During much of the last three years, the US trade community has been preoccupied with the trade war with China, most especially how to navigate the four separate Section 301 actions, or tranches, authorized by the USTR. Our previous blog articles have summarized the status of Section 301 trade activity. Now importers have a new concern – they have to worry about their supply chain being threatened by forced labor issues.

For years CBP has had the authority to investigate, and possibly detain, shipments suspected of being made with forced labor. Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307) was originally legislated as the title states, in 1930. It was also amended in 2016, with the most significant change being the elimination of the notorious consumptive demand exception which allowed for the uninterrupted importation of goods produced with forced labor if the “consumptive demand” for those goods in the United States exceeded the capacity of domestic production

In the late 1990’s detention activity slowed to a trickle but in 2020 the tap was again opened to a torrent of activity – more than 10 separate actions filed since then. It is not merely the number of actions that matters. In times past detentions were often issued in regard to a narrow niche of goods. Now however, detention orders, also known as withhold release orders (WROs), can be of a different order of magnitude and cover a wider class of goods – cotton goods or tomatoes in an entire region of China for example – that also comprise vast consumer staples as opposed to niche products.

The impact of these recent detention orders and the threat of future orders is causing a state of panic among select importers who are digging deep into their supply chains to ensure that they have no exposure on the forced labor front. For some unfortunate importers, it is too late, and calamity has ensued where CBP has detained entry of their goods. Later in this article we will discuss an importer of palm oil from Malaysia who now has a pending court case in the Court of International Trade (CIT).

Neither is forced labor an issue that is relegated to the Federal Register or back pages of the Financial Times. Earlier this year House Speaker Nancy Pelosi issued a tweet that in which she suggested the US should boycott the 2022 Olympics in China in part because of concerns over forced labor issues in China. Moreover suggestions of forced labor abuses have dogged not only smaller importers but also the largest companies in the world. Apple has denied allegations its imports are made with forced labor, but it has been publicly accused of violations by independent journalists and by watchdog organizations. These are bold claims and so far none of Apple’s products have been subject to a WRO, but as these exposes become more numerous and the allegations more detailed (including satellite photos) one wonders whether there is actual substance to these stories.

Forced Labor Legislation and Definition of Forced Labor

The Forced Labor statute. 19 U.S.C. 1307, prohibits the importation of merchandise mined, produced or manufactured, wholly or in part, in any foreign country by forced or indentured labor – including forced child labor.

Paragraph two of the statute defines the term forced labor.

“Forced labor”, as herein used, shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily. For purposes of this section, the term “forced labor or/and indentured labor” includes forced or indentured child labor.

An observations is in order. If one does not work voluntarily one is “forced” to work, thus this definition suffers from the weakness of being circular. When defining forced labor increasingly the media, politicians, and officials at DHS or CBP turn to the colorful and descriptive indicia or earmarks of forced labor as set forth by the influential policy-making body International Labour Organization (ILO).

ILO and its Eleven Indicia of Forced Labor

The ILO plays a critical role in the forced labor space. On its own website, www.ilo.org, it describes itself as a UN agency which “brings together governments, employers and workers of 187 member states to set standards, develop policies and devise programmes promoting decent work for all women and men.”

The ILO is most well known perhaps for developing the “11 indicia of forced labor.” As the phrase suggests these are earmarks of forced labor and are useful in applying when it may be difficult to precisely define the term. In press releases concerning issuance of detention orders we have seen CBP quote[1] implicated Forced Labor indicia. CBP reviews WRO cases with the 11 criteria in mind. The CBP website has a page dedicated to WRO modification that states the integral nature of the 11 indicators. “CBP determines a foreign entity subject to the WRO has remediated all of the 11 ILO indicators of forced labor (hyperlink provided) identified, and suspends enforcement of the WRO against the foreign entity.”

The ILO offers this guidance with respect to applying the indicators.

