Rule 26(a)(2)(B) requires a report from the expert, the
deposition may be conducted only after the report is provided.
If a date for expert disclosures is not provided for in the scheduling order, the parties are
subject to the default timing rule as set forth in USCIT Rule 26(a)(2)(c): absent an order or a stipulation,
expert discovery is to be exchanged no later than 90 days before trial or the date the case is to be
ready for trial. This, however, can lead to various discovery disputes. One such example is where the
expert disclosures are made during dispositive motions or just prior to the dispositive motion briefing
period. This occurs because, without a firm deadline, parties may try to utilize the “90 days before
trial” language to serve expert reports shortly before filing a motion for summary judgment. This may
lead to a motion to strike the expert affidavit, or at a minimum a motion to stay summary judgment
until depositions can be taken. It also may trigger the disclosure of a rebuttal expert pursuant to
USCIT Rule 26(a)(2)(C)(ii), essentially reopening expert discovery on the eve of dispositive motions.
Moreover, late expert disclosure may require amendments to previously filed briefs. Such
duplication of efforts is a waste of a party’s resources. Experts often play a critical role in a party’s
case. Accordingly, in my opinion it is important to provide concrete dates for expert disclosures and
depositions.
Experts rely on fact discovery to opine and prepare reports. Per USCIT Rule 26(a)(2)(B)(ii), an
expert report must contain all the data or other information considered by the witness in forming [their
opinion]. Without completing all factual discovery, an expert is not truly in a position to offer an
opinion and create a report. Thus, expert reports exchanged early in the discovery process may
require supplementation as fact discovery progresses. 3 If expert depositions have already been taken,
additional depositions may be necessary. Both supplemental reports and expert depositions can be
expensive. Therefore, it is more prudent to serve expert reports only after all fact discovery is
complete. Thus, in my opinion, a well drafted scheduling order should provide for two discrete
phases of discovery, fact discovery, followed by expert discovery. This will ensure that all fact
discovery is complete therefore allowing an expert to have a full understanding of the case prior to
drafting a report. Another benefit of requiring the completion of factual discovery prior to expert
exchanges is that it facilitates the parties complete understanding of the nature of the case and
supporting evidence prior to deciding whether expert testimony will be required. Indeed, a party
might avoid an unnecessary cost.
Finally, it may be prudent to discuss and provide for staggered expert exchanges. Parties may
wish to have the party who bears the burden of proof on an issue to disclose its experts prior to the
expert disclosure of the non-burden party. This allows a non-burden party to judge the strength of
their opponents case and determine whether it will require an expert itself. Once again this might
allow a party to avoid unnecessary costs and avoid burdening the Court with unnecessary expert
testimony.
Deadlines for Requests:
While all scheduling orders must contain a date for the close of discovery, often, parties will
try to serve last minute requests with only weeks left in discovery. As such, some like to specifically
set forth a deadline 35 days prior to the close of discovery as a cutoff for parties to serve discovery
requests, in order to avoid discovery timing disputes.
Discovery Motions:
While not expressly required, it is often advantageous to include a deadline, following the
close of discovery, for making motions addressing the sufficiency of discovery exchanges and
responses. Absent a deadline, there exists a possibility of facing a discovery motion well after the
3
In fact, per USCIT Rule 26(a)(2)(D) expert reports are subject to the supplementation
requirements of Rule 26. Thus, failure to supplement may be costly. Per USCIT Rule 37(c), a
failure to supplement discovery required by Rule 26(a), which includes expert reports, may result
in the inability to use to information for a dispositive motion or trial, unless the failure was
substantially justified or is harmless.
completion of discovery. As such, one can use a scheduling order to ensure all discovery disputes are
concluded well before dispositive motions or trial.
This paper only discusses some recurring discovery issues that can be avoided with a
thoroughly prepared scheduling order. As the bar encounters new discovery issues, it is incumbent on
us to continually strive to enhance our discovery plans and scheduling orders to improve the
efficiency of litigation in the CIT.
Below are an example of a 26(f) report and scheduling order. These examples were drafted to
deal with many of the issues discussed in this paper and by no means are exhaustive of the discovery
issues that can provided for in a scheduling order.
UNITED STATES COURT OF INTERNATIONAL TRADE
:
xxxxxxxxxxxxxxxxxx,
:
:
Plaintiff,
:
:
v.
:
:
xxxxxxxxxxxxxxxx,
:
:
Defendant,
:
:
__________________________________________:
Court No. xx-xxxxx
Sample Report of Parties’ Planning Conference Providing For Two phases of discovery and
Protection of Expert Report Drafts
1.
Pursuant to Rule 26(f), a telephone conference was held on
and was attended by:
,
John Doe, Counsel for Plaintiff.
Jane Doe, Counsel for Defendant.
2.
Discovery Plan. Per Rule 26(f), the parties jointly propose the following
discovery plan:
A.
Initial disclosures will be made by
.
B.
The parties anticipate that discovery will be required on the allegations made
in the complaint. The parties anticipate that discovery should be completed by
. The parties believe it would be efficient for discovery to be
conducted in two phases, a fact discovery phase, followed by an expert
discovery phase. Neither party believes discovery should be limited to
particular issues.
C.
Neither party anticipates any issues relating to electronically stored
information.
D.
The parties anticipate that privilege issues will be dealt with via privilege logs.
E.
The parties agree that the parties will abide by Federal Rule of Civil Procedure
26, as modified on December 1, 2010, regarding expert disclosure. The
parties do not believe that this case requires any further modification or
limitation on the discovery limitations set forth in the rules.
F.
Neither party is aware of any order the Court should issue pursuant to Rule
26(c) or 16(b) - (c) at this time.
The parties will conduct a further teleconference wherein the parties will endeavor to draft a
joint proposed scheduling order for filing with the Court by
.
/s/
John Doe
/s/
Jane Doe
Date:
UNITED STATES COURT OF INTERNATIONAL TRADE
:
xxxxxxxxxxx.,
:
:
Plaintiff,
:
:
v.
:
:
xxxxxxxxxxxx,
:
:
Defendant,
:
:
__________________________________________:
Court No. xx-xxxxx
Sample Proposed Scheduling Order Dealing With Two Phases of Discovery
and The Timing Of Expert Exchanges and
Pursuant to Rules 1 and 16 of the United States Court of International Trade, it is
ORDERED:
1.
Plaintiff has identified
as the basis for the Court’s jurisdiction.
2.
The parties estimate the amount of damages in controversy is
.
3.
Motions to amend the pleadings and/or requests to join other parties, if any, will be filed
no later than
.
4.
Both parties shall make disclosures as required by USCIT Rule 26(a)(1)(A) as soon as
practicable, and no later than
.
5.
All factual discovery including factual depositions shall be completed by
6.
Motions regarding the sufficiency of discovery shall be filed by
.
.
7.
The identification of expert witnesses, if any, and the service of their reports shall be
completed by
.
8.
Any rebuttal expert reports will be exchanged by
9.
Expert discovery, including expert depositions, to be completed by
.
.
10.
Following the close of discovery, counsel shall confer in a good faith
attempt to settle this matter. If the matter is not settled, counsel shall submit a Certification of Settlement Efforts by
, including an assurance that they conferred with their clients, exchanged offers, identified obstacles to settlement, and
considered options for resolving those obstacles.
11.
Either party may file a dispositive motion by
Court shall govern responses thereto.
, and the rules of this
12.
In the event that no dispositive motions are filed, the parties shall cooperate in the
preparation and completion of a joint proposed pre-trial order in the format approved by the Court by
.
13.
Requests for trial shall be filed by
. If dispositive motions are filed
and denied in whole or in part, requests for trial to be filed within 30 days of the denial. Requests for trial shall be accompanied
by a Proposed Order Governing Preparation for Trial.
_______________________________________
Dated: New York, NY
This __ day of
, 2011.
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Basics of Customs
Classification
Submitted by:
Michael T. Cone
McCullough Ginsberg Montano & Partners LLP
New York, NY
IV
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Initial Actions Around a
Petition: A Respondent’s
Perspective
Submitted by:
Peggy A. Clarke
Blank Rome LLP
Washington, DC
Initial Actions Around a Petition: A Respondent’s Perspective
By: Peggy A. Clarke 1
Foreign producers that find themselves involved in either an antidumping or
countervailing duty investigation face considerable disruption to their day-to-day
business operations. Depending on the size of the company, the volume and value of
trade potentially affected, and the importance of the U.S. market to that company, there
are several actions it can or should take to defend its interests. Because of the potential
impact on customers, the mere threat of a petition can disrupt a foreign producer’s U.S.
sales. Therefore, a foreign producer should be prepared to address a case as part of its
cost of doing business in the United States.
Participation in a case can be expensive, both because of the cost of external
advisors and the internal personnel pulled from their regular work to respond to
information demands during the investigation. A foreign producer may, therefore,
decide that it is in its best interests to accept an adverse margin, even if that means
exiting the U.S. market for a few years – regardless of whether the company is dumping
or receiving countervailable subsidies. Such a decision should be an informed decision
after weighing the costs and benefits of participation or non-participation. Therefore the
time before a petition is filed and the time immediately after one has been filed are
critical for a potential respondent to enable it to take actions in its best commercial
interests.
Before a Petition is filed
Savvy industries/foreign producers can take steps to determine whether an
antidumping or countervailing (“CVD”) petition is likely. There are certain industries that
statistically are more likely to face such petitions. Approximately half of the petitions
filed since 1980 have involved steel products and about a third have involved chemical
products. Nevertheless with increasing global integration this may be changing, and all
manufacturing/agriculture segments need to keep a wary eye on the possibility of a
trade remedy action. Some of the steps a foreign producer or industry can undertake in
order to obtain some advance warning of a petition include:
•
•
Listen for rumors in the market (leaks by domestic industry)
Attend trade shows
1
Ms. Clarke is with Blank Rome LLP. The opinions expressed herein are solely those of Ms.
Clarke, and not those of either Blank Rome LLP or its clients.
1
900202.11000/36068691v.1
•
•
•
•
•
Track market shares
Talk with customers
Monitor ITC 332 requests/Congressional action
Read trade publications
Monitor new tariff classification breakouts
If a foreign producer believes that a petition may be imminent, there are steps
that it can take in advance to make the initial post-petition activities more
effective/easier. There may also be steps that can be taken in advance of a petition, to
prevent the filing of a petition. The actions will not be the same for every foreign
producer or industry and will vary depending on how certain the foreign producer is that
a petition is planned and on the extent of the company’s knowledge of the product to be
investigated. The foreign producer may wish to take the following steps in anticipation
of a petition:
•
•
•
•
•
Identify a team within the company to work on any case filed
Line up representation
Involve itself in trade associations with potential petitioners
Gather data for an injury defense
Talk with customers 2
Initial Steps Once a Petition is Filed
Despite the activities mentioned above, foreign producers frequently have little or
no advance warning of a petition. Once the petition has been filed, the foreign producer
must determine quickly whether and how extensively to participate in the proceeding.
Within 21 days of filing the petition in antidumping and countervailing duty cases, the
U.S. International Trade Commission (“ITC”) will have received answers to its
questionnaires and held a conference with the ITC staff. The U.S. Department of
Commerce (“DOC” or “Department”) will have determined whether or not the petitioner
has adequate standing to bring a petition, whether the information provided in the
petition is sufficient to justify initiating an investigation, and the broad product coverage
of the investigation. In these early stages, foreign producers are at a significant
disadvantage to the petitioner because some of the critical issues of a case are
determined so quickly. Initial steps foreign producers should take include:
•
•
Identify counsel
Determine whether and how extensively to participate in the investigation
2
Department regulations, 19 C.F.R. § 351.402(f) discusses the treatment of reimbursement of
antidumping and countervailing duties by the foreign producer.
2
900202.11000/36068691v.1
•
•
•
•
•
•
Identify internal team to work cases
Reassure customers
Identify any like product issues
Review sales
Make initial margin calculations (if dumping)
Review potential subsidy numbers (if CVD)
First Steps at DOC
Foreign producers and their governments are limited as to their interaction with
the Department prior to the Department’s decision to initiate an investigation. Both the
WTO Agreement on Subsidies and Countervailing Measures and U.S. law (19 U.S.C. §
1671(b)(4)(A)(ii)), require the Department to permit the government of the exporting
country named in a countervailing duty petition to consult with the Department prior to
initiation. U.S. law prohibits the government from accepting all other unsolicited
communications from non-domestic interests prior to initiation (19 U.S.C. §§
1671(b)(4)(B) and 1673(b)(3)(B)). Therefore, there are no consultations in an
antidumping proceeding and in either proceeding the Department will not revisit the
adequacy or accuracy of the petition after making the decision whether to initiate an
investigation.
The only exception is that parties are entitled to comment on standing issues
(discussed in detail by Ms. Kristin Mowry). Otherwise, the foreign producer should use
this time to prepare for actions to be taken once the Department decides to initiate the
investigation. A foreign producer should plan on taking the following actions regarding
the Department’s investigation soon after the petition is filed:
•
•
•
•
•
•
Enter an appearance
Raise any standing issues
If a CVD petition is submitted, have the government request consultations
Talk with the Department analyst as soon as he/she is assigned
Prepare any exclusion requests
Address non-market economy considerations when appropriate (identify
surrogate countries, comparable products – if necessary, etc.)
CVD Consultations
If a countervailing duty petition is filed, the foreign producers should work closely
with their government to ensure that the government makes effective use of its
opportunity to consult. Consultations are the government’s opportunity to demonstrate
3
900202.11000/36068691v.1
errors or inadequacies in the petition and to prevent the Department from initiating on
certain programs. The government may consult on any issues concerning the
adequacy of the countervailing duty petition (although the Department generally will
resist discussing the injury issues, maintaining that this is the ITC’s jurisdiction). It is
unlikely that such consultations will result in dismissal of the petition, but well-prepared
consultations can reduce the number of subsidy allegations on which the Department
initiates. Any such consultations should be accompanied by a paper, to be left with the
Department, outlining and documenting the reasons why the allegations of
countervailable subsidies are inadequate. Reducing the number of programs the
Department includes in its initiation will reduce the work load and cost for both the
government and the foreign producers and can more than compensate for the cost and
time spent preparing the consultations. Key points to remember for consultations are
that:
•
•
•
There should be a written document to leave behind
The focus should be on why programs do not meet the elements of an actionable
subsidy
Any programs that have been terminated should be accompanied by proof of
their termination
Product Definition/Exclusions/Like Product/Class or Kind
Some of the most critical issues to be addressed in the early stages of an
investigation revolve around the scope of the investigation, in other words, the exact
product subject to investigation. The petitioner need not manufacture all the individual
products included within the scope of an order as long as it manufactures product within
the same class or kind (or like product). 3 While the petitioner determines the scope of
the investigation, by its description in the petition, foreign producers (and importers) can
seek clarifications. They also can seek a determination that a specific product is
outside the scope of the petition. Finally, if there is a particularly sensitive product that
seems to fall within the broad scope, the foreign producer (or importer) may seek to
have that product specifically excluded from the order. Generally, it is necessary to
have the petitioner agree (or at least to not oppose) an exclusion request in order for the
request to succeed.
