November, 2015
CBP —That’s our story…and we’re sticking to it
Mark K. Neville, Jr.
We can all relate to decisions that we have made which we subsequently discover were wrong, and sometimes completely wrong. We all make mistakes, that’s for sure, but wisdom lies in learning from our mistakes, and we can turn those mistakes into character-building exercises if we promptly admit that we were wrong and take appropriate corrective action.
It’s those latter two points that can be especially hard and, instead of doing the right thing, we sometimes make a further emotional investment in our decision, erroneous as it may be. Sometimes we make that emotional investment up front and then “double down” even when it is obvious to all that we were wrong.
All of this applies with vigor to Customs and Border Protection, indeed to all human endeavors. This is one of the lessons of two decisions of the Court of International Trade, LDA Incorporado v. United States.1 There, an importer was forced to take its case to court because CBP was adamant in the face of overwhelming evidence that they were 110% wrong. CBP decided that the importer’s products were within the scope of an antidumping order and, thus, subject to the collection of special antidumping duties. As will be seen, the importer first had to fight to stay in court, the government arguing that the CIT did not have subject-matter jurisdiction over the dispute. That government position is understandable, given the nice legal distinctions that the courts have made in this area, but what is completely inexplicable is that when the issue went forward for a review on the merits, the government still refused to stand down and acknowledge that they had gotten it completely wrong, requiring the importer to proceed and to submit the issue to the court for resolution. The recitation of facts will demonstrate how completely unreasonable the government’s position was.
The formulation of the scope of the orders is the province of the Department of Commerce. While published scopes will contain references to tariff items from the Harmonized Tariff Schedule of the United States (HTSUS), those referents are a convenience only and not controlling. What are controlling are the narrative descriptions,2 both for those articles that are within scope and for those articles which are specifically excluded.3 Note that one reason for Commerce to define the exclusions is to avoid the necessity of having to field numerous scope inquiries from importers. Another reason is that the petitioners had their own commercial reasons to specifically exclude certain articles in their petition.
Beyond those “bright line” distinctions it is sometimes necessary to analyze closely whether an imported article is within scope. An importer whose product falls outside the operative definition of the in-scope product, even if Commerce has either not drafted a specific exclusion or if the product does not fall within one of the stated specific exclusions, may feel confident that it falls outside the scope. To be clear, a product is presumed not to fall within scope either if it is specifically excluded or if it can be shown that it does not fall within the text defining those articles to be included.
Once these determinations are made by Commerce, CBP is then charged with the task of collecting cash deposits of the applicable antidumping duty on the in-scope articles.
If CBP is simply following the Commerce directions and applying the scope, then its task is ministerial only. CBP’s ministerial acts here are not protestable4 and, if they are not protestable, then the importer cannot challenge obtain a CIT review of that denied protest. However, that does not mean that the importer cannot get judicial relief. In such a case, where there is a question about the scope itself, the importer will be able to request a scope ruling from Commerce and then have the scope ruling reviewed if he files at the CIT within 30 days of its date of mailing.5 What that means is that an importer who has a question whether a product he intends to import would be considered by Commerce as falling within the scope of an order has only one direct route to court review—asking for and obtaining a scope order from Commerce and then taking the issue to the CIT within 30 days. An importer who does not follow that route, and instead opts to challenge not the Commerce scope decision but a CBP assessment of antidumping duty upon an entry of that article, cannot effectively file a protest with CBP and thereafter seek judicial review of the denied protest.
