There are several US agencies which regulate articles of commerce. Among them are the FDA and the Alcohol and Tobacco Tax and Trade Bureau (TTB) which regulate the named products in the agency name and the Consumer Product Safety Commission (CPSC) which regulates products intended primarily for children. The CBP website maintains a list of these Partner Government Agencies (PGAs) and here is the link:

https://www.cbp.gov/trade/basic-import-export/e-commerce/partner-government-agencies-import-guides

This blog article will focus on just one agency, the Department of Agriculture (USDA). DHS and USDA have signed an inter-agency Memorandum of Agreement setting forth the details
by which CBP will act as the enforcement arm of the USDA at the border.

CBP agriculture specialists are on hand at select ports to inspect shipments of imported products and ensure that the required permits, sanitary certificates (for animal products), and phytosanitary certificates (for plant products) accompany each shipment. CBP will also determine whether entry of the agricultural product is restricted because of a published quota.

An examination of two rulings will show the types of issues that can arise in an entry of agricultural merchandise.

Imported Parmesan Cheese – HQ 086634

The first is ruling no. HQ 086634 (6/5/90) and concerns the entry of parmesan cheese made in Canada, New Zealand, and Italy blended into a single cheese product in Canada. The cheese is classifiable in subheading 0406.20.5020 of the HTS, a subheading subject to USDA licensing requirements and quota restrictions under subheading 9904.10.45.

CBP found that the blending of the three cheeses, one part from each of the named countries, did not substantially transform them into a new product in Canada that possessed Canadian origin for tariff and quota purposes since the beginning and end products were both parmesan cheese.

Under USDA licensing requirements at the time of entry, the Canadian cheese alone could have been imported under a USDA license and would be subject to the “other” absolute quota quantity limit of 13,063 kilograms per year. The remaining cheeses, however, could not enter the United States from Canada because the USDA regulations required a Through Bill of Lading and an invoice from the seller in the country of origin to a purchaser in the United States. Any interruption in the flow of the goods, as in the situation within the ruling, was considered a “diversion” after which no license could be issued.

Cattle Feed Supplement Imports – HQ 956192

The second ruling, no. HQ 956192 (7/25/94) concerns four animal feed products, imported from Germany. Classification was not in dispute since the importer and US Customs found agreement under heading 2309 of the HTS Preparations of a kind used in animal feeding. At issue was whether three of the four imported feed products were subject to import restrictions under subheading 9904.10.69 (note these import restrictions are currently found in heading 9904.06).

Effect of USDA Veterinary Permit

Importer had obtained a “Veterinary Permit” from the USDA which certified that the importation of a product will not jeopardize the health of domestic animals. US Customs ruled that this permit, however did not exempt the importer from import restrictions promulgated under Section 22 of the Agricultural Adjustment Act.

At issue next was the lactose content of the feed supplement. The HTSUS language provided a quota for “animal feeds containing milk or milk derivatives.”

The importer argued that the lactose element in the products was heat treated and a minimal amount in any event and these two factors should allow for an exemption. Customs ignored these arguments.

It declared:

“We note that neither the appropriate HTSUS provisions for the animal feeds nor the quota language included in subheading 9904.10.69 indicates that heat treated pharmaceutical grade lactose or products containing a small quantity of lactose should be exempt from the import restrictions.”

Customs concluded, “The product at issue contains “milk or milk derivatives” and is therefore subject to the quota.

The importer raised a third and final futile argument in its attempt to avoid imposition of the import quota. The German manufacturer changed the feed formula to include only U.S. origin lactose during the blending in Germany. The manufacturer should be applauded for this attempted creative end-around. However, it was fruitless.

U.S. Customs applied the Rules of Origin and determined that the origin of the feed formula was still German, the U.S. grade lactose did not change origin, and therefor the quota would be applied.

Conclusion

Importers of foreign agricultural products need to mindful of both USDA and CBP requirements. The initial step is properly classify the imported product as that will trigger both tariff and quota issues. Finally, sometimes tricky to apply rules of origin will apply when the final product is sourced from multiple countries.

One of the most challenging times for any importer is having to defend an enforcement action brought by the Government at the US Court of International Trade (CIT).

The reasonable care standard imposed on importers is found in 19 U.S.C. Section 1484. A failure to meet that burden can result in a penalty action brought under 19 U.S.C. Section 1592.

The level of civil penalty sought will depend on the level of culpability—negligence, gross negligence or fraud—and also whether the violation has resulted in a loss of revenue (LOR)—duties, taxes and fees—or not. Additionally, CBP can seek the unpaid or underpaid duties, taxes and fees. To top it all off, the statute of limitations is five years. In the case of fraud, the statute only begins to run when CBP learned of the fraud.

An able attorney for the importer may be able to argue that the Government suit should be dismissed on jurisdictional or procedural grounds.  This month’s discussion explores that strategy. The article analyzes three court decisions: United States v. Greenlight Organic, Inc. a 2018 case, and two subsequent decisions that are collectively referred to as Greenlight I, II, and III.

For a defendant in a civil collection suit brought by the Government, often the best course is to seek early dismissal of the action with a motion based on affirmative defenses. A defendant has every right to expect that the Government suit provides a level of detail sufficient to prepare a defense. The Greenlight cases provide a useful primer for those defendants faced with overly vague and imprecise charges.

For a a more detailed discussion of the Greenlight cases refer to Mark K. Neville’s October 2020 article “Penalty Case Defense at the CIT,” in the Journal of International Taxation.

Initial Complaint

As discussed in our previous Blog articles, on September 10, 2020, HMTX Industries LLC filed a summons and complaint at the Court of International Trade (CIT) challenging the authority of the United States Trade Representative (USTR) to impose Section 301 China Tariffs on imports falling under List 3 which were effective September 24, 2018. 

ITC will continue to monitor the HMTX case – the most tumultuous action filed in the CIT in decades. Approximately 3500 cases have been filed in the CIT on the heels of the HMTX filing.

Three-Judge Panel

On September 30, HMTX and its co-plaintiffs, through a legal motion, asked the CIT to assign a three-judge panel to hear the case. Attorneys for the US have signaled they are going to oppose this.

In the brief supporting their motion, plaintiffs stated that their action i) satisfies the court rules’ criterion of “having broad or significant implications” in the administration of the customs laws, and ii) raises a question of an “exceptional nature.”

Case Management Model

The DOJ is advising the CIT to implement a case management approach in order to lessen the confusion surrounding the thousands of separately filed cases challenging the 301 China Tariffs. Chiefly, the DOJ would like to see the Court select a test case or cases while the remainder will be suspended. Additionally, a Steering Committee of plaintiffs’ counsel would be authorized to coordinate the actions of the thousands of plaintiffs. There would be limited opportunity for the filing of mini briefs by those who are not test case plaintiffs. The plaintiffs are of like mind and would also like the government to commit to a refund mechanism if plaintiffs are successful. In fact, plaintiffs have asked that the 1990s Harbor Maintenance Tax case (US Shoe) procedures serve as a protoype: case management by a single judge and the substantive legal questions handled on the merits by a three-judge panel.