3
The terms “class or kind” and “like product” have similar meanings but are not identical. Typically
the two will include the same products within the same classification, but not always. “Like product” is
critical in the injury phase of an investigation; the portion determined by the ITC; whereas the Department
addresses issues relating to class or kind. In determining the issue of standing, however, the Department
must address questions relating to “domestic like product” to ensure that the petitioner represents
adequate levels of production of the domestic like product.
4
900202.11000/36068691v.1
Another issue that arises early in antidumping investigations regarding the scope
is the question of “model match.” In an antidumping proceeding, the Department will
compare U.S. sales to some variant of normal value to determine whether there is
dumping. The Department seeks to compare apples to apples. The process of
determining which exact products within the scope are appropriately compared to each
other is the concept of model match. Shortly after initiation, the Department will seek
comments on the criteria that should be used to determine the matches. Typically, the
Department looks at physical differences that have commercial significance and/or cost
differences. The choice of matches can have a significant impact on the margins of
dumping found. Thus, foreign producers should consider their products and determine
which differences are commercially significant and likely to affect both the price at which
the model is sold and the cost of producing that model.
5
900202.11000/36068691v.1
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Trade I: Strategic
Considerations for
Petitioning Domestic
Industries at the
Commerce Department
(AD/CVD)
Submitted by:
Timothy C. Brightbill
Wiley Rein LLP
Washington, DC
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
Strategic Considerations for Petitioning Domestic Industries at the
Commerce Department (AD/CVD)
By Timothy C. Brightbill1
Under U.S. trade law, parties may file antidumping (“AD”) or countervailing duty
(“CVD”) petitions with the Department of Commerce (“Commerce”) and the International Trade
Commission (“ITC”) alleging that a domestic industry is being injured or threatened with injury
because of foreign imports being dumped in the United States or unlawfully subsidized by a
foreign government.2 Such a petition is perhaps the most important document in an unfair trade
practice investigation and forms the basis for the entire case. Commerce and the ITC use these
petitions to determine which products fall within the scope of the investigation and whether a
domestic industry has been injured, and may, in certain circumstances, use the petition’s
antidumping and countervailing duty margin estimates in a final remedial order.
The drafting and filing of a petition is therefore a very important task that requires utmost
diligence and care. This paper discusses the various legal requirements for both antidumping
and countervailing duty petitions, and highlights strategic considerations that petitioners should
take into account when filing trade petitions.
I.
Scope of the Investigation and Domestic Like Product
When filing a petition, petitioners must clearly identify the foreign merchandise to be
covered under the investigation. This is a critical element of the petition process because it
defines the scope of the investigation, and only those products described will be covered by any
AD and CVD orders. The petition scope should describe the technical characteristics of the
subject merchandise and should be sufficiently broad to ensure that circumvention issues do not
arise in the future, but also sufficiently narrow such that it does not include merchandise that is
not causing injury to the relevant industry.3 The focus should be on the physical and technical
characteristics of the product rather than on the end use. In addition, scope language must be as
clear as possible, not just to trade lawyers but to Customs officials and to company and industry
employees. If the scope of a petition is unclear, the ability to enforce an AD or CVD order at the
border is compromised. Commerce will work with petitioners to craft appropriate scope
language that is clear and enforceable at the border.
1
2
3
Partner, Wiley Rein LLP, and Adjunct Professor, Georgetown University Law Center. Significant portions
of this paper are adapted and/or updated from my chapter on “Antidumping and Countervailing Duty
Petitions” in T. Brightbill, L. Chang and P. Clarke, TRADE REMEDIES FOR GLOBAL COMPANIES (American
Bar Assn., 2006). I would also like to particularly acknowledge Usha Neelakantan of Wiley Rein LLP for
her significant work on this paper.
19 U.S.C. § 1671a(b); 19 U.S.C. § 1673a(b)(1).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. II, at 12 (2009).
-2© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
The petitioners also need to clearly identify the domestic like product, which is the
domestically produced product that is most similar in characteristics and uses to the foreign
product covered under the investigation.4 This identification needs to be clear and concise such
that there is no ambiguity as to which domestic products are and are not covered.
When identifying the like product, it is important to remember that the degrees of
analyses and timing of determinations of the domestic like product vary between Commerce and
the ITC. Commerce determines the like product during the 20-day period following the filing of
the petition (called the initiation period) in order to accurately calculate industry support.5
Commerce’s analysis is therefore generally based on the description of the like product as
provided in the petition, and unless this description is determined to be inaccurate, it will be
adopted by the agency.6
The ITC, on the other hand, performs a more rigorous analysis of the like product in the
context of determining whether or not the domestic industry has been, or is likely to be,
materially injured. The ITC considers six factors: (1) physical characteristics and uses; (2)
interchangeability; (3) channels of distribution; (4) customer and producer perceptions; (5)
common manufacturing facilities, processes, and employees; and (6) price.7 If, during its
investigation, the ITC determines that certain domestic like products are not being injured by the
relevant foreign product, the investigation on those imports terminates.
The petition’s scope and the like product are not necessarily equivalent, and respondents
will have an opportunity to argue like product issues, but not scope issues. This may produce
different results at the two agencies. For example, in one recent investigation into Certain Lined
Paper Products, petitioners defined the like product to include notebooks, filler paper, and
composition books. The ITC determined that the like product also included lined legal pads, and
gathered industry data accordingly. However, when the ITC found threat of material industry to
the U.S. industry, the resulting AD and CVD orders did not apply to legal pads, because they
were never included in the petition scope.
II.
Country Selection
A critical and potentially difficult decision for petitioners is how many countries to name
in the petition. When the number of foreign producers or extent of subsidies is limited, the
decision is easy. It is often the case, however, that petitioners face import competition from
varied sources and are unable to gather complete information about which countries may be
engaged in dumping or subsidization. In such cases, it could prove advantageous to file against
every country causing or threatening to cause material injury to a domestic industry in a single
petition.
When the domestic industry is injured by imports of the subject merchandise from
numerous countries, but injury from any single country alone is minor, it may benefit petitioners
to file a single petition against multiple countries because the law allows for the cumulation of
the injury caused by all of the named countries.8 Any country accounting for less than 3% of
4
5
6
7
8
19 U.S.C. § 1677(10).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. II, at 14 (2009).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. II, at 13 (2009).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. II, at 13-14 (2009).
19 U.S.C. § 1677(7)(G); 19 U.S.C. § 1677(H).
-3© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
imports is normally considered “negligible” and will not be cumulated, unless a group of
countries that account for less than 3% of imports together account for more than 7% of imports.
Filing a single petition is also considerably less costly than filing multiple petitions
(requiring multiple investigations) at different times. Filing a petition against multiple countries,
however, usually significantly raises the cost of the investigation and legal effort required,
particularly at Commerce, which conducts separate AD and CVD investigations of every country
named in the petition. Ultimately, country selection requires excellent industry knowledge and
close coordination between petitioning companies and their counsel.
III.
AD Petition, CVD Petition, or Both?
A related issue for petitioners who are considering filing an unfair trade petition is what
type of petition to file. When a foreign producer is dumping in the U.S. and receiving
countervailable subsidies from his home government, the domestic industry can file either an
antidumping petition, or a countervailing duty petition, or both.
In deciding what type of unfair trade practice to allege, petitioners may want to consider
that antidumping duties often start high because of high dumping margins, but may fall relatively
quickly as the foreign producers increase their prices of the subject merchandise in the United
States, or take other actions in an effort to eliminate the dumping. On the other hand, while
countervailing duties may not initially be as large as antidumping duties, they often remain at or
close to their initial rate for a longer period, as subsidy programs (and their benefits to specific
producers) generally do not disappear quickly.
The ability to file countervailing duty cases against Chinese producers, which has been
available since 2007, is an important tool for many petitioners, given the wide variety of subsidy
programs that exist in many sectors of Chinese industries.
Petitioners can often learn about subsidy programs through prior countervailing duty
cases that have been filed against other industries in the same country. Public versions of prior
petitions are readily available from Commerce.
Perhaps the most important consideration for petitioners, however, is to ensure that they
meet all the requirements of whatever type of petition they decide to file. The key elements of
antidumping and countervailing duty petitions are detailed below.
A.
Key Elements of an Antidumping Duty Petition
The antidumping petition must provide enough factual information to allow Commerce to
calculate the dumping margins for individual respondents. The dumping margin is the
percentage difference between the sale price of the imported product in the United States (called
the U.S. price) and the price for the subject merchandise in the home market or a third country
market, or the cost of production (called the normal value).9 The key elements that the petition
must provide are the U.S. price, the normal value, the names and addresses of each entity
allegedly selling the merchandise in the U.S. at less than fair value, and each entity’s share of
total U.S. exports. To assure Commerce that the comparison between the U.S. prices and home
market prices involve similar merchandise, petitioners should also provide specific information
about the product such as size, grade, and model numbers.10
9
10
19 U.S.C. § 1677(35)(A).
19 U.S.C. § 1677a(c).
-4© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
When filing an antidumping petition, petitioners should remember that there is no intent
requirement—petitioners do not have to prove that a company intended to dump its product in
the United States or injure a U.S. industry.11 Petitioners need only demonstrate that a foreign
company did dump their merchandise in the United States and that this action materially injured
or threatened a U.S. industry.
1.
U.S. Price
U.S. price is the basis for all dumping margin calculations. The U.S. sale price can be
determined by two methods, whichever is appropriate: (1) the “export price;” or (2) the
“constructed export price.” The export price is the price at which the foreign producer sells the
subject merchandise to an unrelated customer in the United States before the merchandise
physically enters the country.12 Costs associated with exporting and delivering the product in the
United States can be deducted from the transaction price, which will ultimately increase the
dumping margin.
When, on the other hand, a party related to the foreign producer imports the merchandise
into the United States and then sells it to an unrelated third party, the constructed export price is
used, which is the price at which the subject merchandise is sold to the first unrelated party.13
For a constructed export price sale, Commerce allows deductions such as commissions, credit
expenses, guarantee expenses, warranty expenses, further manufacturing expenses, and the profit
from the U.S. affiliate.14
Generally, in demonstrating the U.S. sale price, petitioners should provide actual price
quotations or transaction prices for the subject merchandise in the United States. As far as
possible, this should include documentation illustrating sale offers and terms.
2.
Normal Value
The normal value is generally the price at which the product is sold in the home market
of the exporter, or the cost of production of the product, and must be determined for each country
named in the petition.15 The simplest method to determine normal value for a petition is to
obtain quoted transaction prices for sales to customers in each named country for a period of
time reasonably contemporaneous with the relevant U.S. sales. Collecting this data may require
petitioners to use sources within the particular country.
When sales in the home market are insufficient to provide a meaningful basis of
comparison (when, for example, they constitute less than 5 percent of total U.S. sales), the
normal value may be determined by the price at which the foreign product is sold in a third
country.16 When this method is used, petitioners should document their attempts to obtain thirdcountry prices and sales information.17
In many cases, petitioners will need to consider whether the home market prices are
below a foreign producer’s fully loaded cost of production. (See section 4, below.)
11
12
13
14
15
16
17
Harvey Kaye & Christopher Dunn, Int’l Trade Practice, § 15:7 (2010).
19 U.S.C. § 1677a(a).
19 U.S.C. § 1677a(b).
19 U.S.C. § 1677a(d).
19 U.S.C. § 1677b(a)(1)(A).
19 U.S.C. § 1677b(a)(1)(C).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. II, at 3 (2009).
-5© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
Petitioners may adjust the normal value thus obtained to account for minor differences in
size, grade, and other physical characteristics between the home and U.S. markets.18 The price
may also be adjusted to account for circumstances that may be different between both markets.
3.
Non-Market Economies
There is also a third method of determining the normal value. In non-market economies
such as China,19 the home market price is assumed to be unrepresentative of normal market
conditions and is therefore not used to determine the normal value. For such countries,
Commerce estimates the cost of production in the home market by using a constructed value that
involves input prices from a comparable market economy country. In other words, Commerce
creates a list of the factors of production involved in producing the subject merchandise, and then
obtains usage rates for the factors of production that are necessary to produce one unit of the
subject merchandise. 20 These factors of production generally include labor, raw materials,
utilities, and capital costs. For the petition, petitioners can provide the factors of production
based on a U.S. producer’s own production inputs and usage rates.
The petitioner then obtains “surrogate values” for each factor of production from a
chosen “surrogate” market economy. The country chosen must be at a comparable level of
economic development as the named non-market economy and must have companies that engage
in actual production of the merchandise in question. In reality, petitioners select surrogate
countries based on established Commerce practice, with India being the most common surrogate
country for China.
Based on these surrogate values, petitioners can calculate the costs of the various factors
of production to arrive at the estimated cost of production for the subject merchandise in the nonmarket economy. To this value, petitioners can then add reasonable percentages for the
company’s overhead, administrative expenses, and profit. These values are generally based on
the experiences of a company producing the same or similar merchandise in the surrogate
country.
4.
Sales Below Cost of Production
In certain circumstances, petitioners may allege that even the normal values are priced
below the respondent-companies’ own costs of production. Petitioners can demonstrate this by
creating a cost of production model similar to that used to determine the normal value in a nonmarket economy. After compiling the factors of production and usage rates, however, petitioners
use the values of the factors of production from the named country rather than from a surrogate
country.
Demonstrating sales at below cost of production is advantageous to petitioners because, if
Commerce finds that such sales occurred in substantial quantities over an extended period of
time, it will disregard these sales, which could result in higher dumping margins.21
18
19
20
21
19 U.S.C. § 1677b(a)(6).
Non-market economies are countries that “do not operate on market principles of cost or pricing
structures.” 19 U.S.C. § 1677(18)(A).
19 U.S.C. §§ 1677b(c)(1), 1677b(c)(3).
19 U.S.C. § 1677b(b); 19 U.S.C. § 1677b(2)(B).
-6© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
B.