The presence of a single indicator in a given situation may in some cases imply the existence of forced labour. However, in other cases you may need to look for several indicators which, taken together, point to a forced labour case.

Here is the list of 11Forced Labor indicia.

Abuse of vulnerability, deception, restriction of movement, isolation, physical and sexual violence, intimidation and threats, retention of identity documents, withholding of wages, debt bondage, abusive working and living conditions, excessive overtime

Forced Labor Investigation

CBP is permitted to investigate a forced labor allegation based on any communication given upon reasonable belief to the Port Director or Commissioner of the CBP and it shall contain 1) a full statement of the reasons for the belief, 2) a detailed description or sample of the merchandise, and 3) all pertinent facts pertaining to the production.

Importantly, conclusive proof of a forced labor violation is not necessary. If CBP “reasonably” concludes that the suspect goods are made with forced labor it can “withhold release” or detain those goods and prevent their entry into the US stream of commerce. In that event, CBP will publish a finding of a violation in a weekly issue of the Customs Bulletin and in the Federal Register.

If CBP detains the goods and they are not released by the date of the Federal Register notice, the importer can have the goods released if it “establishes by satisfactory evidence that the merchandise was not mined, produced, or manufactured in any part with the use of a class of labor specified in the finding.”

CBP does not give notice to importers that an investigation is underway nor at any time is the importer allowed to see the evidence upon which a WRO is issued. Forthcoming legislation is expected to add more due process safeguards.

One of the more troubling aspects in rebutting allegations concerns a forced labor allegation where the importer has no direct visibility to the violation.

This can happen when a party who is not in the importer’s direct supply chain has been found to have been engaged in misconduct. It is bad enough when the deck appears to he stacked against the importer, but no situation is more galling than when the violation is alleged to have occurred by actors who are one or more transactions away from the importer gaining title to the alleged tainted goods. Conceivably any of various middleman or suppliers or handlers can be implicated in forced labor activity. And it only takes one “proven” violation to jeopardize the goods at time of entry.

Meanwhile, at the same time that the importer is building a rebuttal case, he may have a detrimental cash-flow related to the detention and be engaged in efforts to placate customers who were relying on a smooth handover of the goods after customs clearance.

As you can see, to mount a convincing and robust challenge can involve outlays of time and money and the investigation may have to take place half way across the globe where the importer has no staff on the ground. In all cases the importer will not have the full array of the findings of fact known to hi. To most importers, responding to a detention order is nothing short of a horror show.

A final vexing issue to consider is the limited time an importer is afforded to rebut a forced labor allegation. There is no clock running on CBP when it investigates an allegation, however, the importer has a 60 day deadline to build and submit a credible defense, often surrounding an allegation in the outer Western provinces of China or in Malaysia or some other far-off land. Failure to build a case within the allotted time, or otherwise failing to rebut the claim, means the goods will not be released into the US and the importer will have to export them at his own expense or allow CBP to destroy them.

Palm Oil Products Face Intense Forced Labor Scrutiny

Investigative journalists have been instrumental in exposing the harsh working conditions in which millions labor on the vast palm oil plantations of Malaysia and Indonesia The Associated Press published a lengthy and painstakingly researched article titled, “Palm Oil Labor Abuses Linked to World’s Top Brands, Banks” on September 23, 2020. The article is rich in data and graphs but it is the woeful account of a single migrant worker named Jum that grabs your attention. It is impossible to read this article and not feel empathy for the millions of plantation workers like Jum who suffer from abuse and worker exploitation, despite protests from the Malaysian Palm Oil Association or international banks, that finance the plantations, that any abuses are not systemic, but isolated cases.

A second AP article appeared on November 17, 2020 and it is titled, “Rape, Abuse in Palm Oil Fields Linked to Top Beauty Brands.” It is written in the expose style as the first article with a special focus on the abuses directed towards women.