By contrast, if CBP were to make a determination that a given imported article fell within the scope of an Order, however, that determination is a protestable event.6 The appellate court sharply limited the 1998 Sandvik decision in the 2002 Xerox decision,7 noting that Sandvik’s reasoning only applies to cases where the scope of the order is in question, not where Customs has mistakenly applied that order. Where the importer’s goods “[were] facially outside the scope of the antidumping duty order,” the Xerox court reasoned,
In LDA I, the importer claimed that the scope of those Orders was clear and Customs made a mistake in assessing antidumping and countervailing duties on its merchandise. The importer made an entry of galvanized steel pipe. The importer’s merchandise was both internally and externally coated with zinc, a conductive material, i.e., it was galvanized, but was not internally coated with a non-conducting liner (such as rubber or plastic). Therefore, the interior of Plaintiff’s electrical conduits would conduct electricity. Importantly, the merchandise was compliant with Underwriters Laboratories Inc. (“UL”) standard UL-6 and American National Standard Institute (“ANSI”) standard ANSI C80.1-2005 for “electrical rigid metal conduit steel,” and was labeled with the UL-6 mark at the time of entry.
The crux of the matter is over the definition of what is a “finished” electrical conduit. Here, the UL-6 and ANSI C80.1-2005 standards do not require an internal coating with a non-conducting liner (such as rubber or plastic) in order for rigid electrical conduit to be considered “finished.”
We have already recognized that the meaning of terms for the scope of an Order is not defined necessarily by tariff classification terms. Scope is determined on the basis of the product descriptions, as here, “finished electrical conduit.” Presumably those product descriptions have some innate connection to the plain meanings of the terms and/or to their commercial meanings.9
CBP had the pipe analyzed by one of its labs. It was extraordinary for the CBP lab to conclude that the imported pipe was not specifically excluded and was in fact unfinished conduit and was not suitable for electrical use because it was not internally coated with a non-conducting liner.10 (This is where I remind you this is in the face of the industry standards which do not so require any internal coating.)
It was just as extraordinary that the import specialists and other CBP officials did not assign the lab’s conclusion to its proper place, i.e., the special dustbin reserved for determinations made on the basis of irrelevant factors.
CBP issued a CF 29 Notice of Action11 in January 2011 that the pipe was subject to antidumping duties. Attempts to convince CBP that the goods were specifically excluded from the scope of the Orders were unavailing, and CBP Headquarters advised the importer to seek a Commerce Department scope ruling. The importer did not seek a Commerce ruling until after CBP liquidated the entry.
Alright, we can understand those motivations, but what is really curious is why CBP continued down the same path after it lost on its jurisdictional challenge. That LDA I decision was issued on May 13, 2014. The action had to be pursued by the plaintiff importer until a decision on the merits was issued by the CIT in LDA II on June 13, 2015—over 13 months later.
After all, CBP’s position was at odds with the industry standards and, even more, it was in direct confrontation with the position of Commerce. If CBP were truly acting as a mere agent for Commerce, following and applying its instructions, then how can CBP explain its opposition to those instructions as embodied in the scope ruling which excluded the imported pipe? It smacks of CBP substituting its judgment for that of the agency entrusted by Congress with the plenary authority in these trade remedy cases, doesn’t it? Going back to our opening lines, it looks like a stubborn investment in a faulty decision. And while we are at it, where was the Department of Justice in all of this? Their client is not CBP, nor even the US government. The DOJ represents the United States, as my boss Andy Vance often reminded me and my fellow trial attorneys. And that brings us to LDA II. The first truly curious feature of this case is that it was decided on the basis of a “Joint Stipulation of Undisputed Facts and Proposed Conclusions of Law.” I know it’s been awhile since I practiced full-time as a litigator before the CIT, but I cannot recall ever seeing a case decided on such a basis, as opposed to a dispositive motion, such as a motion for summary judgment after the parties have reached a stipulation of material facts.
The LDA II decision serves as a very valuable guide, again clarifying the differences in the statutory schemes for review in these scope cases that was originally set forth in LDA I. What is perplexing is the fact that the government apparently did not contest at the CIT that the imported pipe was finished electrical conduit.