Key Elements of a Countervailing Duty Petition
A countervailable subsidy exists whenever the government of a foreign country or a
public entity within the foreign country provides a specific (i.e., not generally available),
financial contribution that confers a benefit to a producer who exports to the United States.22
In a countervailing duty petition, petitioners are required to provide all “reasonably
available” information on the alleged subsidies in the named countries. To do so, petitioners can
submit copies of the laws, regulations, orders, or decrees that authorize the foreign subsidies. In
countries where domestic laws are not published or otherwise made publicly available, incountry research may be required. Additionally, in cases where laws are published only in
foreign languages, petitioners must provide an English translation of the law as part of the
petition.
If a subsidy is not apparent from the face of a law or regulation, petitioners can show that
a de facto subsidy exists—that is, that the law or regulation, though neutral on its face, benefits
only a few specific companies or industries as applied.23 In such cases, it is often enough to
show that the industry in question either received a share of the benefits derived from the law or
is a likely user of the subsidy.
Where such laws or decrees are unavailable, petitioners should provide a detailed
description of the subsidy to allow Commerce to formulate sufficient questions to the foreign
government during any subsequent investigation. At the petition stage, this requirement is
generally met if the petitioner has consulted all available public sources—libraries, embassies,
the Internet, and the Central Records Unit at Commerce—and can provide some information,
such as newspaper articles, indicating that the subsidy program exists. If the petition indicates
the existence of the subsidy program and otherwise conforms to the regulations, Commerce will
proceed with its investigation.
It is also important to note that unlike in antidumping petitions, petitioners are not
required to calculate the estimated countervailing duty rate for the subsidies alleged. But,
petitioners may want to include estimated margins that can be used in the event that respondents
refuse to participate in a subsequent Commerce investigation.
IV.
Domestic Industry
To satisfy standing requirements for a trade petition, the petition must be filed by or on
behalf of a domestic industry.24 This involves a two-part test for standing: under current law, a
petition is filed “by or on behalf of” a domestic industry if it is supported by at least 25 percent
of the total domestic industry, as measured by production, and by more than 50 percent of those
within the industry expressing either support for or opposition to the petition.25
Typically, the petitioners will provide evidence that a majority of the industry supports
the petition (i.e., members accounting for more than 50 percent of total domestic production
support the petition). If, however, the petition does not meet the 50 percent threshold,
Commerce must determine, usually by polling, whether the petition has enough support to
22
23
24
25
19 U.S.C. §§ 1677(5)(B), 1677(5A).
Harvey Kaye & Christopher Dunn, Int’l Trade Practice, § 24:2 (2010).
19 U.S.C. § 1671a(c)(4)(A); 19 U.S.C. § 1673a(c)(4)(A).
19 U.S.C. § 1671a(c)(4)(A); 19 U.S.C. § 1673a(c)(4)(A).
-7© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
initiate an investigation.26 In determining industry support, Commerce may disregard opposition
from domestic producers related to foreign producers unless the domestic producers can show
that their interests as domestic producers would be adversely affected by the imposition of
duties.27
Polling the entire industry by sending out questionnaires is an effective way to determine
actual industry support when the industry consists of only a small number of producers. For
larger industries, however, Commerce may choose alternate means to determine industry
support, such as relying on other information or using a statistically valid sampling method.28
During this period, any interested party, including petitioners, may submit comments or other
information on the issue of support.29
It is highly beneficial for the petitioners to resolve any standing issues in advance of
filing, and to make clear in the petition that the AD and/or CVD case has broad industry support.
Industry polling not only slows down the initiation process, but also gives respondents additional
time to craft arguments for the initial stages of a case, such as the ITC preliminary determination.
Therefore, it is well worth the effort to address any standing issues in advance. That being said,
it is not uncommon to discover additional domestic producers following the filing of a petition,
and occasionally, petitions will be withdrawn or will not be initiated due to standing issues that
arise.
Additionally, only an interested party may file an antidumping or countervailing duty
petition.30 Interested parties include (1) a U.S. manufacturer, producer, or wholesaler of a
domestic like product; (2) a trade or business association, a majority of whose members
manufacture, produce, or wholesale a domestic like product in the U.S.; (3) a recognized union
or group of workers that is representative of the domestic industry; or (4) a coalition of such
firms, unions, or trade associations.31
A.
Pros and Cons of Building a Coalition
Domestic industries will generally want to bring trade cases as a coalition, with the
support of as many producers as possible.32 Doing so helps ensure that petitioners satisfy
standing requirements and also provides certain strategic benefits—a larger coalition of industry
members facilitates the collection of relevant industry data and allows the industry to present a
more coherent legal case. More practically, a larger coalition allows the cost of the investigation
to be spread amongst a greater number of petitioners.
Despite these industry-wide benefits, there are several factors that an individual domestic
company should take into account when considering whether or not to support a petition. These
include (1) the time, costs, and resources needed to meaningfully participate in a case as
balanced against the competitive harm to the company from the relevant imports; (2) whether
26
27
28
29
30
31
32
19 U.S.C. § 1671a(c)(1)(B); 19 U.S.C. § 1673a(c)(1)(B).
19 U.S.C. § 1671a(c)(4)(B)(i); 19 U.S.C. § 1673a(c)(4)(B)(i).
19 U.S.C. § 1671a(c)(4)(D); 19 U.S.C. § 1673a(c)(4)(D).
19 U.S.C. § 1671a(c)(4)(E); 19 U.S.C. § 1673a(c)(4)(E).
19 U.S.C. § 1671a(b)(1); 19 U.S.C. § 1673a(b)(1).
19 U.S.C. § 1677(9).
Antitrust laws do not prohibit such collaboration among domestic companies for the purpose of presenting
petitions to administrative agencies unless there is an abuse of the administrative process. The caveat,
however, is that companies must exercise caution while collecting pricing data in order to conform with
antitrust laws.
-8© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
supporting a petition will affect the company’s customer relationships; (3) whether the company
is materially injured or threatened with material injury; and (4) the consequences of not
participating in the case. Concerns about confidentiality should generally not be a major factor
because a company’s confidential information is revealed only to the government agency and not
to the company’s domestic or foreign competitors.
V.
Material Injury or Threat of Material Injury
Another critical aspect of a trade petition is showing that dumping or subsidization of the
relevant imports is causing, or threatening to cause, material injury to the domestic industry.33
Material injury means that the harm is not inconsequential, immaterial, or unimportant.34
In determining material injury, the ITC considers (1) the volume of imports of the subject
merchandise; (2) the effect of those imports on the prices of domestic like products; and (3) the
impact of those imports on domestic producers of the like product.35 The ITC may also consider
any other economic factors that it deems relevant to the determination of injury.36 With regards
to the threat of injury, the ITC must be convinced that the threat is real and imminent, and that
injury will occur unless a duty is imposed.37
Essentially, the petitioning industry will want to show (1) that the volume of imports (as
measured in absolute volume or relative market share) is substantial and increasing; (2) that the
imports have had a negative effect on U.S. prices, either by lowering domestic prices or
preventing price increases; and (3) that the imports have had negative impacts on industry
performance as demonstrated by decreased production, capacity, employment, research and
development, investment, and profitability.38
At the petition stage, it is enough that petitioners provide a reasonable indication of
material injury, or threat thereof, based on reasonably available information.39 Despite this
comparatively low standard, however, petitioners should still commit sizable resources to the
preliminary injury determination because a negative injury finding will lead to the termination of
the investigation.40
Causation is also an important element of the ITC’s investigation, and the petitioners
must show that the injury to the domestic industry was (or will imminently be) caused by the
subject merchandise, as distinguished from alternative causes. The imports need not be the sole
or even a substantial cause of the injury, but they must be a significant, contributing factor.41 For
purposes of the petition, it is often enough to show that the material injury to the domestic
industry occurred at approximately the same time the imports were increasing.
A.
33
34
35
36
37
38
39
40
41
Assessing the Injury
19 U.S.C. §1671b(a)(1); 19 U.S.C. § 1673b(a)(1).
19 U.S.C. § 1677(7)(A).
19 U.S.C. § 1677(7)(B)(i).
19 U.S.C. § 1677(7)(B)(ii).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. XVIII, at 7 (2009).
19 U.S.C. § 1677(7)(C).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. XVIII, at 4 (2009).
Harvey Kaye & Christopher Dunn, Int’l Trade Practice, § 17:3 (2010).
U.S. Dep’t Of Commerce, Import Administration Antidumping Manual, ch. XVIII, at 8 (2009).
-9© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
Because the absence of an injury showing could terminate the investigation, it may prove
practical for petitioners to gather and analyze injury data first, before determining antidumping
or countervailing duty margins.42 In doing so, petitioners should focus on two trends: an
increase in imports of the subject merchandise and a simultaneous reduction in the domestic
industry’s performance. This is sometimes referred to as the “magic X” in ITC investigations:
the “X” is simply a graph showing imports increasing over three years plus any interim period
(the ITC’s standard period of investigation) while various indicia of industry performance –
operating profit, production levels, number of workers – are all decreasing.
To help determine injury, petitioners’ counsel will generally ask their clients to complete
“mock” producers’ questionnaires based on actual ITC questionnaires, which they will be
required to submit during the actual investigation. This will not only help the domestic industry
assess their actual injury, but will also help identify areas where the ITC should modify the
questionnaire to better assess the state of the domestic industry.
Another important aspect of injury documentation is for petitioners to assemble and
analyze evidence regarding lost sales and revenues. The ITC requires petitioners to submit a
compilation of all sales and revenues lost by reason of imports of the subject merchandise during
the three years prior to the filing of the petition. If available, petitioners should supply specific
instances where the U.S. producer lost sales or had to lower prices as a result of foreign
producers. Petitioners are generally not permitted to supplement their lost sales and revenue
allegations after the petition filing, so this work must be done well in advance.
VI.
Petition Timing
The timing of the filing of a petition can have a significant impact on a trade case,
particularly on the data collected by the agencies. Generally, the period under investigation at
Commerce is one year prior to the date of filing of an antidumping petition and six months prior
to the date of filing of a countervailing duty petition. The comparable period at the ITC is three
years plus any interim quarters. Petitioners should remember these timelines, along with other
data requirements, when choosing the optimal time to file a petition because they are often
determinative of success. For example, because of the requirement to show an increase in
imports, petitioners will need to monitor import volumes for the previous three years for all
countries that may be subject to the petition. Additionally, a sudden price change by either the
domestic or foreign producers, or a major lost sale or contract could be a triggering event for the
filing of a petition.
VII.
Defining the Potential Costs and Benefits of a Case For Your Client
Antidumping and countervailing duty cases are expensive. Over the course of a yearlong
investigation at both Commerce and the ITC, a petitioning domestic industry will likely incur
hundreds of thousands of dollars in legal expenses, and many cases total will cost more than one
million dollars to prosecute successfully. Ironically, these heavy costs are being incurred at the
point where a domestic industry is materially injured – and therefore probably least able to pay
them. Therefore, it is important for clients to understand (and for counsel to explain) the benefits
of trade remedy cases.
42
Jeffrey L. Kessler & Spencer W. Waller, Int’l Trade and U.S. Antitrust Law, § 15:6 (2d. ed. 2010).
-10© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
A successful antidumping or countervailing duty case can recoup its costs many times
over. First, a successful case may have a volume effect in the marketplace, removing (or greatly
reducing) dumped imports and thus allowing domestic producers to recapture sales and market
share. The reduction in foreign import volume usually results in increased domestic production.
Second, a successful case is likely to have a price effect, increasing the price of the
dumped and subsidized imports, or eliminating them from the market, which can allow domestic
producers to increase prices as well. Obviously, even a small price impact can have a direct
positive effect on the domestic industry’s bottom line, given the quantities of products produced.
Notably, the filing of a case may have a significant disruptive effect on volume and/or
pricing in the market, and may significantly disrupt customer relationships as well. Therefore, it
is important for petitioning companies to try and anticipate any potential negative effects from a
case filing, and to consider what steps they might take to try and mitigate such effects.
VIII.
Post-Petition and Initiation
Once an antidumping or countervailing duty petition has been filed, Commerce has
twenty days to determine the sufficiency and accuracy of the petition, and to determine whether
the petitioners have alleged all elements necessary to impose a duty.43 The main issue
Commerce considers during this period is whether the petition satisfies the standing
requirements, particularly whether the petition has sufficient support from the domestic
industry.44
To determine the sufficiency of a petition, Commerce can only use readily available
sources and cannot solicit or accept information from parties other than the domestic industry.45
It is likely that Commerce will have questions about the degree of industry support, the definition
of the merchandise, or any other queries based on allegations contained in the petition.
Petitioners must be able to respond to these questions fully and coherently, for an inability to
respond with adequate data could lead Commerce to decline to initiate the investigation.
Diligent data-gathering and analysis during the pre-filing period is critical to successfully
navigating through the initiation period.46
At the ITC, the petition filing begins a rapid-fire series of events culminating in the ITC’s
preliminary injury determination, which occurs only 45 days after the petition is filed. These
include:
• The submission of comments on draft questionnaires,
• The mailing and completion of ITC questionnaires,
• The preliminary staff conference at the ITC, which occurs 21 days after filing
and requires industry witnesses and testimony, and
• The submission of post-conference briefs.
Petitioners will generally use the period prior to petition filing to begin to prepare for all
of these events to the extent possible. Respondents will be under even more pressure, since they
need to meet all of the same deadlines and often do not have advance notice of a petition filing.
43
44
45
46
19 U.S.C. § 1671a(c)(1)(A); 19 U.S.C. § 1673a(c)(1)(A).
Peter Buck Feller, U.S. Customs and Int’l Trade Guide, § 20.08(2) (2d.ed. 2009).
Harvey Kaye & Christopher Dunn, Int’l Trade Practice, § 17:2 (2010).
Jeffrey L. Kessler & Spencer W. Waller, Int’l Trade and U.S. Antitrust Law, § 15:12 (2d. ed. 2010).
-11© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
Strategic Considerations for Petitioners at the Commerce Department (AD/CVD)
IX.
Conclusion
Filing antidumping and countervailing duty petitions requires careful data collection and
analysis. Industry members should carefully assess the pros and cons of supporting a petition
and joining a coalition. Petitioners should use the period prior to the actual filing to gather and
assess the strength of their case, particularly as it pertains to industry support and injury.
Petitioners should also be ready and able to respond to queries from Commerce and the ITC
during the initiation period. All of these elements are key to the successful filing of antidumping
and countervailing duty petitions.
For more information please contact Timothy C. Brightbill at 202.719.3138 or
tbrightbill@wileyrein.com.