A third, and briefer, AP article appeared on December 30, 2020. It is titled, “US Bans Second[2] Malaysian Palm Oil Giant Over Forced Labor.”

“The U.S. said it will ban all shipments of palm oil from one of the world’s biggest producers after finding indicators of forced labor and other abuses on plantations that feed into the supply chains of some of the most famous food and cosmetic companies.” On the same day CBP issued a WRO to the Sime Darby Plantation Berhad of Malaysia and also issued its own press release which reads, “The issuance of a Withhold Release Order against Sime Darby Plantation palm oil is based on information that reasonably indicates the presence of all 11 of the International Labour Organization’s forced labor indicators in Sime Darby Plantation’s production process.”

This WRO and the two press releases linked to it is the segue to an important case recently filed in the CIT as CBP made a connection between the Sime Darby WRO and a palm oil import, which the importer denies. Details below.

CIT Action Challenges Forced Labor Detention – Virtus Nutrition Case

We have demonstrated how procedurally the decks are stacked against importers facing Section 307 detention orders. Is it any wonder then that an importer of Malaysian palm oil whose goods were detained and whose rebuttal CBP found insufficient to overcome the forced labor allegations elected to file suit in the CIT, challenging the 307 action? We now recite a summary of facts from the complaint filed on April 14 and captioned Virtus Nutrition LLC v. United States, Court No. 21-165. This action may prove to be a blockbuster, paving the way for other aggrieved importers to file their own complaints.

On February 8 a vessel arrived in the Port of San Francisco carrying a cargo that included Malaysian palm oil and its derivatives. On February 10 Virtus Nutrition made entry of imported palm oil and paid estimated Customs duties, taxes, and fees. CBP immediately detained the cargo pursuant to the WRO issued on 12/30 to Sime Darby previously discussed. In an effort to rebut the allegations that the imports were connected to the Sime Darby plantations the importer made a robust reply and submitted numerous documents, tracing the entry all the way back to the plantation from which the oil was extracted. CBP found the rebuttal unconvincing and so on March 31, 2021, plaintiff timely protested the detention of its merchandise. Not wasting any time, seven days later CBP, by electronic transmission, denied of the protest, stating:

“Protest is denied as importer has supplied no additional documentation and is unable to trace production back to the harvesting of the palm kernel/seeds as required by the withhold release order.”

In its CIT complaint counsel for importer hotly disputes that it failed to adequately trace production to a source other than the Darby plantations or “any other Malaysian palm oil producer subject to a WRO”. The implications of this court case are enormous. At stake is not just the detained palm seed oil. It is likely that the CIT will offer guidance to CBP as how to proceed when weighing evidence submitted by all of those whose goods have been detained subject to WROs. What level of documentation or other evidence is acceptable to prove origin and to disprove association with a tainted source? What burden of proof will carry the day? H.R. 1155 which is the bill number assigned to the pending legislation is proposing a clear and convincing standard of review.

Recent 2021 WRO Developments

Whereas WROs of the past may have received scant attention in the press, lately each WRO seems to be issued via a splashy press conference with dignitaries from CBP or DHS issuing solemn words protesting the evils of forced labor. There is the color of political grandstanding surrounding these announcements that has rarely been seen before in official releases of customs or border announcements . Every few weeks we see a new WRO, most of them tied to alleged Chinese labor infractions. Below we summaries two of the latest WROs – a complete list of active WROs can be found on the CBP website.

Link: https://www.cbp.gov/trade/programs-administration/forced-labor/withhold-release-orders-and-findings

The goods subject to the following WROs can be added to the ongoing list which includes tomatoes and cotton from the Xianjang region of China.

Effective August 18 at all U.S. ports of entry, U.S. Customs and Border Protection (CBP) will detain seafood harvested by the Da Wang, a Vanuatu-flagged, Taiwan-owned distant water fishing vessel. Note: this WRO comes on the heels of an earlier WRO connected to other fishing vessels. See WRO issued 5/26/91 to fishing vessels owned by Dalian Ocean Fishing and 12/31/20 to fishing vessels owned by Lien Yi Hsing No. 12.

