Claims for duty-free treatment under the Free Trade Agreements

Mark K. Neville, Jr.

One of the most salient features of the international trade landscape as it has been shaped over the past several decades has been the proliferation of free trade agreements (FTAs). In the case of the United States corner of that landscape, we are looking at approximately twenty such FTAs. We have written about various aspects of the FTAs in earlier articles¹ and I have presented a more comprehensive review in a chapter in my treatise.² The natural progression for a discussion on FTAs, at least when one is advising traders/economic operators, is too proceed from the text of the FTA to the domestic implementing legislation and administrative regulations to the actual practice by the customs authorities charged with administering the customs laws. Traders/economic operators live and work in this last, real-world level, so it is clearly essential that they understand those real world norms. It may be interesting for those clients to understand the treaty and the statutes and regulations texts, but if there is no grasp of the actual practice, then the discussion can remain merely an interesting free-floating philosophical exercise.

The present discussion is decidedly focused on the last stop in the analysis, on the actual practice of claiming a benefit under certain of the US FTAs. While we benefit from the transparency of the US system, in which there is an abundant supply of administrative rulings to accompany the statutory and regulations texts, perhaps a similar analysis might be appropriate for other jurisdictions, mutatis mutandis.

The model is that of the North American Free Trade Agreement (NAFTA), and its approach of allowing claims to be filed up to one year from the date of importation has been applied to six other FTAs as well.³

For ease of reference, we shall refer to NAFTA throughout, with the understanding that the statutory and administrative template likewise applies to these other FTAs.

Preference Under the NAFTA

The NAFTA, which came into force on December 8, 1993, with the passage of the NAFTA Implementation Act,⁴ establishes a free trade zone on the North American continent for qualifying goods whose origin is one of the NAFTA signatory countries: the United States, Canada or Mexico.

As has been determined by the Court of Appeals for the Federal Circuit,⁵ an importer’s right to preferential tariff treatment for goods qualifying under NAFTA rules of origin does not automatically vest upon entry. An importer seeking preferential treatment is instead required to make a written declaration that the goods qualify for NAFTA treatment, as is set forth in Article 501 (1) of NAFTA and implemented at 19 CFR § 181.21 (a). The importer must base the declaration on a properly executed NAFTA Certificate of Origin (COO) that covers the good being imported.⁶

Importantly, the NAFTA provides that the declaration and the COO need not be provided at the time of entry. Article 502 (3) of the NAFTA specifies that

Each Party shall provide that, where a good would have qualified as an originating good when it was imported into the territory of that Part, but no claim for preferential treatment was made at that time, the importer of the good may, no later than one year after the date on which the good was imported, apply for a refund of any excess duties paid as the result of the good not having been accorded preferential treatment …

Congress implemented this one-year, post-entry claim procedure by promulgating the petition made available through section 1520 (d),⁷ as a result of which an importer may, within one year after the date of importation (note: this is not the date of entry), file a claim that the good qualifies for NAFTA.⁸ The statute directs that a valid claim must be comprised of the following documents

a written declaration that the good qualified under the rules at the time of importation
copies of all NAFTA COOs
such other documentation relating to the importation of the goods as the Customs Service⁹ may require

The Customs and Border Protection (CBP) implementing regulations¹⁰ follow this language and expand upon the “such other documentation” point by requiring specific certifications from the importer. The documentary requirements and the additional importer certifications required en toto for a valid section 1520 (d) claim are as follows:¹¹

(b) Contents of claim. A post-importation claim for a refund shall be filed by presentation of the following
(1) A written declaration stating that the good qualified as an originating good at the time of importation and setting forth the number and date of the entry covering the good
(2) …a copy of each Certificate of Origin
(3) A written statement indicating whether or not the importer of the good provided a copy of the entry summary or other equivalent documentation to any other person…
(4) A written statement indicating whether or not the importer of the good is aware of any claim for refund, waiver or reduction of duties relating to the good…
(5) A written statement indicating whether or not any person has filed a protest or a petition or request for reliquidation relating to the good under any provision of law…

Presumably those importer statements required by subsections 181.32 (b) (3)- (5) of the regulations were anticipated by the general reference to “such other documentation” in the NAFTA itself and in the statute. Importantly, no other documents than the declaration of eligibility and the COO are specifically required by the NAFTA, the statute or the regulations. In this connection, we emphasize that there is no specific requirement in either the statute or the regulations to file entry documents to make out a valid section 1520 (d) claim.