*
*
*
This is a publication of Wiley Rein LLP providing general news about recent legal developments and
should not be construed as providing legal advice or legal opinions. You should consult an attorney for
any specific legal questions.
-12© 2011 Wiley Rein LLP | Washington, DC | Northern Virginia | www.wileyrein.com
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Antidumping and
Countervailing Duty
Petitions, At Home and
Abroad PowerPoint
Submitted by:
Kristin Heim Mowry
Mowry & Grimson PLLC
Washington, DC
Antidumping and Countervailing Duty
Petitions , At Home and Abroad
Initial Reactions from the Respondent’s Perspective
Georgetown International Trade Law Update 2011
Kristin Heim Mowry
Challenges Facing Respondents:
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i ti
•
Is a negative domestic injury determination by the International
Trade Commission the end of the road? Not any more.
– Polyvinyl Alcohol from Taiwan — A 2004 antidumping investigation was
resumed in 2010 after six years of litigation over the ITC’s negative injury
determination
– Diamond Sawblades from the PRC — A 2005 antidumping investigation
was initiated, but the ITC determined there was no domestic injury.
Following years of litigation, Commerce issued an antidumping duty order
in November 2009 with duties retroactive to January 2009. The
investigation’s final determination was issued recently and the U.S.
industry
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• Standing Criteria:
•
•
Section 732(c)(4)(A)(i) of the Tariff Act of 1930 (as amended):
“the domestic producers or workers who support the petition”
must “account for at least 25 percent of the total production of
the domestic like product.
product ”
• This is calculated by dividing the total production volume
of all the petitioners and those who support the petition by
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S ti 732(c)(4)(A)(ii)
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ti
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petition.”
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those in the industry who are petitioning and those who
support the petition by the sum total production of those
who support and those who oppose the petition.
petition
Standing: An Arrow in the
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Respondents
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• What happens if the petitioner fails the
50% standing test?
• The Department of Commerce must poll the
U.S. industry to determine whether it supports
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through a standard questionnaire.
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poll,
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DOC Respondent Selection
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the use off C
Customs
t
and
dB
Border
d
Protection import information.
• CBP information can be unreliable if subject
j
merchandise and nonsubject merchandise share
the same HTS number or if the volume is
reported
p
in mixed units of measure.
DOC Respondent Selection
Th Game
The
G
M
May Be
B Ch
Changing
i
Important considerations
id
i
regarding
di
respondent status
- Those anticipating mandatory
respondent treatment, early preparation is
key
- For those not expecting to be
mandatory
y respondents
p
but looking
g for an
individualized AD or CVD rate, seek
voluntary respondent status early
DOC Respondent Selection
Th Game
The
G
M
May Be
B Ch
Changing
i
Although Commerce generally chooses
respondents by identifying the companies with
the greatest export volume or value, Commerce
may also use a sample of exporters, producers or
types of products that is “statistically valid”
Commerce recently published a Federal Register
notice requesting comments on a proposed
sampling technique that is random, stratified and
uses probability-proportional-to-size
probability proportional to size (“PPS”)
( PPS )
samples. (75 Fed. Reg. 78,678 (Dec. 16, 2010)
AD Model Matching
What does the term “model match” refer to?
Model matching is the process by which Commerce matches
U.S. sales with home market ((or constructed value)) sales for
identical or like products. From these values, a determination
regarding dumping is made.
How does the Department of Commerce determine which products
are “model matches”?
The Department
p
of Commerce uses several factors to select the
best model matches. These include the model (if the products
are identical matches), physical criteria and the level of trade at
which the goods were sold.
AD Model Matching
Why is model matching criteria important to respondents?
Respondents will want as much say as possible in the U.S. like
products with which their exports will be compared. A
physical characteristic may differentiate a more expensive
U.S. product from a cheaper foreign product — for example,
hand-detailing on the wood of a headboard.
When do parties comment on model matching criteria?
Parties may submit comments on the Department of
Commerce’s model matching
g control number (known
(
as a
“CONNUM”) prior to the release of questionnaires to
mandatory respondents. Although parties may have the option
to comment later in the investigation, it is most crucial to
commentt att this
thi time.
ti
AD Model Matching —
R
Recent
t Developments
D
l
t
A recentt Court
C
t off International
I t
ti
l Trade
T d case has
h called
ll d into
i t question
ti
Commerce’s model matching practice
Union Steel v. United States,, Court No. 08-00101,, Slip
p Op.
p 11-3 ((Jan.
11, 2011)
In a case challenging the final results the thirteenth administrative
review of certain corrosion
corrosion-resistant
resistant carbon steel flat products from
the Republic of Korea, Judge Stanceu remanded Commerce’s
determination regarding model match for the second time. The
Court found that, although Commerce has considerable discretion in
defining what products are “identical in physical characteristics” for
the purpose of model matching, that discretion is not without
bounds. Differences between products that are matched should be
“minor
minor and not commercially significant.
significant ”
Challenges Facing Respondents: Antidumping
and
d Countervailing
C
t
ili g Duty
D t Investigations
I
tig ti
Ab
Abroad
d
Antidumping and Countervailing Duty Investigations Initiated in
2010
Country
Investigating
AD /
CVD
Product Investigated
Date of
Initiation
Responding Countries
Argentina
AD
Coated Paper and Paperboard in
Rolls and Sheets
12/15/10
U.S., Finland, Korea, Austria, China
Australia
AD &
CVD
Biodiesel
6/22/10
U.S.
Australia
AD
Linear Low Density Polyethylene
7/30/10
U.S., Canada, South Korea
Brazil
AD
Light Weight coated Paper
12/10/10
U.S., Finland, Sweden, Switzerland,
Belgium, Canada, Germany
Brazil
AD
n-Butanol
7/14/10
U.S.
Brazil
AD
Nitrile Rubber
10/1/10
U.S., Argentina, South Korea,
F
France,
IIndia,
di Poland
P l d
Brazil
AD
Toluene Diisocyanate
7/30/10
U.S., Argentina
China
AD
Distiller’s Dried Grains
12/28/10
U.S.
Source: U.S. Department of Commerce (available at
http://ia.ita.doc.gov/trcs/foreignadcvd/index.html)
Challenges Facing Respondents: Antidumping
and
d Countervailing
C
t
ili g Duty
D t Investigations
I
tig ti
Ab
Abroad
d
Antidumping and Countervailing Duty Investigations Initiated in
2010
Country
Investigating
AD /
CVD
Product Investigated
Date of
Initiation
Responding Countries
China
AD
Photographic Paper and
Paperboard
12/23/10
U.S., E.U., Japan
European
Union
AD
Vinyl Acetate
12/4/10
U.S.
Honduras
AD
Certain Latex Paint
7/2/10
U.S., Guatemala, El Salvador
India
AD
8/16/10
U.S., China, UAE
India
AD
8/16/10
U.S., EU, Korea
India
AD
4/12/10
U.S., EU, North Korea, South
Africa, Taiwan
India
AD
Morpholine
12/7/10
U.S., China, EU
India
AD
Polypropylene
2/10/10
U.S., Taiwan, Korea
India
AD
Soda Ash (Disodium Carbonate)
8/20/10
U S EU
U.S.,
EU, China,
China Kenya,
Kenya Pakistan,
Pakistan
Iran, Ukraine
Cold Rolled Flat Products of
Stainless Steel of 200 series
Cold Rolled Flat Products of
Stainless Steel of 400 series
Hot-Rolled Stainless Steel Flat
Products
Source: U.S. Department of Commerce (available at
http://ia.ita.doc.gov/trcs/foreignadcvd/index.html)
Challenges Facing Respondents: Antidumping
and
d Countervailing
C
t
ili Duty
D t Investigations
I
ti ti
Ab
Abroad
d
Immediate issues for U.S. antidumping
and countervailing duty respondents
– Choosing and then working with local
counsel
– Preparing for the inherent uncertainty and
lack of transparency
p
y in foreign
g dumping
p g
and countervailing duty regimes
– Dealing
g with unfavorable results
For More Information
Kristin H. Mowry
Mowry & Grimson
Grimson, PLLC
5335 Wisconsin Avenue, NW
Suite 810
Washington, DC 20015
202-688-3610
0 688 36 0
khm@mowrygrimson.com
V
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Practical “How-to” Advice
for Injury Investigations in
Trade Remedy Cases
Submitted by:
Moderator:
Hon. Shara L. Aranoff
U.S. International Trade Commission
Washington, DC
Panelists:
Daniel W. Klett
Capital Trade
Incorporated
Washington, DC
Daniel L. Porter
Winston & Strawn LLP
Washington, DC
Eric P. Salonen
Law Office of Stewart &
Stewart
Washington, DC
Trade II: Injury Investigations in Trade Remedy Cases
Practical “How-to” Advice for Injury Investigations in Trade Remedy Cases
This paper provides the written materials of all the Panelists for the Panel: “Trade
II: Injury Determinations in Trade Remedy Cases.”
Rather than preparing three separate scholarly tomes, the three Panelists decided to
join forces and offer bona fide hands-on practical advice on how to do the best job
representing clients before the International Trade Commission in trade remedy cases.
The moderator of the Panel, the Honorable Shara Aranoff, one of the current
Commissioners of the ITC, graciously offered to identify several important practical
issues that arise in many trade remedy cases. Each Panelist then offered approaches and
suggestions on how to address each issue.
The three panelists represent the spectrum of parties that typically appear before
the ITC in trade remedy cases. Specifically, the three panelists are:
Eric P. Salonen1
-
typically representing petitioners’ interests
Daniel L. Porter2: -
typically representing respondents’ interests
Daniel Klett3:
-
serving as an economic consultant for both petitioners
and respondents
Below we provide the topics identified by Commissioner Aranoff. Each panelist then
presents his view.
1
The comments of Eric P. Salonen were prepared with the assistance of Stephanie R. Manaker, along with helpful
comments from Terence P. Stewart.
2
The comments of Daniel Porter were prepared with the assistance of James Durling.
3
The comments of Daniel Klett were prepared with the assistance of Brian Westenbroek.
1
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
1. Petitioner’s counsel: How do you find petitioners or how do they find you?
Respondent’s counsel: when a case is filed, what is the process like for finding
clients? Both: talk a little about what you tell your clients regarding the ITC
process and likely outcomes, in original investigations and sunset reviews.
As with any service-related business, new clients may come through
Eric Salonen:
the door via a referral from an existing client or may be developed independently by us.
In the case of a new client and a new petition, we often provide an introductory
overview of how the antidumping and countervailing duty laws work, the respective
responsibilities of the Commission and Commerce, and the timelines involved in a case.
We will work with them to collect their data using a format similar to an ITC producer
questionnaire. We try to be as forthright and honest as we can about the relative merits of
a case so the client does not have unrealistic expectations. As discussed previously, we
also try to make sure we have collected as much information and data as we can from the
client as well as from public sources before the petition is filed or before questionnaire
responses from non-parties start to come in since, once an APO is issued and
questionnaire responses start coming in, we are often limited in how much we can tell the
client about how the case is going.
Finally, we provide copies of each Commissioner’s biography as posted on the
Commission’s website so the client has some familiarity with the people before whom he
or she will be appearing. Clients sometimes presuppose that an injury investigation is
like litigation, involving depositions, cross-examination, etc. We of course tell them that
is not the case and that the Commissioners’ questions are not intended as “gotcha”
moments, but rather that they are trying to make sure they have an accurate
understanding of the product, the industry and the market.
Dan Porter:
Internally, we separate new trade remedy petitions into three
categories (a) petitions against existing clients, (b) petitions against a country in which
we already have some presence or in which we have represented other clients, and (c) all
others. As can be imagined, we devote virtually all our efforts to those cases that fall into
(a) and (b).
In terms of talking about the ITC process, most new clients want to focus on what
work will their folks be required to do, what can/should they tell their U.S. customers
about the petition, and the likelihood of success. Hence, with all new clients, a
significant part of the task is education about the U.S. trade remedy process.
Dan Klett:
In most cases our “clients” are the law firms.
2
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
2. Globalized companies and corporate relationships: how do global companies
decide if they want to support or oppose a petition or order? Are there likely to be
fewer new AD and CVD cases in future because domestic producers are becoming
more global companies?
There probably are a variety of factors that go into that kind of
Eric Salonen:
decision, some of which may be more common across companies than others. For
example, one consideration that presumably would be important for a globalized
company in deciding whether to support, oppose or simply sit out of a trade case brought
in the U.S. are their assets in the industry here. The more capital intensive they are and
the more difficult those assets are to move probably increases the likelihood that the
company would participate as a petitioner or at least support a petition or an order,
assuming they perceive the imports as a threat to the financial viability of those assets.
That’s one reason why the steel, paper and chemical industries have historically been
significant users of the AD and CVD laws notwithstanding that many companies in those
industries also have foreign operations.
Where the investment is relatively small compared to the company’s production
assets in other countries, the company may decide it is simply more cost-effective to
move its U.S.-based operations overseas or sell it off rather than try to address dumped
and/or subsidized import competition.
Another factor is whether the U.S. company is a subsidiary of a foreign parent in
one of the subject countries. In those cases, the U.S. company may be required by the
parent to oppose a petition or order, even if an order would actually work to the benefit of
the U.S. operations. (The same would presumably be true for foreign subsidiaries of
U.S.-based companies.)
Certainly, these kinds of concerns could influence the number of new cases in the
future as more U.S. companies become more globalized. There are, however, also other
important factors that can influence the number of new cases that are filed, including
court and WTO panel decisions that result in either making cases more expensive and
time-consuming to prepare and bring or that simply weaken the effectiveness of the laws.
Globalization certainly affects the incentives to file or defend trade
Dan Porter:
cases, but the incentives are complex. Some US industries may be less inclined to file
cases as they set up global production. But we have seen cases where:
 One segment of the US industry has not globalized and then uses trade cases to
disadvantage the segment that has globalized. The key issue often becomes which
segment is larger and can drive the decision to bring or not bring the case.
3
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
 Foreigners who invested in the US then turned to the trade laws to block other
foreign suppliers from accessing the market. More and more non-Chinese
companies are exploring ways to use the trade laws to block Chinese competitors.
 One segment of the industry has globalized a key input, and competitors bring
trade cases against that key input to disadvantage downstream production.
 The globalization simply shifts the battle from the US trade laws to other countries
and the trade laws of those countries.
The strategic game has become much more complex. Sophisticated multinationals are
increasingly studying and managing “trade remedy risk” as a new part of the global
strategy. If you wish to invest in country A, what trade flows are essential for that
investment to succeed – what inputs need to enter, and what markets do you hope to
serve – and what is the risk that those trade flows will be disrupted.