The LDA II court observed (Slip Op at 19-22) that the government’s argument that the scope of the order was ambiguous pointed to a problem for CBP, as it would have necessitated CBP making a scope determination and displacing Commerce’s authority. Of particular interest is the commentary (at note 12) of the gap in the administrative process such that there is no direct vehicle for CBP to seek a clarification from Commerce on scope questions. At the present time, only importers and other interested parties but not CBP can request a scope determination from Commerce,14 and the court rightly notes that sometimes (as here, initially) the importer does not make such a request. This thoughtful observation prompts the question, if the court cannot decide if an imported article is within scope because it has an open question, can the court either remand to CBP to seek a scope determination from Commerce or direct the importer to seek a scope ruling from Commerce? In the case of CBP, that would necessarily be an informal process in the absence of an administrative provision.
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It’s those latter two points that can be especially hard and, instead of doing the right thing, we sometimes make a further emotional investment in our decision, erroneous as it may be. Sometimes we make that emotional investment up front and then “double down” even when it is obvious to all that we were wrong.
All of this applies with vigor to Customs and Border Protection, indeed to all human endeavors. This is one of the lessons of two decisions of the Court of International Trade, LDA Incorporado v. United States.1 There, an importer was forced to take its case to court because CBP was adamant in the face of overwhelming evidence that they were 110% wrong. CBP decided that the importer’s products were within the scope of an antidumping order and, thus, subject to the collection of special antidumping duties. As will be seen, the importer first had to fight to stay in court, the government arguing that the CIT did not have subject-matter jurisdiction over the dispute. That government position is understandable, given the nice legal distinctions that the courts have made in this area, but what is completely inexplicable is that when the issue went forward for a review on the merits, the government still refused to stand down and acknowledge that they had gotten it completely wrong, requiring the importer to proceed and to submit the issue to the court for resolution. The recitation of facts will demonstrate how completely unreasonable the government’s position was.
Scope of Antidumping Orders
The first of the two cases dealt with the scope of antidumping orders and the relative roles of the Department of Commerce and of CBP in assessing antidumping orders on imported goods.The formulation of the scope of the orders is the province of the Department of Commerce. While published scopes will contain references to tariff items from the Harmonized Tariff Schedule of the United States (HTSUS), those referents are a convenience only and not controlling. What are controlling are the narrative descriptions,2 both for those articles that are within scope and for those articles which are specifically excluded.3 Note that one reason for Commerce to define the exclusions is to avoid the necessity of having to field numerous scope inquiries from importers. Another reason is that the petitioners had their own commercial reasons to specifically exclude certain articles in their petition.
Beyond those “bright line” distinctions it is sometimes necessary to analyze closely whether an imported article is within scope. An importer whose product falls outside the operative definition of the in-scope product, even if Commerce has either not drafted a specific exclusion or if the product does not fall within one of the stated specific exclusions, may feel confident that it falls outside the scope. To be clear, a product is presumed not to fall within scope either if it is specifically excluded or if it can be shown that it does not fall within the text defining those articles to be included.
Once these determinations are made by Commerce, CBP is then charged with the task of collecting cash deposits of the applicable antidumping duty on the in-scope articles.
CBP role
Here is where the legal analysis calls for close attention.If CBP is simply following the Commerce directions and applying the scope, then its task is ministerial only. CBP’s ministerial acts here are not protestable4 and, if they are not protestable, then the importer cannot challenge obtain a CIT review of that denied protest. However, that does not mean that the importer cannot get judicial relief. In such a case, where there is a question about the scope itself, the importer will be able to request a scope ruling from Commerce and then have the scope ruling reviewed if he files at the CIT within 30 days of its date of mailing.5 What that means is that an importer who has a question whether a product he intends to import would be considered by Commerce as falling within the scope of an order has only one direct route to court review—asking for and obtaining a scope order from Commerce and then taking the issue to the CIT within 30 days. An importer who does not follow that route, and instead opts to challenge not the Commerce scope decision but a CBP assessment of antidumping duty upon an entry of that article, cannot effectively file a protest with CBP and thereafter seek judicial review of the denied protest.