CBP has issued directive 3550-70 (June 2001) (NAFTA Directive) which sets forth administrative procedures for Filing and Processing Claims Under the North American Free Trade Agreement (NAFTA). The NAFTA Directive indicates that the one-year clock begins on the day after the date of importation:

5.4 Post-Importation Claims. An importer may file a claim for NAFTA preferential tariff treatment for originating goods after the entry summary is filed but no later than 1 year from the date of importation (see 19 CFR 181.31). Note: The clock for the 1 year period starts on the day following the date of importation….(emphasis added).

The one year clock begins on the day following the earliest entries. Let us suppose an import date of February 26, 2014. The clock began to run on February 27, 2014. Accordingly, any claim filed on or before the February 27, 2015 would have been timely. Importantly, too, the NAFTA Directive foresees that entries will have been made on an electronic filing and paperless basis, because it notes that

5.5.4 Procedures to be followed for Electronic Invoice Processing (EIP) and EIP paperless. The procedures in the Protest/Petition Handbook shall be followed for EIP and EIP paperless entries.

The reference is to the Protest/Petition Processing Handbook, HB 3500-08 (Handbook or HB 3500-08) which establishes a reasonable protocol for the circumstances in which an importer may be asked to furnish hard copies of entry documents. Point 6(b) of HB 3500-08 notes that the importer must be asked to furnish a hard copy of the entry documents within 30 days of the filing of the protest/petition or the end of the relevant period, whichever is longer. The Handbook goes on to state that if the importer fails to provide the requested documentation within thirty days then the protest/petition shall be processed “as is” and that, if in that “as is” condition the information is inadequate, the protest/petition may be denied, and the protest/petition should be clearly marked “protest denied based on insufficient evidence.”

It is very important to note that the statute requires for a valid section 1520 (d) claim that the importer must furnish a COO with the filing or within the one-year period. Against the background of this explicit requirement, however, the NAFTA Directive anticipates that a defective COO might be filed. The importer is given an opportunity to file a corrected COO, and the petition is not automatically denied:

5.8 Denial of a Claim….Note: In instances where the Certificate of Origin (CO) is not signed and dated, or is otherwise defective on its face, it is not valid. Under such circumstances the Import Specialist shall notify the importer via a Customs Form 28¹² to submit a corrected copy of the CO or the claim for preferential tariff treatment will be denied. The importer must be given at least 5 working days from the date of mailing to submit a corrected CO.

As a result of the trade court decisions in Xerox and Corrpro,¹³ the state of the law is clear. If an importer fails to make a claim for NAFTA eligibility at the time of entry, the importer’s only option to gain the NAFTA treatment for the importation is to file a valid section 1520 (d) petition.

Section 1520 (d) Petitions Must be Complete, Timely Filed and Valid

The criteria for the validity of a section 1520 (d) petition are set forth in the statute and regulations, as noted above. The criterion of the timeliness of the filing here is what we should have grown to expect about filing deadlines for other customs events. That is to say that these are statutory deadlines, the missing of which will spell disaster for the importer.

The port reviewed the claim on the grounds set forth in 19 CFR § 181.33 (d)—whether the importer complied with the requirements of the regulations, whether the COO is valid, whether the claim was timely and could have conducted an origin verification. Sometimes there will be crossover of these factors.

Quaere, what happens if importer files a claim within its allotted 1-year period but the port requests additional documents—does the date of filing get changed to that later date on which the documents are received by the port? The following discussion was prompted by determinations taken by CBP at one of the ports of entry.
There is No Statutory Requirement to file Paper Copies of the Entries or other Documentation With the Section 1520 (d) Petition

The legal requirements for a valid section 1520 (d) petition are as set forth in section 181.32 (b) of the regulations. Clearly, if a petition as filed does not contain all of these elements, then it is neither valid nor timely filed. If a missing but necessary element is furnished later, then that date can be taken as the filing date. Even here, however, we have seen that the importer is given an opportunity to correct a defective COO by the NAFTA Directive, presumably without affecting the date of filing.

The fact that CBP, in its review of a section 1520 (d) petition, may request a document or further information cannot mean that importer could have or should have specifically anticipated CBP’s specific request beyond those which the statute and regulations prescribe.

We are confident that there is no legal authority to fault the importer for not having filed the additional documents ab initio.