There is a general consensus that the increased globalization of
Dan Klett:
many U.S. companies is a factor that has resulted in fewer AD/CVD petitions being filed.
However, the dynamics for why this is so can differ from company to company, from a
broad “philosophical” aversion to trade restraints, to an evaluation of the specific
financial pros/cons of individual cases.
Among the former are companies like Caterpillar for heavy equipment, and at
least through much of the 1980’s Nucor for steel. Although headquartered in Peoria,
because Caterpillar both manufactures and sells heavy equipment around the world, it
considers itself a global company and has participated in ITC trade proceedings in
opposition to a petition, particularly trade cases involving carbon steel. Of course, there
is a pure financial element, as Cat relies heavily on steel as an input cost, so its overall
aversion to AD/CVD proceedings was affected by the wide use of AD/CVD by the U.S.
steel industry, and the effect on Caterpillar’s input costs and global competitiveness.
Nucor was one of the first “mini-mills” that relied on scrap melted in electric arc
furnaces to produce steel, rather than iron ore melted in blast furnaces to produce iron and
then steel. It generally did not support trade cases filed by the Big Steel integrated
producers in the 1980s and early 1990s, seeing them as inefficient, in contrast to its selfproclaimed image as efficient and able to compete with imports without trade restrictions.
However, as Nucor has expanded its size and product lines, it now actively participates in
filing trade cases on individual steel products if it sees restrictions on imports to be in its
financial self-interest.
I expect that most U.S. companies fall in the camp of evaluating the financial
implications of specific trade cases in their decisions on whether to file or support
AD/CVD petitions, rather than having a broad “free-trade” philosophy. The reasons for
4
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
decisions on whether to file a petition, or to support, oppose, or remain neutral in
AD/CVD proceedings where they are a U.S. producer but not a petitioner, can include:
 A U.S. producer may also be importing from the subject country. If imports
relative to U.S. production are relatively small, and the U.S. producer feels
“forced” to import because its lower-cost than its U.S. production, it may support
the petition to regain U.S. production volume. However, there also are instances
where a U.S. producer may import a specification that is different than what it
produces in the U.S., so that imports complement its U.S. production, rather than
competing, enabling it to offer a broader product line to customers. In this
circumstance, the producer most likely would oppose the petition.
 A U.S. producer has other interests in the foreign country targeted by the
AD/CVD case. This is one aspect of globalization that may explain a decline in
case filings. A real world example of this is case in 2009-2010 on glyphosate
(Monsanto “Roundup”) where the case was withdrawn prior to ITC preliminary
vote. The petition was filed by a smaller U.S. producer, rather than Monsanto, so
require Monsanto’s support at the Department of Commerce for standing. Rumor
has it that due to pressure from Chinese govt. on Monsanto regarding allowing (or
not) its genetically modified corn into China, Monsanto would not support the
petition, and therefore the petition would fail the standing requirement at DOC.
The petitioner, a smaller U.S. producer of glyphosate, therefore withdrew the
petition before the ITC vote.
3. Questionnaires- just the facts or advocacy opportunity?
As a practical matter, many of the questions in the questionnaires
Eric Salonen
require only brief answers (e.g., whether the company has engaged in a tolling
arrangement or produced products in a foreign trade zone; what other products are
produced on the same equipment and with the same employees as the product under
investigation or review; description of the company’s cost-accounting system; whether
the company’s sales are spot or short- or long-term contracts). Thus, to the extent one is
drawing a distinction between factual information and advocacy, (since any good
advocate in an injury investigation or sunset review will base his or her argument on
facts, I am not altogether sure that I see a sharp distinction), it seems to me it is a nonissue for much of the questionnaire.
Keep in mind, however, that questionnaire responses are the basis for the staff
report, and the staff report is the single most important document in any investigation or
sunset review. Thus, where the question calls for more extensive discussion, you should
be sure that as your client completes the questionnaire response, each answer provides all
relevant factual information that is responsive to the question. For example, the producer
5
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
questionnaire asks companies to report any plant openings, closings, relocations, etc. that
occurred during the period of investigation and to identify the specifics, dates and
significance of those events. Obviously, if your client believes that dumped imports
forced them to close a plant, the answer should provide those specifics and evidence to
support that claim. That is not information that should appear for the first time in your
pre-hearing brief. (Indeed, it should appear somewhere in the petition itself!) In a sunset
review, the questionnaire asks companies to describe the significance of the orders that
are under review as well as what the company believes will occur if the orders are
revoked. Here again, it would be important to provide all relevant evidence and
information available to your client that is responsive to these questions, rather than
simply stating, “Things got better when the orders were imposed” and “Things will get
worse if the orders are revoked.”
With all due respect, this is a false dichotomy. While we fully agree
Dan Porter n:
that questionnaire responses should not contain “arguments” that are best left to briefs
and the hearing, we full believe that, often, the simple presentation of raw facts is the best
form of advocacy. This is why we encourage our clients to provide as much additional
factual information as possible when completing ITC questionnaires.
We generally leave this to the law firms, as they handle the
Dan Klett:
questionnaire responses of their clients.
4. Tactics: are there reasons to hold back (non-questionnaire) information until the
post-hearing brief? Does the element of surprise help or do cases just follow
unexpected paths?
As a general matter, I think it is counterproductive to hold back
Eric Salonen:
information until the post-hearing brief. The hearing is the one and only opportunity you
and your clients will have to directly address the Commissioners and answer their
questions in person. The purpose of the pre-hearing brief, of course, is to present your
affirmative case as strongly and as persuasively as possible.
The pre-hearing brief should also address issues identified in the pre-hearing staff
report which may be problematic and which are likely to be the basis for questions from
the Commissioners. For example, the pricing data may show more instances of
overselling than underselling. If so, look to see whether there is other information that
puts the pricing data into a fuller context. For example, check whether the instances of
underselling accounted for a much larger portion of the imports than did the instances of
overselling. If that’s the case, be sure to point it out in the brief, since underselling is an
important factor that is likely to be the subject of Commissioner questions.
6
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
There may be some issues which you anticipate the other side will raise as part of
their affirmative case. By all means, one should begin working on rebuttal arguments for
those in advance since there is not a lot of time between the hearing and the post-hearing
brief, and it is usually the case that the Commissioners will have asked a lot of questions
that need to be addressed in the post-hearing brief. However, until you see precisely how
the other side presents the issue, there’s little purpose in trying to address it pre-emptively
in the pre-hearing brief.
Of course, as the question indicates, cases sometimes do take unexpected turns
when some piece of information turns up that was previously unforeseen. Obviously,
neither petitioners’ nor respondents’ counsel have perfect knowledge regardless of how
much research and legwork they have done. That can be complicated further if the
information is subject to the APO since then you can’t consult with your client about it.
The best way to avoid or minimize the likelihood of this occurring is to be sure you have
thoroughly questioned the key people in your client’s company about the industry, other
producers, customers, and foreign producers, as well as the product itself. Finally, if you
do come across information from a public source that could work against your case,
proceed on the assumption that the respondents’ counsel will also find it and use it.
This tactical topic is based on the procedures that govern trade
Dan Porter:
remedy proceedings before the ITC. Pursuant to ITC rules the last day (for all parties) to
submit new factual information is the deadline for submission of post-hearing briefs.
Accordingly, one possible tactical strategy is to withhold important factual information
until submission of the post-hearing brief because doing so will prevent the other side
from submitting any new factual information in rebuttal.
It is our belief that different lawyers likely hold rather different views on this
question; however, the difference does not depend on whether the lawyer is representing
petitioners or respondents. It is our general belief that engaging in this tactical strategy is
too risky because it is quite possible that the important information will not fully be
considered by the Commissioners and the Commission Staff.
It is not secret that the time during which the Commissioners generally spend the
most time examining the factual record is just before the all day evidentiary hearing.
Hence, it is our belief that if you possess key factual information that could benefit your
argument, it is best to submit prior to the hearing so that it is more likely that the
Commissioners will notice it.
It depends on the circumstances of a particular investigation, but in
Dan Klett:
general I believe that it’s better to not withhold information until the post-hearing brief,
but rather submit all information that helps your case in the prehearing brief.
Presumably, if it’s a fact that was withheld for the surprise element, it is considered to be
important. However, while “surprise” for the opposing side, it’s also a surprise for the
7
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
Commission. Information withheld from the prehearing brief is information that the
Commission will not have an opportunity to fully address at the hearing. On balance,
then, I think it hurts the “goodwill” of a party with the Commission to withhold
information.
5. Typical data manipulation issue/ errors of petitioners and respondents. What
have you seen another attorney do in presenting data to the Commission that you
would do differently to be more effective? (Examples of tables or graphs would be
helpful in written materials if you have something specific in mind.)
Most trade remedy investigations and sunset reviews in which I have
Eric Salonen:
participated either as petitioner’s counsel or when I was an ITC attorney-advisor during
the 1990s have familiar themes and lines of argument. For example, petitioners will
usually claim that imports and the domestic like product compete directly, with price
being the primary factor in purchasing decisions. Respondents will counter that imports
and the domestic like product serve entirely different segments of the market and price is
at best a secondary factor in purchasing decisions. Petitioners will usually argue that the
like product and the domestic industry should be defined to match the scope of the
investigation while respondents will often try to either expand the like product beyond
the scope of the imported merchandise (to reduce the imports’ market share) or may try
to argue that there are multiple like products (in order to get negative determinations on
at least some of the imports). Given the statutory factors that the Commission must
consider in its analysis, it is entirely understandable that these and other common lines of
argument will come up in most cases.
Having said that, there are some lines of argument which some respondents’
counsel have made that I don’t believe proved very effective. For example, if the
petitioning companies are publicly held and their annual reports show them to be
profitable, some respondents’ counsel use those reports to argue that the companies are
not experiencing material injury, even though the questionnaire data do indicate injury.
It’s often the case, however, that the annual report will not include financial and sales
data for the specific product involved. Rather, the reports will usually have aggregated
data that includes sales and profits for products not involved in the case. Moreover, since
the Commission will presumably have detailed production, shipment, sales and financial
data from the producer questionnaires, that is what they are most likely to rely on. Of
course, if the annual report has specific information that contradicts information in a
company’s questionnaire response, then that is entirely different. But I have just not seen
that occur very often.
In fact, it seems to me that this line of argument can backfire if the annual report
shows healthy profits while the staff report does not. That would suggest that the product
line where the domestic company is competing with dumped or subsidized imports is
8
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
being affected by some dynamic which the company’s other product lines are not. In
other words, the comparison of the annual report and the staff report could point in the
direction of causation.
It is also not uncommon to hear respondents’ counsel argue that his or her client’s
products do not compete with the domestic like product because of the imports’ poor
quality. I recall one case when I was at the Commission where the attorney literally
referred to his client’s imports as “junk.” But if a majority of purchasers told the
Commission in their questionnaire responses that the imports are always or frequently
substitutable with the domestic product, I think it’s doubtful that this line of argument
will succeed. (It did not work in that particular case.)
Another piece of cautionary advice which I would offer applies to both petitioners’
and respondents’ counsel and that is to step back once in awhile from your case to make
sure your arguments are factually supportable. In other words, be sure to periodically
update your thinking about your case. Don’t get so caught up in an argument that you
stick with it even after it becomes apparent that the record just won’t support it.
Otherwise, you risk losing credibility for the other parts of your case. One example I can
think of from my days at the Commission was a case in which the respondent’s counsel’s
chief argument was that the imports were inferior in quality when compared to the
domestic like product. He had a sample of the domestically-produced product and the
import in his hands and asked to approach the dais. He then showed the two products
side-by-side to one of the Commissioners and stated that, as the Commissioner could see,
the quality differences between the two products were physically obvious. The
Commissioner responded, “Frankly, counsel, they look identical to me.” Needless to say,
that case did not go well for his client.
As far as data presentation is concerned, for some years now, almost everyone has
included a PowerPoint slide show as part of their hearing presentation. The presentations
can be very effective in helping to summarize the record in the case. Graphs, pie charts
and the like can be especially useful in putting the record evidence into a context that best
supports your case if you keep in mind a few rules. First, keep it simple. Don’t try to
make one slide do the work of three or four. For example, when summarizing what the
data show for industry factors such as production, shipments, employment, etc., don’t try
to squeeze every factor onto a single slide. Break it down into manageable pieces.
Second, make sure each slide’s main point can be quickly understood. If it takes more
than a few seconds to grasp the message, then it probably won’t be effective. Third, keep
verbiage to a minimum. As the old saying goes, a picture is worth a thousand words. If
you can make your point using some kind of graph or illustration, do so rather than write
a summary of the point on the slide. Eyes begin to glaze over quickly if there’s too much
text. The exception to this rule is good quotes that either support your case or contradict
your opponent’s claims. In one case a few years ago, for example, we used quotes from
9
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the respondent companies’ websites which directly contradicted their witnesses’ hearing
testimony as part of a rebuttal presentation.
The ITC has a firm rule that all charts and data presented indicate the
Dan Porter:
source of the data. In addition, there is a defined evidentiary record by the time of the
hearing. Given both of these, there is generally not much dispute of the underlying data.
Rather, what you will see is different data presented for the same proposition. For
example, in all AD/CVD cases the Commission has to analyze “volume effects;” which
typically involves analyzing whether there has been a recent increase in the volume of the
targeted imports that are allegedly causing the domestic industry to lose sales. In most
cases there is no dispute concerning the actual volume of imports over the period. The
only issue is what conclusions or inferences can you draw from the import statistics. And
so, in many cases you will see dueling import volume charts. Petitioner will put up a
chart showing that total annual import volume was higher in the last year of the period
compared to the first year and claim that the increase was injurious. In contrast,
Respondents will utilize the same data but highlight the fact that imports actually steadily
decreased on a monthly basis for the past year.
Another example is the data analysis required in a 421 case to determine whether
the targeted imports, in fact, were “rapidly increasing” and therefore met one of the
statutory criteria. For example, in the 421 Passenger Vehicle and Light Truck Tires case
the ITC Staff assembled import data for the five years preceding the petition. The
relevant data is presented below:
Year
Quantity
of Tires
Increase In
Quantity
Rate of
Increase
(million tires)
(million tires)
(percentage
points)
2004
14.6
--
--
2005
20.8
6.2
42.5
2006
27.0
6.2
29.9
2007
41.5
14.5
53.7
2008
46.0
4.5
10.8
Petitioners pointed to absolute increases in the annual actual volume of imports over the
five year period and argued the statutory criteria had been satisfied. In contrast,
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Respondents highlighted the fact that the rate of increase dramatically declined over the
period and therefore the statutory criterion of “rapidly increasing” had not been satisfied.