By contrast, if CBP were to make a determination that a given imported article fell within the scope of an Order, however, that determination is a protestable event.6 The appellate court sharply limited the 1998 Sandvik decision in the 2002 Xerox decision,7 noting that Sandvik’s reasoning only applies to cases where the scope of the order is in question, not where Customs has mistakenly applied that order. Where the importer’s goods “[were] facially outside the scope of the antidumping duty order,” the Xerox court reasoned,
correcting such a ministerial, factual error of Customs is not the province of Commerce. Instead an importer may file a protest with Customs. In cases such as this, where the scope of the antidumping duty order is unambiguous and undisputed, and the goods clearly do not fall within the scope of the order, misapplication of the order by Customs is properly the subject of a protest under 19 U.S.C. § 1514(a)(2).8
The judge in LDA I admirably summed up the distinctionWhere the determination at issue is one made by Commerce pursuant to § 1516a(a)(2)(B)(vi), no protest is available. Where, as in Xerox, the determination is a factual application of the scope of an order by Customs, a protest is available. The decision required in Sandvik was one for Commerce, i.e., defining the class or kind of merchandise in the Order. The crux of the complaint in Xerox was that Customs made a mistake of fact when it found the goods at issue to be within the scope of the order.
As a result, CIT denied the government’s motion to dismiss in LDA I, which meant that the importer could proceed—if the government refused to back down.LDA’s importation
The background for the LDA cases was a 2008 Commerce issuance of an Antidumping Order as well as a Countervailing Duty Order on Circular Welded Carbon Quality Steel Pipe from the People's Republic of China. The Orders specifically excluded “finished electrical conduit” from the scope of the Orders.In LDA I, the importer claimed that the scope of those Orders was clear and Customs made a mistake in assessing antidumping and countervailing duties on its merchandise. The importer made an entry of galvanized steel pipe. The importer’s merchandise was both internally and externally coated with zinc, a conductive material, i.e., it was galvanized, but was not internally coated with a non-conducting liner (such as rubber or plastic). Therefore, the interior of Plaintiff’s electrical conduits would conduct electricity. Importantly, the merchandise was compliant with Underwriters Laboratories Inc. (“UL”) standard UL-6 and American National Standard Institute (“ANSI”) standard ANSI C80.1-2005 for “electrical rigid metal conduit steel,” and was labeled with the UL-6 mark at the time of entry.
The crux of the matter is over the definition of what is a “finished” electrical conduit. Here, the UL-6 and ANSI C80.1-2005 standards do not require an internal coating with a non-conducting liner (such as rubber or plastic) in order for rigid electrical conduit to be considered “finished.”
We have already recognized that the meaning of terms for the scope of an Order is not defined necessarily by tariff classification terms. Scope is determined on the basis of the product descriptions, as here, “finished electrical conduit.” Presumably those product descriptions have some innate connection to the plain meanings of the terms and/or to their commercial meanings.9
CBP had the pipe analyzed by one of its labs. It was extraordinary for the CBP lab to conclude that the imported pipe was not specifically excluded and was in fact unfinished conduit and was not suitable for electrical use because it was not internally coated with a non-conducting liner.10 (This is where I remind you this is in the face of the industry standards which do not so require any internal coating.)
It was just as extraordinary that the import specialists and other CBP officials did not assign the lab’s conclusion to its proper place, i.e., the special dustbin reserved for determinations made on the basis of irrelevant factors.
CBP issued a CF 29 Notice of Action11 in January 2011 that the pipe was subject to antidumping duties. Attempts to convince CBP that the goods were specifically excluded from the scope of the Orders were unavailing, and CBP Headquarters advised the importer to seek a Commerce Department scope ruling. The importer did not seek a Commerce ruling until after CBP liquidated the entry.
The timing of these latter stages of the administrative process is interesting
April, 2011 CBP forwarded the matter to CBP Headquarters (presumably in an Internal Advice request); CBP advised Plaintiff to obtain a scope ruling from Commerce
January 27, 2012, CBP liquidated entry
February 22, 2012, Plaintiff filed an expedited scope inquiry with Commerce.
April 26, 2012 Plaintiff filed a timely protest of the entry, which advised CBP that a scope ruling was pending at Commerce12
May 12, 2012 CBP denied protest
July 2, 2012, Commerce issued its scope ruling,13 finding that the merchandise was finished electrical conduit and therefore excluded from the scope of the Orders—the CBP position on internal coating being a requirement was specifically rejected.
