Customs Overviews

By John B. Pellegrini, USA-ITA Customs Counsel, McGuireWoods LLP

In This Issue:     

Textile Sole Update
No change in status; the proposed draft interpretation is still in review and as far as we have been able to determine, there is no firm date for publication.  Very recent inquiries remain unanswered.  

Discount Ruling
The question of whether a discounted price represents statutory transaction value was addressed in HQ H197899 (September 26, 2012).  Without going into great detail about the convoluted nature of the discount agreements, suffice it to say that the parties agreed prior to importation that the importer would receive a maximum discount of 85 percent or a minimum discount of 65 percent.

At entry, the invoice showed a discount of 50 percent which was the result of an error in calculation.  The port disallowed the importer’s claim that the discount should have been 85 percent but did agree to a 50 percent discount.  The importer filed a protest.

Generally, Customs and Border Protection (“CBP”) looks at three criteria in determining whether a discount or price adjustment should be considered in calculating transaction value.  First, the discount must be agreed to in advance of importation.  The second requirement is that the importer must be able to furnish sufficient documentary evidence to support the existence of the discount and establish that it was agreed to prior to importation.  Finally, the importer must be able to establish that the discounted price adjustment was unconditional, or if conditional, all conditions were met prior to importation.

There is no question that the discount was agreed to by the parties prior to the date of importation as there are contracts dated prior to that date.  The various contracts and side letters were deemed sufficient to establish the nature and details of the discount arrangement.

The issue raised by the port was whether the discount was in fact a differed quantity discount, which cannot be determined at the time of importation.  The ruling points out that a quantity discount is issued to a customer who commits to purchasing a specified volume either initially or within a specified period of time.  The Headquarters Office indicated that the arrangement here was not a quantity discount.  Further, there were no conditions on the discount.  The only requirement was that the sale be made to customers in the United States.  Obviously, since the goods were imported the sale was to customers in the United States.
Under the circumstances, the Headquarters Office agreed that the full discount should be allowed and that the protest should be approved.

Liquidated Damanages                    
United States v. Millennium Lumber Distribution Co., 56, Op. 12-153 (December 18. 2012) involves a claim by CBP for liquidated damages.

The claims rise out of agreement with the United States and Canada which limits the importation of certain lumber products.  The agreement requires that the exporter/importer receive a permit from the Canadian government.  In this case, the importer did not supply permits because the lumber classified in the provision asserted the importer did not require a permit.  The parties agreed that the liquidated damage claims would be suspended pending a decision on the classification issue.  Ultimately, the classification issue was decided in favor of CBP which then pursued the liquidated damage claims when the importer was unable to obtain the permits.

Because the claims were running close to the expiration of the applicable statute of limitation for six years, CBP filed suit to collect the liquidated damages in the Court of International Trade.  The importer-defendant argued that the claims were premature as the administrative mitigation process had not been concluded and moved to dismiss the CBP’s claim.

The Court’s decision is based on two arguments.  The first is that mitigation proceedings are entirely voluntary – there is no legal obligation for CBP to mitigate and completing an administrative mitigation procedure is not a pre-condition of filing suit.  The second argument is a practical one.  The importer never filed a mitigation petition which would have commenced the administrative proceeding.  Further, CBP indicated that it would consider mitigation if the importers agreed to waive the statute of limitations.  The importer declined.  Given the circumstances, the Court denied the importer’s motion to dismiss the claim.  

CPSC Developments                     
There was one recall during December relating to textiles and apparel.  The recall involved denim jeans for infants and toddlers.  The snap on the front of the infant and toddler denim jeans may come loose and separate from the fabric, posing a choking hazard to young children.

The CPSC announced that a retailer had agreed to pay a civil penalty of $450,000.  The penalty was imposed on the basis of allegations that the retailer knowingly failed to report sales of children’s hooded jackets and sweatshirts with drawstrings through the hood.

False Claims Act                         
An ink importer will pay $45 million to settle a suit brought under the False Claims Act (the “Act”).  The suit claimed that the importer intentionally mislabeled the country of origin on shipments of paint pigments to avoid duties.  The suit alleged that the importer violated the Act by misrepresenting that shipments of pigments from India and China had come from Mexico and Japan.

Steep antidumping and countervailing duties apply to Indian and Chinese pigments, whereas those from Mexico and Japan are duty-free.  Falsifying the origin information allegedly allowed the importer to avoid the duties from April 2002 to March 2010.

According to the claim, the pigments underwent a minor finishing process in Mexico and Japan.  Presumably, the changes were insufficient to constitute a substantial transformation, resulting in a legitimate chance in origin.

Although the importer said that it had a longstanding commitment to compliance, it decided to settle to avoid the risk of litigation.

The case was initiated by a manufacturer of domestic pigments.  The Act allows individuals to bring whistleblower suits.  For filing the case, the domestic manufacturer will get $7.875 million of the settlement.

The Customs Overview is a newsletter of Customs legal, administrative and other developments affecting importers of textiles and wearing apparel prepared as a service for USA-ITA members and other interested parties.  Matters reported on or summarized herein should not be construed as legal advice on specific situations.