As noted, in most cases there is really not any dispute about the actual data; in
most cases both sides agree with the data compiled by the Commission Staff; the fight is
over what the data means. However, every once a while there is huge fight on which data
should be used. One of my favorite war stories on this issue is the live swine from
Canada case. In that case there was a huge fight on whether the imported pigs from
Canada should be counted on per animal basis or a total weight basis. Petitioners argued
that individual pigs crossed the border and individual pigs were bought and sold and so
argued that the Commission should analyze import volume and calculate import market
share based on the total number of pigs imported from Canada. This methodology
yielded a subject import market share of around 9 - 10 percent.
On the other hand, Respondents noted that the vast majority of pigs imported from
Canada were baby pigs, which were then raised to slaughter weight by an American
farmer feeding the pigs American corn. And so, according to respondents, when the pig
was sold to the pork processor (which is where the head to head competition took place)
the imported baby pig had actually been transformed into a bona fide American hog.
Respondents argued that therefore import volume should be analyzed on weight basis,
not on a number of pigs basis. Respondents’ methodology yielded a subject import
market share of just three percent. (For those keeping score, Respondents’ argument
prevailed as the Commission rendered a negative injury determination.)
The Commission’s determinations in trade proceedings (AD/CVD,
Dan Klett:
Sunset, Escape Clause, and Section 421) are heavily fact and data oriented, relying
primarily on compilation of questionnaire data, and also public data when available.
Parties to cases must rely on data presented in the ITC Staff Report for their analyses and
written briefs, but generally also compile questionnaire data themselves for three reasons:
 The Staff Report is released about 1 week to 10 days before the Prehearing briefs
are due, and attorneys want data compilations for review further in advance for
purposes of drafting this brief.
 Data tables in the Staff Report are at an aggregated level, and additional detail
from the raw questionnaire data may allow for additional analysis that cannot be
conducted from Staff Report data.
 Double-check on data in Staff Report, if discrepancies with own-conducted
compilations. However, the ITC staff is very rigorous in their data compilation
methods and internal review process, and more often than not any discrepancies
reveal errors in own-compilations rather than ITC staff errors.
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In my experience, there are two classes of “errors.” The first is a pure mathematical
error. This can result from a variety of factors, including simple input errors, or failure to
convert data reported in questionnaires to the correct unit of measure when compiling
data. For example, the questionnaire may ask for data in 1,000s, but those reporting may
report in actual (or vice-versa). Or data may be requested in pounds but reported in
kilograms. Avoiding this type of error is a matter of double-checking inputs. In addition,
not all companies submitting questionnaires are complete or accurate in their reporting.
One of the most common compilation errors in that I see is that when calculating average
unit values (“AUVs”) from questionnaire data, it often occurs that some companies report
the volume data but omit reporting the value data. Inclusion of data from these
companies when calculating aggregate AUVs will result in understating the AUV. This
can be a critical error, as the Commission often uses AUVs as proxies for price, and price
comparisons between the domestic and imported products is a key element of
Commission determinations.
The second class of error is “manipulation” of data, which relates primarily to intentional
distortions in presenting data to the Commission either in briefs or at hearings. Examples
of these types of data manipulation errors include:
 Use of improper base year. Trends during the period of investigation or review
are important for the Commission’s analysis.
 Not accounting for seasonality when comparing annual to partial-year data.
 Scaling distortions in graphics. (“Double Axis Distorition” Graphic) (Slides 1 &2)
 Misuse of percentage changes from low base year. (“Percentage Change
Deception” Graphic) (Slides 3 & 4)
6. Give a few tips of the trade on how party witnesses are prepared for an ITC
hearing.
In one sense, from a petitioner’s perspective, witness preparation
Eric Salonen:
begins long before the petition is drafted and filed and the ITC hearing is scheduled. The
interviews you have with your client’s employees should provide you not only with
information needed for the petition, but also a database for witness selection and
testimony later in the case. Of course, the primary purpose of these pre-petition
interviews is to get the information needed for the petition. But take good notes that you
can review later in the case so that when the time does come to decide who your
witnesses are going to be, you will have already covered a lot of ground.
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In the more traditional sense of witness preparation, in the case of a company, I try
to interview key employees and officers in charge of sales and marketing, and
production, and personnel who are most familiar with the company’s books and records.
As the investigation or review proceeds, I conduct follow-up interviews with an
eye toward deciding which witnesses are going to tell which part of the story, who is
going to actually present testimony and who will be available to answer questions on
particular issues. I also ask each witness to be sure to review their company’s
questionnaire response very closely so they understand the information that has been
provided to the Commission and what their company’s data look like.
Assuming we are at the final phase investigation, I provide them with a summary
of the Commission’s preliminary determination and highlight issues which the
Commission has indicated it will examine more closely in the final. We also provide a
summary of the public pre-hearing staff report as well as a summary of the public
versions of the respondents’ pre-hearing brief so they have a better idea of what the
overall record looks like and the arguments the other side is making. We also use these
public summaries with purchaser witnesses.
Finally, we do the sorts of things you would expect, including drafting testimony,
going over it with the witnesses and then revising it as necessary. We draft questions
which we think the Commissioners are likely to ask at the hearing and see what kinds of
answers the witnesses give. The day before the hearing, we will have a number of dry
runs to see how the overall presentation holds together, whether we are within our time
allotment and the like. We also use that session to do Q&A and highlight key issues for
the witnesses to keep in mind and to make sure they understand the relevance and
significance of the issue to the case.
Dan Porter:
For respondents side there can be a tremendous range in the level of
difficulty for preparing for the ITC hearing. At one end of the spectrum is when the case
is against a single country and you represent the only exporter. As counsel this is the
easiest situation because you are in sole control of what points should be made and in
what order.
The other end of the spectrum is a global safeguard case in which there are
multiple exporting countries and in each country there are several large exporters, each of
which retains different counsel. As counsel such situation requires an inordinate amount
of time preparing for the hearing, given that so many parties need to coordinate. (Nb:
There is typically an established finite amount of time (an hour or an hour and a half) for
each side to present its affirmative case. And the ITC makes it very clear that they expect
each side to work out the respective time allocations itself. The ITC does not want to act
as a referee for warring respondents’ (or petitioners’) counsel. ) In this situation it is not
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uncommon to have long meetings in a large conference room during which there can be
rather heated “discussion” over the allocation of 30 seconds.
As for the actual preparation of industry witnesses, we typically devote a fair
amount of time given our belief that the all day hearing plays a very important role in the
process. We typically ask industry witnesses to come to Washington two nights prior to
the hearing so that they can devote an entire day to prepare.
In every hearing there are two distinct tasks that most industry witnesses must
undertake: (a) give an affirmative statement, and (b) answer questions from
Commissioners. Even though most industry witnesses will want to obsess over the
affirmative statement (for most respondent industry witnesses the ITC hearing is the first
time they have had to give testimony in an evidentiary hearing), it is our belief that as
much time should be spent anticipating and thinking about responses to possible
Commissioner questions as to the preparation of the affirmative statement.
The reason is simple arithmetic. At most, the affirmative statement will last just
five or ten minutes. However, the industry witness will then spend another two hours in
Q&A from the Commissioners. It is our belief that the hearing is “won” or “lost” based
on answers to questions, not affirmative statements.
We generally leave this to the law firms. I note that in most cases
Dan Klett:
we also appear as an “industry witness.”
7. Who are the most effective witnesses for petitioners – CEOs or technical experts –
how do you decide who to bring? Respondents: foreign producers vs. importer
vs. purchaser witnesses – impact?
The answer is, “It depends.” Including the president or CEO of one
Eric Salonen:
or more domestic companies in an ITC hearing can help provide a “big picture”
viewpoint of the industry and the market. It is also symbolic of how important the case is
to that company or companies. Most CEOs with whom I have worked have truly
comprehensive knowledge about their companies and their employees and are capable of
addressing just about any question that is asked of them. One caveat: Depending on the
size of the company or the number of divisions it has, it may be more useful to have the
head of the specific division producing the product in question appear instead as he or she
may be more directly familiar with the product than a CEO who is in charge of numerous
divisions producing a variety of products, many of which may have nothing to do with
the case.
A technical expert can be very important in a case involving an industry with
which the Commission has not had much experience. For example, an expert witness can
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help the Commissioners better understand the like product issues by explaining the
production process. Examples that come to mind include Certain Automotive
Replacement Glass Windshields from China and Certain Off-the-Road Tires from China.
In both cases, the like product issue was strongly contested, with petitioners arguing that
the appropriate like product was co-extensive with the scope of investigation while
respondents sought to persuade the Commission to define the like product more broadly
than the scope. Our clients’ production managers explained how the respective products
were produced, and how they were differentiated from the products that the other side
thought should also be included. I thought that was helpful because those were products
and industries that had not been investigated by the Commission in some time, if at all.
(As a side-note, I cannot overstate the importance of plant visits by the Commissioners,
their aides and the investigation staff, particularly in cases involving a product that is
either a new product in Commission investigations or has not recently been the subject of
investigation. These kinds of visits are an invaluable means of helping give the
Commissioners and staff a more thorough understanding of the product and the industry,
as well as the level of capital investment in the plant and equipment.)
We should not overlook the importance of union witnesses. Of course, under the
statute, unions have the same right to file petitions as companies. Indeed, the Section 421
case on passenger and light truck tires from China was initiated based on a petition filed
by the USW. That case ultimately resulted in the imposition of tariffs on Chinese tires
for a period of three years. In AD and CVD cases involving industries that have
organized workers, union witnesses bring the perspective of the workers to the hearing.
They can speak to such matters as their members’ efforts to improve and enhance the
competitiveness of the companies for whom they work as well as the impact that the
imports under investigation are having on the workers and their families and
communities. That kind of testimony helps put a “human face” on the injury that a
domestic industry is experiencing. They can also share with the Commission what
management has told them when a plant is about to be closed and the reasons
surrounding that closing, including the extent to which subject imports contributed to the
closing. It is also helpful to have both the union and management sitting side by side at
the witness table showing a united front against dumped and subsidized imports.
Finally, while the question asks respondents about purchaser witnesses, such
witnesses can also be very important in helping present the petitioners’ side of the case.
Purchaser witnesses can often testify very authoritatively about the market, the extent to
which the petitioners’ and foreign producers’ products compete, and factors that drive
purchasing decisions among other issues. They may also explain that they buy or import
the subject merchandise in order to remain competitive with other companies in the
market that are selling the subject merchandise.
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Dan Porter:
It is our view that, from a substantive standpoint, the best witnesses
for a trade remedy hearing are U.S. customers, and in particular those U.S. customers that
purchase from both domestic and import sources. These customers have the most
credibility in describing the true competitive dynamics in the market-place for the
targeted merchandise. (In some cases such customers are also the importers.)
The practical problem is that, most often, it is very difficult to persuade customers
to appear at the ITC hearing. As a general matter most customers simply do not want to
become mixed-up in a fight among their suppliers. And the threat of retaliation plays is a
big factor. In some instances the threat of retaliation is perceived by the customer -- the
customer believes that if he or she shows up at the ITC hearing the domestic producer
will restrict needed supply. However, in other cases the threat of retaliation is real. The
customer actually receives a not-so subtle communication from one of the petitioners that
appearing at the ITC hearing would be contrary to the customer’s business interests.
It is for this reason that, from respondents’ standpoint, the underlying premise of
the topic (namely, that respondents have the ability to choose among several types of
witnesses for the “most effective”) is rather amusing. For respondents, in most cases, it is
very difficult to find any “witnesses” other than the retained lawyers and economists.
The difficulty stems in large part from the fact that, unlike petitioners’ counsel,
respondents’ counsel cannot rely on their clients as a source of witnesses. In many cases
the respondent-side consists only of the foreign exporters in the targeted country. (This
happens when there are no affiliated U.S. importers and the unaffiliated importers refuse
to become involved.) Respondents’ counsel is often very reluctant to ask their foreign
clients to appear at the ITC hearing. The reluctance stems in most part from language
difficulties. The true “meat” of an ITC hearing is responding to questions from the
Commissioners. The Q&A format does not lend itself to having a translator. And
accordingly, most respondents’ clients are therefore very hesitant to put themselves in a
situation in which lack of English proficiency could actually harm the defense efforts.
Finally, make a comment about economic testimony. For economic witnesses,
respondents also need to decide between an expert who specializes in ITC trade litigation,
and some outside expert, often an academic. Most cases involve specialists in ITC trade
litigation – they are the most cost effective way to add basic economic expertise to the
defense effort. But some cases require more. If more formal econometric analysis is
going to be a key of the defense, an academic expert with more experience and credibility
in those areas can be useful. Over the years, we have used academic experts to present
more detailed and formal testimony about economic models to disentangle the various
factors affecting prices, economic models that use future prices to simulate the future
prices of agricultural commodities, and economic arguments about the role of exchange
rates in determine past and future import trends. But when engaging an academic
economist, it is important to keep in mind a few key points:
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 They must take the time to understand how the specific issue fits into the overall
defense. If the lawyers are too disengaged, the academic expert will do interesting
work that misses the point.
 They must take the time to read enough of the ITC record to be able to address it.
One of our favorite moments concerning an expert was when the domestic steel
industry hired Kenneth Arrow – one of the most distinguished economic experts in
the world – to address one of the issues in the case. But Professor Arrow had not
taken the time to read any of the record. All it took was a simple question -- “Dr.
Arrow, have you actually read the prehearing staff report?” – to discredit his
entire testimony. He had not.
 Anticipate how the ITC staff will want to follow up on these issues. The ITC staff
includes a number of well trained, professional economists who can – and
sometimes do – engage on the technical merits of a key issue. Be prepared for that
exchange.
For the U.S. industry, the most effective witnesses tend to be those
Dan Klett:
individuals below the CEO level that are most familiar with competitive conditions with
imports on a day-to-day basis. However, for smaller U.S. producers, the CEO may be
very familiar with competitive conditions. While CEOs tend to be more charismatic,
given the fact-finding purpose of the Commission investigation, they prefer industry
witnesses who are most knowledgeable about specific competitive conditions with
imports, as well as with other factors affecting sales, prices, and profitability of the
specific product at issue. Of course, the U.S. industry often includes both high-level
(CEO) testimony as well as testimony from operational officials, and this can be effective
if the direct presentation is well-organized within the time constraints.