Alright, we can understand those motivations, but what is really curious is why CBP continued down the same path after it lost on its jurisdictional challenge. That LDA I decision was issued on May 13, 2014. The action had to be pursued by the plaintiff importer until a decision on the merits was issued by the CIT in LDA II on June 13, 2015—over 13 months later.
After all, CBP’s position was at odds with the industry standards and, even more, it was in direct confrontation with the position of Commerce. If CBP were truly acting as a mere agent for Commerce, following and applying its instructions, then how can CBP explain its opposition to those instructions as embodied in the scope ruling which excluded the imported pipe? It smacks of CBP substituting its judgment for that of the agency entrusted by Congress with the plenary authority in these trade remedy cases, doesn’t it? Going back to our opening lines, it looks like a stubborn investment in a faulty decision. And while we are at it, where was the Department of Justice in all of this? Their client is not CBP, nor even the US government. The DOJ represents the United States, as my boss Andy Vance often reminded me and my fellow trial attorneys. And that brings us to LDA II. The first truly curious feature of this case is that it was decided on the basis of a “Joint Stipulation of Undisputed Facts and Proposed Conclusions of Law.” I know it’s been awhile since I practiced full-time as a litigator before the CIT, but I cannot recall ever seeing a case decided on such a basis, as opposed to a dispositive motion, such as a motion for summary judgment after the parties have reached a stipulation of material facts.
The LDA II decision serves as a very valuable guide, again clarifying the differences in the statutory schemes for review in these scope cases that was originally set forth in LDA I. What is perplexing is the fact that the government apparently did not contest at the CIT that the imported pipe was finished electrical conduit.
The LDA II court observed (Slip Op at 19-22) that the government’s argument that the scope of the order was ambiguous pointed to a problem for CBP, as it would have necessitated CBP making a scope determination and displacing Commerce’s authority. Of particular interest is the commentary (at note 12) of the gap in the administrative process such that there is no direct vehicle for CBP to seek a clarification from Commerce on scope questions. At the present time, only importers and other interested parties but not CBP can request a scope determination from Commerce,14 and the court rightly notes that sometimes (as here, initially) the importer does not make such a request. This thoughtful observation prompts the question, if the court cannot decide if an imported article is within scope because it has an open question, can the court either remand to CBP to seek a scope determination from Commerce or direct the importer to seek a scope ruling from Commerce? In the case of CBP, that would necessarily be an informal process in the absence of an administrative provision.
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1. Slip Op. 15-64 (CIT 2015) (LDA II), Id. v. Id., 978 F.Supp. 2d 1359 (CIT 2014) (LDA I).
2. The Commerce orders will typically recite that, “the product description, and not the [HTSUS] . . . classification, is dispositive of whether merchandise imported into the United States falls within the scope of the order.”
3. As an example, the scope definition for the Wooden Bedroom Furniture from China includes such specifically identified articles as wooden beds, bed headboards, night tables and chests of drawers that are identified with use almost exclusively in a bedroom setting. Excluded items include such specific items as upholstered beds, furniture in which bentwood parts predominate and toy chests. These items may be further defined, as in the case of “upholstered beds”: Upholstered beds that are completely upholstered, i.e., containing filling material and completely covered in sewn genuine leather, synthetic leather, or natural or synthetic decorative fabric. To be excluded, the entire bed (headboards, footboards and siderails) must be upholstered except for bed feet….
4. 19 USC § 1514 (b). See Sandvik v. United States, 164 F.3d 596, 598 (Fed. Cir 1998) (Sandvik) and other cases cited in LDA (I).
5. 19 USC §§ 516a (a) (2) (A) (ii) and (B) (vi).
6. 19 USC § 1514 (a) (2) (challenges to determinations of the classification and rate and amount of duties chargeable).