On June 24 CBP issued a WRO against Hoshine Silicon Industry, Ltd. and its subsidiaries, related to the production of silica manufactured in the Xianjang region of China. Affected are imports of silica and polysilicon, the latter a leding component of solar panels. The CBP investigation revealed workers manufacturing the silica products were subject to intimidations and threats and had their movement restricted.

From the clothes you wear to the foods you eat or the silica used in an imported solar panel intended for your roof, CBP is on high alert looking to detain any goods tainted by Forced Labor.

On its website CBP recently posted an invitation for interested industry representatives to participate in a two-day event called “Forced Labor Industry Days” to be held June 28 and 29.

LINK: https://www.cbp.gov/trade/stakeholder-engagement/forced-labor-industry-days

The first day will focus on textile supply chain transparency, namely what are the best business practices that allow for an importer to trace the origin of subject goods perhaps to the point of origin of the raw materials (e.g., the planting of the cotton seeds in the production of garments).

The second day will focus on country of origin identification, especially on the technologies allowing for the physical examination or laboratory analysis of goods needed to verify the legitimacy of a Country of Origin claim.

We expect that in the aftermath of this event CBP will lay out rules that will add clarity to the due diligence that is expected from importers in regard to section 1307 enforcement and Withhold Release Orders.

This is not the first time that CBP has stepped in to verify origin nor the first time that it has relied on high tech solutions in trade remedy situations. Origin is a key component to free trade eligibility (USMCA among other FTAs) and CBP routinely questions origin when the benefits of an FTA are claimed.

Two instances of CBP high tech analysis come to mind. In the instance of Burma-origin rubies that were prohibited from importation, CBP previously performed spectrometry analysis, which can be used to identify mineral inclusions which are specific to a geographic area.

In the case of Chinese garlic, antidumping duties will be levied at import. But there is a documented history of falsely declaring Chinese garlic as Mexican when the garlic has merely transshipped Mexico. See ruling no. HQ 562751 (5/10/2004) for a discussion of one such shipment of garlic claimed to be of Mexican origin. Through “multivariate discriminant statistical analysis” the CBP lab ultimately proved the actual origin was Mexico and thus antidumping duties were avoided.

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.

In previous articles we have brought to your attention various aspects of the China 301 Tariffs imposed by the US government on selected imports from China. These measures have been broken into four groupings: Lists 1, 2, 3, and 4A which were promulgated by the USTR and published in the Federal Register. The subject tariffs have been as high as 25% ad valorem. Importers by the tens of thousands filed Exclusion Requests through a specially designated USTR Portal and a fraction of them were granted, leaving most to pay the tariffs imposed in the 301 Tariff actions.

For the majority of the importers subject to these 301 Tariffs the question remains – what, if anything, can they do to object to these tariffs which are still being levied? Our last few articles have discussed the possibility of relief pursued through an action filed in the Court of International Trade (CIT). On September 10 HTMX Industries filed the first case challenging the US authority to impose the China 301 Tariffs against imports classified in Lists 3 and 4A and within two weeks over 3,500 other claims were filed by various aggrieved importers.

We have heard of some importers being advised to file protests with CBP to preserve their right to relief. That is the subject of this article, is it worthwhile for an importer subject to a China 301 Tariff to file a protest with CBP?

Authority for Protests / CIT Eligibility

There is a typical route to get judicial review at the CIT and it presupposes a denial of a protest.

Authority for protests is found within 19 U.S.C. § 1514 after a determination has been made by CBP. If CBP denied the protest the protestant is eligible to challenge the decision in the Court of International Trade (CIT) under the authority of 28 U.S.C. § 1581 (a). The language of the statute reads, “The Court of International Trade shall have exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part, under section 515 of the Tariff Act of 1930.”