There is no reasonable way for the importer to have anticipated a request for some of the documents it may be asked to furnish to CBP. Indeed, the only documents requested by the port whose request could reasonably be anticipated by the importer within the scope of “such other documentation” as may be required by CBP are the paper copies of the entry packs. Here, for the entry documents, the NAFTA Directive and the Handbook, taken together, set the statute and administrative practice for EIP.

In the scheme of the petition, and administrative practice in the context of protests and petitions, the case where an importer prepares and sends the documents promptly will be totally distinguishable from those instances where CBP has felt justified in denying NAFTA claims in the face of either (i) an incomplete petition as originally filed or (ii) stony silence or inexcusable delays in response by the importer.
CBP Cannot Re-date the Filing Date of the Petition

What if the port views the petition as not having been complete until the requested documents were received? From the perspective of the port, the petition was not complete and was not effectively filed until all the supporting documentation was received by the port.

In the port’s reasoning, this might justify revising the filing date of the petition. But there is no authority for such an action.

To be clear, the port would have been entirely justified if the petition as originally filed were missing documents that were required by law to comprise a complete filing. This is the lesson of those rulings which have determined that the failure of an importer to file a COO or to make all of the required certifications at the time of filing of the section 1520 (d) was fatal. See ruling no. 961256 (5/25/96) (failure to file written certifications rendered the petition invalid). Clearly, without such a statement, the petition was not complete at the time of filing and was only complete when the statement was furnished to the port.

We might also look to ruling no. 229426 (8/29/02), in which a section 1520 (d) was denied as untimely. Importantly, the petition which was the subject of the ruling was filed without the statutory certification required by section 181.32 (b) (3), that a copy of the entry summary had not been provided to another person. Thus, because it failed to contain the required certification as originally filed, it was not valid until the certification was provided. The certification was provided one year and five days after the date of importation.

But that result, while warranted in ruling no. 229426 because the importer had failed to make a statement which was mandated by the regulatory scheme, should not be applied to a case where entry papers are not filed with the claim. The validity or completeness of the petition is not dependent, as governed by the statute or regulations, on the presence of the entry papers. Any petition so filed would be complete and fully valid as of the date of its original filing.
CBP’s Request for Paper Copies of Entries Does not re-start the Clock on Protests or Petitions

The lesson of the administrative practice is that the proper way to dispose of a valid claim, complete at filing, for which the requested supplemental documentation has not been made available to CBP is not to deny the claim as not having been complete at the date of original filing but rather, where warranted, to deny the claim as unsupported. We are not aware of a single instance, whether in the decisional law or in ruling practice, much less in the statutory and regulatory scheme, in which CBP has ever revised the filing date of a protest or petition to reflect the receipt of a requested additional document or information the original filing of which is not mandated by the statute and regulations. The clock is not re-started whenever CBP asks a question or requests more documentation. Were it otherwise, CBP would invalidate importer’s claims merely by making a request for additional information after the statutory period for filing the claim has passed. This would be an absurd state.

The administrative practice referred to in the Handbook sets forth an eminently reasonable approach to the need to regulate the procedures for filing of NAFTA eligibility claims. Consistent with the 30-day period pertaining to the submission to CBP of requested documents or information needed for verification by CBP,¹⁴ the Handbook looks to a 30-day period for requested documents to be furnished in support of a protest or petition.

Failure to provide the documents or information subjects the importer to a possible denial of its claim. By the same token, CBP cannot act in an arbitrary and capricious manner and deny claims without authority. This equilibrium shows the inherent balance of the customs laws governing the rights and responsibilities of the trade and CBP. Clearly, the importer cannot file an unsupported claim, nor can the importer “stonewall” and expect to have its claim remain alive. This is the lesson of several Headquarters rulings.

Headquarters Rulings Instruct that Importers who fail to Provide Requested Supplemental Documents Risk Denial of Claims

There have been many circumstances in which Headquarters has issued rulings in which importers who have failed to provide requested documents and other supplemental information have faced denials of protests or petitions which were complete and valid at filing. As the facts of those rulings will demonstrate, CBP is fully justified in making such denials.