7. Xerox Corp. v. United States, 289 F.3d 792 (Fed. Cir. 2002).
8. Xerox, 289 F.3d at 795, cited in LDA I.
9. For anyone with a background in tariff classification, one of the key axioms is that terms of tariff classification follow, and in fact are synonymous with, the commercial meaning of those terms.
10. Initially the lab had mistakenly concluded that the pipe had not been internally galvanized but they later accepted that fact.
11. The notice ominously recited that, “Be advised that you must exercise reasonable care when you are reviewing and classifying products which are subject to antidumping duties.” This subtle—or not—remark referred to an importer’s compliance obligations under 19 USC §1484 to show it had taken reasonable care.” A failure to do so could lead to a civil penalty under Section 592, 19 USC §1592.
12. The timing suggests that the importer made a tactical mistake here, inasmuch as it had 180 days from the date of liquidation (January 27) within which to file its protest, i.e., until July 25. If the importer had waited, it would have been able to file the protest with the benefit of the July 2 Commerce Scope ruling (as well as the earlier May 21 All Tools scope determination; see n. 13). The importer would have had no way of knowing that CBP would quite probably have ignored the effect of those Commerce Department scope determinations.
13. The LDA II court pointed out that Commerce also issued a scope ruling to another importer, All Tools, and clarified “finished electrical conduit” to All Tools on May 21, 2012.
14. See 19 CFR § 351.225.
2. The Commerce orders will typically recite that, “the product description, and not the [HTSUS] . . . classification, is dispositive of whether merchandise imported into the United States falls within the scope of the order.”
3. As an example, the scope definition for the Wooden Bedroom Furniture from China includes such specifically identified articles as wooden beds, bed headboards, night tables and chests of drawers that are identified with use almost exclusively in a bedroom setting. Excluded items include such specific items as upholstered beds, furniture in which bentwood parts predominate and toy chests. These items may be further defined, as in the case of “upholstered beds”: Upholstered beds that are completely upholstered, i.e., containing filling material and completely covered in sewn genuine leather, synthetic leather, or natural or synthetic decorative fabric. To be excluded, the entire bed (headboards, footboards and siderails) must be upholstered except for bed feet….
4. 19 USC § 1514 (b). See Sandvik v. United States, 164 F.3d 596, 598 (Fed. Cir 1998) (Sandvik) and other cases cited in LDA (I).
5. 19 USC §§ 516a (a) (2) (A) (ii) and (B) (vi).
6. 19 USC § 1514 (a) (2) (challenges to determinations of the classification and rate and amount of duties chargeable).
7. Xerox Corp. v. United States, 289 F.3d 792 (Fed. Cir. 2002).
8. Xerox, 289 F.3d at 795, cited in LDA I.
9. For anyone with a background in tariff classification, one of the key axioms is that terms of tariff classification follow, and in fact are synonymous with, the commercial meaning of those terms.
10. Initially the lab had mistakenly concluded that the pipe had not been internally galvanized but they later accepted that fact.
11. The notice ominously recited that, “Be advised that you must exercise reasonable care when you are reviewing and classifying products which are subject to antidumping duties.” This subtle—or not—remark referred to an importer’s compliance obligations under 19 USC §1484 to show it had taken reasonable care.” A failure to do so could lead to a civil penalty under Section 592, 19 USC §1592.
12. The timing suggests that the importer made a tactical mistake here, inasmuch as it had 180 days from the date of liquidation (January 27) within which to file its protest, i.e., until July 25. If the importer had waited, it would have been able to file the protest with the benefit of the July 2 Commerce Scope ruling (as well as the earlier May 21 All Tools scope determination; see n. 13). The importer would have had no way of knowing that CBP would quite probably have ignored the effect of those Commerce Department scope determinations.
13. The LDA II court pointed out that Commerce also issued a scope ruling to another importer, All Tools, and clarified “finished electrical conduit” to All Tools on May 21, 2012.
14. See 19 CFR § 351.225.
Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is a long-time member of the Board of Advisors. He is Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. He is The Journal’s Customs & Trade correspondent.