The proper authority to file a 301 Tariff action in the CIT is not via 28 U.S.C. § 1581 (a), however, because the matter is non-protestable under Section 1514. That is because the rile of CBP is ministerial only and it would not have made a protestable determination. Proper authority for a 301 CIT claim is found instead through the CIT’s residual grant of jurisdiction, 28 U.S.C. §1581 (i)(1).

“In addition to the jurisdiction conferred upon the Court of International Trade by subsections (a)–(h) of this section and subject to the exception set forth in subsection (j) of this section, the Court of International Trade shall have exclusive jurisdiction of any civil action commenced against the United States, its agencies, or its officers, that arises out of any law of the United States providing for—

* * * *

(B)

tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue;”

All of the recently filed 3,500 court cases claimed jurisdiction through this authority.

This residual grant of jurisdiction is based on Section 1581 (a) being not available. In other words, the filing of protests and going to the CIT after protest denial is either a viable program or it is not. Sections 1581 (a) and Section 1581 (i) ae mutually exclusive.

Effect of the Conrad Case

A June 1, 2020 decision in the CIT has important bearing on the issue of the necessity of protests as a prerequisite to bringing a court action. See J. Conrad LTD v. United States, Slip Op.20- 79 (CIT 2020). Chief Judge Timothy Stanceu ruled that a court has great latitude to grant equitable relief regardless of whether a protest was initially filed for the underlying action. The Conrad plaintiffs found themselves in court on what the presiding judge deemed a “non-protestable decision by Customs.” In strong language on pages 24-25of the Slip Opinion, the judge proclaimed the extensive powers of the CIT in awarding relief.

“This Court possesses “all the powers in law and equity” of a district court. 28 U.S.C. § 1585. Accordingly, with exceptions not applicable here, this Court may award any form of relief appropriate in a civil action, id. § 2643(c)(1), including, generally, a money judgment against the United States in a civil action commenced under 28 U.S.C. § 1581. Id. § 2643(a)(1).”

· * * *
…liquidation of Plaintiffs’ relevant entries prior to judgment would not constitute irreparable harm.

The CIT’s vast equitable powers can provide relief, including the refund of duties, to any plaintiff that has filed a Section 301 case in court with or without a protest having been filed. This relief is available both to the Conrad plaintiffs or to any of the importers injured after paying China 301 Tariffs. Neither Conrad nor a successful Section 301 Claimant would have to file a protest in order to preserve the right to relief.

Accordingly, it is our conclusion that advice to aggrieved 301 Tariff payers to file a protest is errant and a meaningless or futile gesture. It is not necessary for these aggrieved importers to file a protest per the decision in Conrad and in the first instance these importers are not entitled to file a protest because no negative determination by CBP triggered the right to protest. Query, if a protest has been denied as being non-protestable, how would the importer get into court after Section 1581 (a) has been ruled out?

To be sure, there is one, narrow role to play here for protests. That would be in those instances in which the importer contests the levy of the Section 301 Tariff either on the basis that the tariff classification was wrong at entry, and the product was therefore not subject to the List 3 or List 4A Tariffs, or the country of origin of the imported article was not China, to the same effect.

Aggrieved parties can go straight to court as long as they are not time-barred. There is speculation amongst customs and trade lawyers that the two year statute of limitations on CIT challenges to the payments of China 301 Tariffs does not run until an importer has paid the 301 Tariff, under the Administrative Procedure Act. Some claims have been filed in the CIT even after two years had passed after the September 21, 2018 notice of the List 3 action being published in the Federal Register or the September 24, 2018 effective date for collection of those tariffs. List 4A activities were only undertaken on August 20, 2019 at the earliest, so there is unquestionably plenty of time within which to file a claim based on List 4A exactions.