For respondents, the relative importance of having a foreign producer vs. importer
witness may depend on the specifics of the investigation. For example, if the fact pattern
is such that respondents feel they have a relatively strong “present injury” defense, but
the vulnerability is “threat” of future injury, then including a foreign producer witness
may be critical, as threat findings often turn on factors such as production capacity in the
foreign country, excess capacity, and decisions made on exporting to the U.S. vs.
exporting to non-U.S. markets. If a judgment is made that the Commission’s ultimate
outcome is likely to be on the basis of present injury, then importer witnesses may be
more important, as they can better discuss past competitive conditions in the U.S. market
over the three year investigation period, including non-import factors affecting the U.S.
industry, or non-price factors that may limit competition between imports and the U.S.
industry.
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Purchasers (i.e., U.S. customers of the subject product) often are the most effective
witnesses, and both the U.S. industry and respondents attempt to enlist purchasers to
testify on their behalf. Because these are the companies where competition between U.S.
and subject imports most directly occurs, they can address factors such as relative
competitive pricing, as well as non-price factor that may affect their purchasing
decisions. It often is difficult to find purchasers willing to testify, based on fears of
retaliation in terms of being able to procure from the party on other side of table.
Therefore, what often occurs is that purchasers that do testify procure either U.S. or
imported product only, not both.
The U.S. industry and respondents often rely on technical economic experts, both
for the written submissions and testimony at Commission hearings. Assistance in
preparation of written submissions includes compilation and analysis of questionnaire
data, publicly available data that may be relevant to the investigation, a review/analysis
of data and information in the Staff Report, and expositional tables and graphics. The
analysis may be a free-standing economic study, but in my experience this generally is
the case only when the economist performs technical statistical analyses, such are
econometric time series work. For example, this was the case in the recent Certain
Coated Paper investigation. Generally, the economist works jointly with Counsel in
drafting specific sections of the brief, since the issues are economic in nature, particularly
regarding alternative causes and causation.
At the hearing, the economist may or may not give a direct presentation. The
hearing is the only opportunity for the Commission to directly address the industry
witnesses that are present, and the attorneys and economist will have another shot at
addressing additional concerns raised by the Commission at the hearing in their PostHearing Briefs. However, it often is useful to have the economist give a short
“overview” presentation of the economic issues in the investigation, and be present to
answer questions from the Commission on more technical economic issues of interest.
8. When does it make sense to have Congressional, state and local government, or
embassy witnesses? What goes into the calculus?
From a petitioner’s perspective, there are a variety of factors that go
Eric Salonen:
into the calculus, including the relative profile of the case, the relative importance of the
petitioning company or companies to the local and state economies in which they are
located, the prospect that the respondents may call Congressional or other government
witnesses, etc. These kinds of witnesses can serve a number of important purposes.
They appear not only on behalf of the specific petitioning companies and their workers,
but they also speak for their constituents whose jobs may be indirectly threatened by the
subject imports. In the case of highly fragmented industries with the workers dispersed
across the country, such as cattle producers, Congressional witnesses appeared as
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surrogates for all those producers who could not travel to Washington or be included in a
one-hour presentation.
There are also cases where it is simply very important to the client to have his or
her Senator or Representative appear and testify. Cases are expensive to bring and the
client may want Congressional testimony so as not to leave the proverbial stone
unturned.
This topic is really only for petitioners. It is typically extremely
Dan Porter:
difficult for respondents to have U.S. politicians appear at an ITC hearing in support of
respondents and against the U.S. petitioning companies.
We will also leave for another day the question as to whether it is appropriate for
the ITC, which proclaims itself to be an “independent quasi-judicial” agency, to allow
U.S. politicians to participate in an evidentiary hearing. The ITC is obviously reluctant to
tell politicians they really have no purpose at the hearing. Indeed, the political testimony
is often far off the mark. (We remember one hearing on an antidumping petition, during
which a Senator recycled old language from testimony for a hearing on a Section 421
China specific safeguard, not even realizing the current hearing was not about Section
421 at all.) But the ITC really should do so, and discourage such participation. The
growing tendency for politicians to attend hearings undermines the credibility of the
process, and makes the process appear to be driven by politics, not by substance. Can
you imagine a domestic industry asking members of Congress to testify before a federal
judge in a commercial dispute with a foreign party? If not, then one must ask why the
members of Congress have a role in ITC hearings.”
Dan Klett:
We leave this to the lawyers.
9. What is the best way to approach causation issues given the effect of the
recession? If demand is going down, prices are going down, production is going
down etc. – how do you make the best argument that subject imports are or are
not a more than de minimis cause of injury?
The recession can be, and indeed recently has been, identified as a
Eric Salonen:
relevant condition of competition. From a petitioner’s perspective, this can help bolster
the case for causation. A comparison of industry trends vis-à-vis apparent domestic
consumption can help demonstrate that imports are causing material injury to the
industry. For example, if the domestic industry’s shipments declined more quickly than
did apparent consumption while subject imports increased, that would suggest that but for
the subject imports, the domestic industry’s shipments would not have declined as much.
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In a related vein another issue is what happened with the subject imports during the
period of investigation or review. Did they increase during the recession? If they
declined in absolute terms, did their share of the market nonetheless increase (i.e., they
declined more slowly than did domestic shipments or non-subject imports)? Viewed in
this context, one would argue that while some of the declines in the domestic industry
may have been due to the recession, the subject imports made things worse.
Even in cases where subject imports may have increased during the earlier part of
the POI and then declined more recently during the recession, the Commission has
nonetheless found that the domestic industry is threatened with material injury. Indeed,
in 2010, the ITC made affirmative threat determinations in six out of eleven
investigations. In each of those cases, the recession was identified as a relevant condition
of competition.
Dan Porter:
This topic has been THE issue in virtually all trade remedy cases
over the past two years. In most cases the data leave little doubt that the domestic
industry is indeed suffering, and so the question for the Commission is how much are the
targeted imports to blame.
From our experience in several cases over this time period is that whether
petitioners or respondents have the “uphill battle” depends on what the data demonstrate
concerning how much the pain is shared. If the data suggest that imports are affected in
the same manner as domestic production – namely, import shipments are down by a
comparable amount, prices changes mirror the domestic industry -- and then petitioners
tend to face an “uphill battle” in convincing the Commission that the targeted imports,
rather than the recession, are the cause for their woes.
However, if the data demonstrate that import sources somehow behaved
differently from domestic producers during the recession - for example, subject import
volume did not decrease as much and therefore subject imports increased market share -then respondents face an “uphill battle” in convincing the Commission that subject
imports were really not a sufficient contribution to the domestic industry woes to justify
an affirmative injury determination.
To overcome this “burden” respondents need to demonstrate that there are valid
explanations for the data “anomalies” and that these explanations eliminate the ability to
blame targeted imports for the domestic industry’s reduced performance. For example,
some times the reason that import volume did not decrease as rapidly during the recession
as domestic shipments is because there was some other event – a major strike or
production mishap – that limited the ability of domestic producers to makes sales during
the period. In other cases respondents attempt to demonstrate that the reason that subject
imports shipments did not fall as rapidly as domestic shipments is that subject imports
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were supplying a segment of the market in which domestic producers were not present
and this particular segment was less affected by the recession.
We also note that, recently, more and more cases are being decided based on
threat. Even if the facts do not support a finding of current injury – often because
imports have been flat or declined, and the financial losses are really due to the recession
– the statute requires that the Commission also address the threat of future injury. These
arguments are more challenging, since everyone is struggling with predicting the future.
The key factors seem to be:
 What is happening with foreign capacity, and how credible is the belief that future
imports will surge back into the US market when the demand begins to recover?
 What is the timing of import changes, and how do the lag effects (if any) affect
how to analysis the recent past and imminent future trends in imports?
 What has been the recent pattern of pricing, and by how much have import prices
been underselling domestic prices?
Given that both present injury/causation arguments and threat of injury/causation
arguments must be made at the same time, from purely an argument presentation
standpoint, arguably, respondents have an easier time. For respondents, the first part of
their briefs contain all the reasons why looking at past data the domestic industry has not
suffered material injury from subject imports. Accordingly, respondents generally can
point to these same reasons as why subject imports will not be a future threat of material
injury to the domestic industry.
In contrast, given that the ITC only addresses threat of injury if it concludes there
is not sufficient support for an affirmative current material injury determination,
Petitioners’ threat argument necessarily starts from the standpoint that the Commission
was not persuaded by Petitioners’ argument concerning past effects of subject imports on
the domestic industry. Accordingly, Petitioners must point to some anticipated new
market development that will cause subject imports to have a different effect on the
domestic industry than they did in the past.
There must be proper “attribution” of some material portion of
Dan Klett:
observed difficulties being faced by the U.S. industry to subject imports rather than to
other factors. It always is the case that the U.S. industry condition is affected by multiple
supply and demand factors, including import and non-import factors. One mistake I have
observed is that attorneys representing petitioners or respondents too often attempt to
attribute injury to either import or non-import factors almost exclusively. Perhaps this is
an occupational bias given the “advocacy” bent of attorneys.
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The attribution issue has posed a greater challenge to the Commission over the last
two years because the U.S. recession was so severe. Therefore, in most investigations in
the recent past it is difficult to deny that the recession is a non-import factor that has had
at least some adverse effect on the U.S. industry.
The issue then, is one of isolating the effects of subject imports on the U.S.
industry relative to the effects of the recession, or at least having sufficient evidence or
facts on the record to the satisfaction of the Commission that notwithstanding the adverse
effects of the recession on the U.S. industry, that competition from subject imports had
additional material adverse effects (or not).
In answering this question, economists like to rely on empirical models, either
time series (econometric) or counterfactual partial equilibrium models. The results of
this kind of modeling can be useful, but also face limitations:
-
Time series analysis generally requires multiple observations of data over a
relatively long period of time for the alternative factors that may be affecting the
U.S. industry’s prices and volumes. It would be burdensome to collect the
requisite data in questionnaires, and for most investigations neither are these data
available from public sources. However, for some investigations and reviews,
data are available that is specific to the product at issue and for a sufficiently long
period of time.
-
The results of any economic modeling can vary, being sensitive to the structure of
the economic model, what variables are included or omitted, and the period of
time that is modeled. That is why petitioner and respondent economists can come
to different findings, even using the same raw data. However, there are objective
standards as to what economic modeling techniques are correct and which are not
(or at least “less” correct), and the Commission has qualified economists on staff,
particularly in their research division, to objectively evaluate any empirical
analyses submitted by parties in an investigation. In my opinion, I don’t believe
the Commission adequately utilizes its internal resource in this regard when
empirical analyses are submitted.
Given these limitations, the Commission most often must rely on other facts and
evidence in isolating the effects of subject imports from the recession. Normally, the
Commission relies on its standard practice of evaluating the volume and price factors that
it always considers in investigations or reviews.
-
What is the nature of the product? Is it a “commodity” where competition among
suppliers is almost always on the basis of price, or is it a more highly
differentiated product (either in terms of quality or having a large number of
different specifications for sale)?
22
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Trade II: Injury Investigations in Trade Remedy Cases
-
If truly a commodity (and I think the term is overused by petitioners), and there
have been significant increases in import volume and market share, there is
underselling, and U.S. producers are experiencing price declines and reduced
operating profit levels, then this is a priori evidence that subject imports had a
material adverse effect in addition to any adverse effect that may have been
caused by the recession.
-
Fact patterns that indicate the recession rather than competition from subject
imports may explain most of any adverse effects being experienced by the U.S.
industry are:
i.
The product is not truly a commodity. There is product differentiation, and
imports compete in a different segment of the market than do U.S.
producers, or supply different specifications of the like product that do not
compete directly with specifications being supplied by U.S. producers.
ii.
The product is a type that would be expected to have been very sensitive to
the effects of the U.S. recession. For example, products that go into
residential or commercial construction, or big-ticket items where purchases
by consumers can be deferred (e.g., building materials or large consumer
appliances). For these products the recession had to have had a major
impact on the U.S. industry.
iii.
Subject imports did not increase their share of the U.S. market. Or subject
imports did increase their share of the U.S. market but at the expense of
non-subject imports rather than the U.S. industry.
iv.
U.S. and subject import prices are very different and/or move in very
different patterns. For products that truly compete in the same market, one
would expect prices to be relatively close and to move in the same
direction. The Commission does considers “underselling” by subject
imports, but when underselling margins exceed a certain level (20%?) does
this more accurately reflect the absence of true competition on the basis of
price?
10. Private settlements – do they have any relevance to the injury determination in
sunset reviews? Recent cases have led to battles about how much information
concerning settlements should be requested by or provided to the Commission.
I believe the Commission got this exactly right in its recent sunset
Eric Salonen:
review of wooden bedroom furniture from China. In that case, the respondents had
contended that certain domestic producers were benefiting from the imports because they
23
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
agreed not to request administrative reviews for Chinese producers and U.S. importers
who had relatively low dumping margins in exchange for payments. Petitioners
contended that the agreements were entirely legal and, at best, constituted evidence of the
significant interest that the Chinese producers and U.S. importers who were parties to the
agreements had in the U.S. market.
The Commission unanimously concluded that those agreements were not a
relevant condition of competition for purposes of evaluating what was likely to happen if
the order was revoked. The purpose of a sunset review is to determine what is likely to
occur if an order is revoked. As the Commission pointed out, once an order is revoked,
there can be no administrative reviews. As such, there does not appear to be any relevant
basis for collecting any information about settlement agreements in questionnaires or
otherwise.
A couple of comments. First, although this issue was rather
Dan Porter:
significant in a couple of recent cases (e.g. wooden bedroom furniture and warm-water
shrimp), we do not believe that this is an issue of broad concern. The simple reason is
that there are relatively few cases that have the underlying factual predicate to make
settlement agreements an important factor. The underlying predicate is a relatively large
volume of subject imports is from exporters that received a relatively low AD (or CVD)
margin in the original investigation.
Very simply, unless the original AD (or CVD) margin is rather low, the foreign
exporter will not have any interest in keeping the rate. If the AD/CVD rate is high, the
foreign exporter will usually be the one to request a review in order to attempt to have it
reduced. However, quite honestly, given the rather wacky AD/CVD margin calculation
methodologies employed by the Commerce Department, and in particular in cases against
non-market economies such as China and Vietnam, there are not many cases in which the
final AD/CVD maring that is imposed is very low (e.g. single digits) for most of the
targeted subject imports. Rather, in the vast majority of cases against China, the final
AD/CVD margins that are imposed are typically market preclusive for the subject
exporters. Under this situation review settlement agreements do not occur.
