US Customs Reopens Comment Period on Change in Country of Origin Rules
Earlier this year, US Customs and Border Protection ("CBP") proposed a sweeping change in its required country of origin analysis. If implemented, this proposal would change the method that importers must use in determining the country of origin to declare for and mark on the vast majority of non-textile and non-NAFTA products imported into the United States. CBP's proposal would replace the long-standing "name, character and use" test for substantial transformation with certain "tariff shift" rules which vary by product. For details on the proposal and its impact, please see Steptoe's Customs Law Advisory, dated August 12, 2008, available at: http://www.steptoe.com/publications-5478.html.
CBP had requested that comments on this proposal be filed not later than October 23, 2008. However, in today's Federal Register, CBP published multiple revisions to the tariff shift rules. Accordingly, CBP has reopened (until December 1, 2008) the time for comments on the proposed switch to a tariff shift analysis for most imports. For every importer that relies on a substantial transformation analysis to determine the country declared for or marked on its goods, this reopening provides another opportunity to review the tariff shift rules, determine the impact of the proposal, and file comments before the proposal takes effect.
CBP's corrections to the tariff shift rules are available at: http://edocket.access.gpo.gov/2008/pdf/E8-25734.pdf.
CBP's notice extending the comment period is available at: http://edocket.access.gpo.gov/2008/pdf/E8-25731.pdf.
Appeals Court Decisions Confirm that Importers Must File Protests After Liquidation, But Before the Deadline, to Correct Almost Any US Customs Decisions
Recent decisions by the U.S. Court of Appeals for the Federal Circuit ("CAFC") confirm that all importers should have some system in place for monitoring the protest deadline of 180 days after liquidation in order to correct the treatment of any entry by US Customs and Border Protection ("CBP"). If no protest is filed within 180 days after liquidation, the opportunity for a refund on that entry may be lost. This principle is so strong in US law that the CAFC found it to apply even when the reason for the possible protest was not knowable until after the deadline had passed.
In two cases both named Volkswagen of America, Inc. v. United States, the CAFC found that Volkswagen ("VW") failed to file timely protests on entries of automobiles imported and sold in the United States in 1994 and 1995. VW sold these cars with warranties given to US customers. Under these warranties, VW made some repairs to the cars both before and after liquidation of the original entries. In light of these repairs, VW sought to revise the entered value of the cars, since they then knew that these cars had been partially defective at entry.
The cases found that a timely protest was the only method by which VW could attempt to change the value of the goods. Unless the importer makes a timely filing and describes with some specificity the issue being protested, CBP's decision at liquidation will stand and the courts will not have jurisdiction to hear any appeal. While there are a few other procedures available to convince the court that it has jurisdiction over an appeal from a US Customs decision, the importer generally must prove that protest could not have applied.
One of the judges wrote a separate opinion explaining that even though the latent defects were not discoverable until after the protest deadline, and even though the costs of the repairs reduced the actual amount VW received on their sale, VW must pay duties based on the full value of the automobiles at importation. The judge noted that this may seem harsh but it is required by the protest law written by Congress and any change in the system may not be made by the courts.
Two important points emerge from these VW cases. First, any importer that believes it has or may have merchandise that is damaged during shipment, and would seek to adjust the value to reduce duty liability, must have a procedure in place to document the damage at the time of importation and bring it promptly to CBP's attention. Second, any importer that may seek a refund of duties paid must keep a close eye on the date of liquidation for each entry and start counting 180 days from that date. If protests cannot be filed within the deadline, then the importer should consider restructuring the sale transaction so that the cost of the damage can be captured in the original sale price or a different method of value calculation.
Please note, due to a 2004 change in the law, for any entries made before December 18, 2004 a protest must be filed within 90 days after liquidation. For entries made on or after that date, any protest is due 180 days after liquidation.