Please refer to our September 27 blog entry, CIT Court Actions re: China 301 Tariffs, List 3 and List 4A, which discusses the deadlines for an aggrieved importer to bring a CIT action to court. Please contact our law firm if you have any questions.

Many of you will know about the challenges to the List 3 and List 4A tariffs–the hottest thing at the CIT in 25 years.

The lead case, HMTX Industries, LLC et. al. v. United States, was filed at the Court of International Trade on 9/10. The law firm behind the filing spent considerable time in drafting the 19 page complaint. After it was filed, 3,500 cases were swiftly filed in the following two weeks, relying on the same legal theories – that the USTR lacked the authority to impose a punitive tariff. ITC and co-counsel have already filed suits on behalf of 8 clients. Under one theory, if these lawsuits are successful, not only plaintiffs who filed suit will get a refund of 301 duties paid but also any importer who paid duties will be entitled to a refund. That last speculation is not tested, and prior experience under the Harbor Maintenance Fee cases 20-25 years ago has me doubting it. Obviously, it is safer to file suit.

It is most likely that the lead case will proceed on a test-case basis and all of the other cases will be suspended, with no regular activity other than housekeeping activities and monitoring developments.

Timing

Although there is a two year statute of limitations to bring such a declaratory judgment action in the CIT, the issue then becomes, when does the cause of action accrue?

For List 3 timing, a filing may still be viable even now, after the 9/18 date of the 301 announcement anniversary and the 9/24 date of first tariff collections. If the first imports took place after 9/24/18 the theory would be that the cause of action accrued with the first levy of the tariff–on another theory, a suit could be brought on even later filed entries as the cause of action would have accrued on the entries that were being challenged when the tariffs were paid

In the case of List 4A, the time to file is still 11 months away, actions can be filed until at least August 2021.

Bottom line—it is still possible to file on List 3 (especially if the $$ are substantial) and definitely ok for List 4A. A suit with challenges to both Lists 3 and 4A could proceed.

It is possible to lower the duty owing to at time of entry by lowering the value of the declared entry. A popular means to lower the value is through the use of a multi-tiered series of transactions.
    
In Nissho Iwai American Corp. v United States, 16 C.I.T. 86, 786 F. Supp. 1002, reversed in part, 982 F. 2d 505 (Fed. Cir. 1992), the Court of Appeals for the Federal Circuit reviewed the standard for determining transaction value when there is more than one sale which may be considered as being a sale for exportation to the United States. The case involved a foreign manufacturer, a middleman, and a United States purchaser. The court held that the price paid by the middleman/importer to the manufacturer was the proper basis for transaction value. The court further stated that in order for a transaction to be viable under the valuation statute, it must be a sale negotiated at arm’s length, free from any non-market influences, and involving goods clearly destined for the United States. See also, Synergy Sport International, Ltd. v. United States, 17 C.I.T. 18 (1993).
In accordance with the Nissho Iwai decision CBP will presume that transaction value is based on the price paid by the importer. In further keeping with the court’s holding, CBP will note that an importer may request appraisement based on the price paid by the middleman to the foreign manufacturer in situations where the middleman is not the importer. However, it is the importer’s responsibility to show that the “first sale” price is acceptable under the standard set forth in Nissho Iwai. That is, the importer must present sufficient evidence that the alleged sale was a bona fide “arm’s length sale,” and that it was “a sale for export to the United States” within the meaning of 19 U.S.C. § 1401a.
ITC has advised numerous importers on ways to successfully engineer a First Sale for Export program.

IF YOU HAVE PAID LIST 3 OR 4A TARIFFS FROM CHINA

A recently filed lawsuit may provide an opportunity for refunds of trade remedy duties. To preserve your opportunity to secure refunds, importers must file their own claims.

The deadline for filing claims is Friday, September 24. List 3 was announced in the Federal Register on 9/21/18 and took effect on 9/24/18 so the two year statue of limitations to file runs in a few days. The statute of limitations for List 4A does not run for a few months. List 4A was announced on 8/20/19 and took effect from 9/1/19–so there is plenty of time to file.