Our second comment is to disagree, with all due respect, with the conclusion
adopted by the ITC on this very issue in the Wooden Bedroom Furniture sunset case. In
that case a HUGE part of the proceeding (both in written arguments and at the hearing)
addressed what conclusions should be drawn from the fact that, every year, the
Petitioners requested antidumping administrative reviews of hundreds of Chinese
exporters, and then promptly withdrew the request upon receipt of cash payments
(referred to as “settlement agreements”) from the Chinese exporters. As a result of this
practice, the relatively low (6 percent) AD rate for most Chinese exporters was not
adjusted, and therefore there really was not much diminution of subject import volume
from the original investigation.
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DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
It was therefore rather perplexing when the ITC effectively decided that these
yearly settlement agreements were irrelevant to the ITC’s sunset analysis. It was
perplexing because there was no question that these yearly settlement agreements
absolutely dictated the volume of the subject imports during the sunset review period.
And so, effectively, the ITC ruled that something that had a direct effect on the volume of
subject imports during the applicable period was not relevant. While it might well be that
both sides (petitioners and respondents) could advance different credible arguments as to
the significance of these settlement agreements for the ITC’s sunset analysis, it is hard to
see how they could be ruled irrelevant.
Dan Klett:
This is not something that the economic consulting firm addresses.
11. What is the typical division of labor between lawyers and economists working on
an injury case?
Eric Salonen:
This probably varies a lot depending on the firms that are involved.
Some law firms may rely on the economist to aggregate the questionnaire data while
other firms may look to the economist more for reports and analyses of specific issues.
For example, in the Section 421 case on tires from China, our economic consultant
prepared a report on the likely benefits of relief to the domestic industry as well as
indirect benefits to companies that supply inputs and services to the tire companies. That
was a very important issue because in all of the previous Section 421 cases where the
Commission made an affirmative determination, the President had denied relief on the
basis that the costs of relief to the national economy outweighed the benefits to the
industry. In the cases I have worked on, the lawyers do most of the work in terms of
drafting the briefs, working with clients on their questionnaire responses, witness
preparation, etc.
Dan Porter:
In almost every case in which we work with economic consultants
there is constant joking that the lawyers always want to play economists and the
economists want to play lawyer.
That stated, we agree with the description offered by Capital Trade on how the
division actually works in practice.
From my perspective, there is a lot of variability in the division of
Dan Klett:
labor, and this depends on the attorneys with whom I am working as well as the budget
that the ultimate client has allocated for an economist. Attorneys and economists who
25
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
have worked in this area for a number of years generally are fairly knowledgeable
regarding both the economic/financial and legal issues (including Commission
precedent). So there may not be the strict division of labor that you might expect given
the different disciplines and skills of an attorney vs. economist.
However, the three areas that tend to be the domain of the economic consulting
firm are data compilation (from questionnaires and public sources), graphical
presentations, and any statistical analysis of the data. Compiling questionnaire data
doesn’t really require economic training, but the economic consulting firms do tend to
have more junior staff that can do this work more efficiently and at a lower hourly rate
than the internal resources of the law firms. Nonetheless, I think it is useful for the senior
economic expert to do some of this as well, to be familiar with information and data in
individual questionnaires that may be useful, and not readily apparent from the
aggregated data.
The statistical analysis really is the area that the economist’s specialized skills are
important. The analysis can range from the calculation of simple correlation coefficients,
which measure the relationship between two data series over time, to multiple regression
econometric analysis, which statistically evaluates the effect of multiple independent
variables on a dependent variable. Generally for this type of analysis, there is a freestanding economic appendix to the brief prepared by the economist, with the results
summarized in the brief.
12.
Why didn’t we see the spike in new petition filings in the recent recession that
has been typical in past recessions?
A large part of the answer is that what has been come to be known as
Eric Salonen:
“the Great Recession” was much more severe and global in its reach than previous
recessions, and resulted in a substantial contraction in U.S. imports compared to previous
recessions. U.S. imports declined by more than 25 percent in FY 2009. In earlier
recessions, imports declined by about one quarter that amount. This unusually severe
contraction meant that there were not a lot of products where imports were increasing
either absolutely or relative to domestic production or consumption.
Dan Porter:
The recent recession has been much more severe, which has had
several consequences for trade remedy actions. First, in many sectors imports fell
sharply. All other factors being the same, this fact would make a trade remedy case more
problematic. Second, the sharp drop in demand meant that all prices – both domestic and
import prices – fell sharply due to the recession. Finding patterns where the price decline
could be credibly attributed to imports became more difficult. Third, given the huge
problems facing many industries, they probably were so busy with other issues they could
not take the time and money needed to pursue a trade remedy action. It is hard to justify
26
DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
the expenditure of time and money is there is not going to be any tangible benefit for the
business in the short-run – if you are struggling to make payroll, it is hard to justify the
investment in legal fees.
12.
But more fundamentally, we are seeing shifts in the structure of the US economy.
Trade remedy laws only apply to goods, not to services. Yet the US economy continues
to shift from manufacturing to services. And an increasing portion of that manufacturing
takes place in segments where there is some unique US advantage, or where the industry
is highly globalized so that intra-industry trade occurs and each country is necessary to
the overall functioning. The classic users of trade remedy laws – industries with large
capital costs, and large investments in fixed assets – are a smaller and smaller part of the
overall economy.
One factor is the increasing globalization of U.S. producers, as
Dan Klett:
previously discussed.
A review of long-term trends in U.S. manufacturing activity and imports also
shows that imports typically decline during U.S. recessions. (Slide 5). In earlier
recessions, the decline in imports appears to have been roughly proportional to the
decline in U.S. manufacturing activity. In the most recent recession, imports fell by a
greater amount than the decline in U.S. manufacturing activity, so that on average it may
have been more difficult to pin any adverse effects being experienced by the U.S.
industry on imports rather than the effects of the recession. Keep in mind, however, that
trade cases are filed on specific products than make up a very small share of these totals,
so there were products where import market share did increase. But the “big picture”
does provide one plausible explanation.
But why the big drop in imports in 2008 and 2009? We all know that the U.S.
dollar had depreciated relative to other currencies. This tends to put a damper on import
levels, as stronger foreign currencies makes exports to the U.S. less competitive in U.S.
dollar terms.
So what about China, which has accounted for a very large share of AD/CVD
cases filed over the last five years or so? You all have heard stories about China
artificially undervaluing their currency, so the exchange rate explanation (i.e., a weak
dollar) may not appear to be a good explanation. Look at Slide 6. The lines in this graph
are indexed, but use the same base year (2007), so are reliable reflections of relative
trends. As you can see, through about 2007, total exports from China and imports into
the U.S. from China grew almost in lock-step with manufacturing activity in China. In
2008, the increase in manufacturing in China exceeded the increase in total exports and
imports into the U.S. In 2009, manufacturing continued to increase in China, but exports
to all markets and imports into the U.S. fell. What happened? The Chinese economy
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DC:666215.3
Trade II: Injury Investigations in Trade Remedy Cases
continued to grow during the most recent recession, while most other economies to which
China exported, including the U.S. experienced reductions in their GDP. So much of the
increased manufacturing in China was absorbed in China, rather than being exported.
28
DC:666215.3
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Practical “How-to” Advice
for Injury Investigations in
Trade Remedy Cases
PowerPoint
Submitted by:
Moderator:
Hon. Shara L. Aranoff
U.S. International Trade Commission
Washington, DC
Panelists:
Daniel W. Klett
Capital Trade
Incorporated
Washington, DC
Daniel L. Porter
Winston & Strawn LLP
Washington, DC
Eric P. Salonen
Law Office of Stewart &
Stewart
Washington, DC
2/8/2011
Large Increases in Import Volumes Have Dramatically Decreased Prices
350,000 1,005
Price ($/MT)
300,000 1,000
250 000
250,000 995
200,000 990
150,000 985
100 000
100,000 980
50,000 975
‐
Price ($/MT)
Volume (MT)
Volume (MT)
970
2006
2007
2008
Prepared by Capital Trade, Inc.
2009
2010
1
Large Increases in Import Volumes Have Not Dramatically Decreased Prices
350,000 1,200
Volume (MT)
Price ($/MT)
300,000 1,000
250,000 200,000 600
150,000 Price ($/MT)
Volume (MT)
800
400
100,000 200
50,000 ‐
0
2006
2007
2008
Prepared by Capital Trade, Inc.
2009
2010
2
1
2/8/2011
Increases In Import Volumes Have Not Been Significant
12,000,000 Imports (MT)
U.S. Producers (MT)
10,000,000 Volume (MT)
8,000,000 6,000,000 4,000,000 2,000,000 ‐
2006
2007
2008
Prepared by Capital Trade, Inc.
2009
2010
3
Import Volumes Have Increased Threefold over the POR
350 Im
mport Volume Index (2006 = 100
0)
300 250
250 200 150 100
100 50 ‐
2006
2007
2008
Prepared by Capital Trade, Inc.
2009
2010
4
2
2/8/2011
U.S. Imports and Industrial Activity
120.00
U.S. Industrial Production (2007=100)
U.S. Imports (2007=100)
100.00
Sources:
U.S. Industrial Production Index from Federal Reserve.
U.S. Imports Value from Bureau of Census.
80.00
60.00
40.00
20.00
Prepared by Capital Trade, Inc.
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
0.00
5
China Trends
160.0
China Mfg. Value Added (2007=100)
China Merchandise Exports (2007=100)
140.0
120.0
U.S. Imports from China (2007=100)
Sources:
U.S. Imports Value from Bureau of Census.
China Manufacturing Value Added and Merchandise Exports from World Bank Development Indicators.
Growth in China manufacturing activity appears to be absorbed within China b b d ithi Chi
in 2008‐2009
100.0
80.0
60.0
40.0
20.0
Prepared by Capital Trade, Inc.
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
0.0
6
3
TRADE & CUSTOMS LAW – BASICS YOU NEED TO KNOW
Injury Investigation in
Trade Remedy Cases
PowerPoint
Submitted by:
Daniel L. Porter
Winston & Strawn LLP
Washington, DC
Volume Effects
• U.S. statute requires ITC to examine whether the volume
of subject imports and/or increase in volume is
"significant"
•
ITC analyzes both extent to which subject imports
increased on absolute basis AND market share
• ITC also must consider volume effects of non-subject
imports
1
Winston & Strawn LLP © 2010
OCTG Case Example: Petitioners' Volume Argument
2
Winston & Strawn LLP © 2010
1
OCTG Case: Chinese Volume Argument
Surge in Demand in 2008
2,500
Further surge in demand
during 2008 results in
widespread shortages
Baker-Hughes Rig Count
2,000
1,500
Jul-01
Feb-05
1,000
Rig count (OCTG demand
reached previous peak in Feb-05
500
Jul-09
Jul-08
Jan-09
Jul-07
Jan-08
Jul-06
Jan-07
Jul-05
Jan-06
Jul-04
Jan-05
Jul-03
Jan-04
Jul-02
Jan-03
Jul-01
Jan-02
Jul-00
Jan-01
Jul-99
Jan-00
Jul-98
Jan-99
Jul-97
Jan-98
Jul-96
Jan-97
Jul-95
Jan-96
Jul-94
Jan-95
Jul-93
Jan-94
Jul-92
Jan-93
Jan-92
0
3
Source: Baker-Hughes Rig Count Data
Winston & Strawn LLP © 2010
OCTG Case: Chinese Response Cont'd
Imports Declined Sharply in 2009
400
364
350
325
301
300
276
273
Short Tons (000)
250
200
182
150
June shipments
ordered in March
before case filed
122
101
100
54
50
7
0
0
0
0
Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
4
Winston & Strawn LLP © 2010
Source: Pre-hearing Staff Report at Table IV-4.
2
Impact
• U.S. statute requires ITC to consider "the impact of
imports on domestic producers"
• In doing so, the statute requires the ITC to examine "all
relevant economic factors" which have a bearing on the
state of the industry
• Essentially, the ITC must analyze the extent to which
subject imports are having an adverse effect U.S.
production, sales, employment, profitability, and ability to
raise capital
5
Winston & Strawn LLP © 2010
OCTG Case: Petitioners' Impact Argument
6
Winston & Strawn LLP © 2010
3
OCTG Case: Chinese Argument
Record Operating Profits Per Ton
$800
$700
$670
$600
2006-2009 Avg = $442/ton
Operating Profit Per Ton
$500
$414
$400
$300
$242
$200
1996-2005 Avg = $86/ton
$100
$87
$0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
(interim)
-$100
-$200
7
Source: Questionnaire Responses for 2006-2009 period, and from the 2007 OCTG Sunset Review.
Winston & Strawn LLP © 2010
OCTG Case: Chinese Argument
3 of 4 highest profit years occurred during POI
$2,250,000
3 of the industry's best year's
ever occured during the POI
Operating Income ($000)
$1,750,000
$1,250,000
$750,000
$250,000
1999
2003
2002
1995
1998
1996
2000
1997
2001
2004
2007
2005
2006
2008
($250,000)
Operating profits (ordered from least to most profitable)
8
Winston & Strawn LLP © 2010
4
OCTG Case: Chinese Argument
Record Profits When Imports Peaked
2,500,000
$800
OCTG from China
Operating Income per ton
$700
$670
2,000,000
$600
short tons
$414
$400
1,000,000
$/ton
$500
1,500,000
$300
$242
$200
500,000
$87
0
$100
$0
2006
2007
2008
interim 2009
Source: Pre-hearing Staff Report at Table VI-1 and IV-4.
9
Winston & Strawn LLP © 2010
Coated Paper Case: Petitioners' Impact Argument
10
Winston & Strawn LLP © 2010
5
Coated Paper Case: Chinese Argument
Domestic Industry Was Profitable Even w/ Imports
Reported Profit
Profit with black
liquor credit
2007 2008 2009
1H 2010
7.4% 4.9% 3.8%
2.5%
7.4% 4.9% 17.1%
3.2%
Source: Staff Report at C-7 (all U.S. producers)
11
Winston & Strawn LLP © 2010
More And More Weight Added In United
States
Hog Pounds (millions)
1,400
1,313
1,163
1,200
1,025
1,000
800
879
873
709
600
400
200
0
2002
2003
2004
Weight of Live Swine as Imported From Canada
Weight Added by U.S. Finishers to Isoweans/Feeders After
Importation
Source: MPC Brief, Figure 31
Winston & Strawn LLP © 2010
6
U.S. Adds 88 Percent Of The Weight To Isowean
And Feeder Pig Imports Before Slaughter
1.313 Billion
Hog Pounds
Added
176.6 Million
Baby Pig
Pounds
Source: Staff Report, Table E-1 (2004)
Winston & Strawn LLP © 2010
7