For example, we should look to the chronology for the repeated “reminders” and requests for information made to the importer in ruling no. 561870 (9/4/02) (protest denied as untimely on other grounds). In this ruling, which dealt with a protest of a denial of a section 1520 (d) claim, an importer, Power-One, had failed to provide detailed information on Regional Value Content (RVC) so as to substantiate its NAFTA claim. Over the course of a four- month period, the importer had on-site visits by CBP and a CF28 and then several rounds of CF29s—all seeking the RVC information. The ruling (at p. 5) noted that CBP was not convinced that its actions would not satisfy the regulations for negative origin determinations. Specifically, the ruling emphasized the following factors, which strike a tone of reasonableness

Notice given by Customs
Specificity as to the reasons for requesting the information
Notice of intent to deny claim if information is not submitted
Attempt to give every opportunity to provide the information prior to issuing’
Written notice of denial

In another NAFTA origin ruling, no. 562533 (9/24/02), we again see CBP following a pattern whereby the importer is given reasonable opportunity to furnish requested information. The lack of responsiveness to requests to supply additional information in support of protests of NAFTA-eligibility denials over a period of one and one-half years by that importer is lamentable and fully justifies CBP’s denial of the NAFTA claim. In ruling no. 562533, CBP concluded that denial of a NAFTA claim made in a timely filed protest was valid where the importer failed to timely provide the requested information in support of the protest. CBP justified the denial on the basis that the importer had failed to furnish the documents within 30 days as requested and thus failed to meet its verification requirements imposed by section 181.74 (c) of the regulations. This is no different from those instances in which a protest on tariff classification or other customs issues will be denied for failure to provide evidence in support of the importer’s claim. See, e.g., ruling no. 959574 (12/18/96) (requirements of 19 CFR § 174.13 (a) (6) not met).

Denial of a NAFTA claim at entry was held not correctable via a § 1520 (c) petition where the importer had failed to timely respond to a CF 28 request for the COO. Ruling no. 229440 (5/8/02). Without the requested COO available to it, CBP liquidated the entry without the NAFTA preferential treatment.

Denial of a valid claim for such unresponsiveness—whether at entry or made in a protest or in a section 1520 (d) petition—and, as the Handbook states is “based on insufficient evidence,”¹⁵ is a far different matter from a port of entry invalidating and re-dating the petition filing date, even if the facts had shown the importer to be unresponsive.

Conclusion

For importers seeking to take advantage of FTA preferences, there is a two-track scheme. For most of the FTAs, the importer must claim the preference at the time of the original entry. For importers seeking preferences under NAFTA and the other six named FTAs, however, there is a relaxed process. They can file at the time of entry or at any time up to one year from the date of importation.

Still, the importer must be vigilant. They are able to rely on the date of original filing in the face of a CBP request for additional documents. But to do that they must have submitted a valid claim, i.e., a claim in which all of the documents identified in the relevant regulations have been included, by the one year mark. And CBP still has the right to ask for additional documentation and information and an unresponsive importer will face a denial of its claim.

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1. Neville, “Trade policy’s two-way street: a political wake-up call,” 22 J. Int’l Tax’n No. 1 at 21 (2011), “Investment protections under free trade agreements,” 23 J. Int’l Tax’n No. 8 at 23 (2012) and “Proposed transatlantic trade and investment partnership: an FTA with the EU,” 24 J. Int’l Tax’n No. 9 at 22 (2013).

2. Neville (ed.), International Trade Laws of the United States: Statutes and Strategies, Chapter 7.

3. These include the FTAs with Chile, Oman, Peru, Korea, Panama and Colombia.

4. Pub. L. No. 103-182, 107 Stat. 2057 (1993), codified at 19 USC §§ 3301-3473.

5. Xerox Corporation v. United States, 423 F.3d 1356, 1361 (Fed. Cir. 2005), aff’g Id. v. Id. 2004 CIT Lexis 125 (2004). See also Corrpro Companies v. United States, 433 F.3d 1360 (Fed. Cir. 2006) (protest under section 1514 not proper to make a valid post-entry claim for NAFTA if NAFTA not claimed at time of entry; section 1520 (d) is exclusive route for NAFTA claim made for first time after entry).

6. See 19 CFR §§ 81.11 (a) and 181.22 (b).

7. Xerox Corp. v. United States, 289 F.3d 792 (Fed. Cir. 2002).

8. A section 1520 (d) claim may not be filed by an importer who has claimed NAFTA at the time of entry. See ruling no. 228290 (8/2/99).

9. Now U.S. Customs and Border Protection (CBP).

10. 19 CFR 181.31 et seq.

11. 19 CFR § 181.32 (b).

12. The CF28 is the standard CBP Request for Information, and it is the usual vehicle by which CBP will make a formal request for documents, samples, or other relevant information.

13. See n. 5, above.

14. 19 CFR § 181.74 (c).

15. See discussion above.