Importers must work with legal counsel to review their options and file claim(s).


An import company who has been paying trade remedy tariffs on imports from China has filed a lawsuit with the Court of International Trade. The lawsuit centers around the timing of tariffs levied on products covered by List 3 and by default List 4A. In essence, the case challenges the actions of the United States Trade Representative (USTR) and asserts that Congress did not empower the executive branch to transform investigations targeting specific practices by a foreign country into broad trade wars. The case also argues that in promulgating List 3 and List 4A, the USTR failed to follow required statutory provisions.

As you consider your options, you may access your import history via GEODIS’ IRIS system or ACE. If you have any questions, please contact GEODIS Trade Service at tradeservices.ff.us@geodis.com”

The Real Scoop for you:

The suit follows on the heels of the success in getting the US court (the CIT) to uphold the importers’ challenge to the Section 232 Turkish steel tariff. See attached. That came out in late July.

The legal theory is that CIT has jurisdiction under 1581 (i) which allows for a suit to be filed within 2 years of the cause of action accruing. Challenges to Lists 1 and 2 are out of reach but that still leaves Lists 3 and 4.

If you had List 3 and List 4 entries then you could file now in one lawsuit.

Mark Neville of the ITC law firm is registered with the CIT could organize CIT filings for you. If it is going to be like the successful Harbor Maintenance Tax challenge of 25 years ago, the suit would not entail much activity at all after initial filing–it would just be a protective filing and then passivity–if success, some heavy lifting in order to show what tariffs should be refunded–could be entry-specific–and that is when the process will get more involved . Decision cannot be expected before early 2022 and it will certainly be appealed.

Court filing fee–US$400; legal fees about $2,000-3,000 for each filing (it is filing of a summons, complaint (nearly 20 pages in length) and various forms. Later fees will be at normal billing rates and will be quite minimal (if filings are required by the court) unless importers are successful and it will be necessary to provide detail showing refunds due .

Bottom line– a long shot since Sections 232 and 301 are very different statutes–but maybe worth a shot.

Under Section 301 of the Trade Act of 1974, the US has the right to retaliate against unfair foreign trade practices. Over the last year the US has slapped additional tariffs of between 10 and 25 % on almost all goods of Chinese origin. As its name implies, these tariffs are on top of the normal customs duties.

The tariffs have been rolled out in various Lists organized on an HTS basis. The first three Lists hit goods with a combined $250 billion in annual imports from China.

The 4th and final List assesses additional duties of 15% and covers the remaining $300 Billion worth of annual Chinese imports, many of them apparel and other consumer goods. It has been bifurcated into two parts – List 4A came into effect on September 1 while List 4B will be effective December 15. Note–the 15% tariff may be increased to the now-standard 25% tariff level.

Exclusion Requests: Three Month Window

The USTR has established procedures whereby importers and others (trade associations, Chinese producers) can petition for exclusions from the China 301 tariffs. The exclusions function as exemptions.

The window to file such requests for the first three Lists has closed. But the period to request an exclusion from the List 4A tariff hit has just been announced.

Stakeholders will have from October 31 to noon on January 31, 2020 to submit exclusion requests via the USTR web portal. If granted, the exclusions are good for a one-year period but they have retroactive effect, as well, so importers will want to take steps to protect their rights (suspended liquidations, protests) in the face of the steady liquidation of entries.

Request Process

The request process is very nuanced and has been altered slightly from the List 3 process. For instance, the exclusion request must be made on a 10-digit HTS basis rather than the former 8-digit approach. Also note that this is a public process, with open access to all of the filings. There is a provision for the protection of business confidential information, such as purchase history. Also know that domestic competitors can file negative comments.

We Can Help

ITC has filed List 3 requests for exclusion. Interested List 4 stakeholders can contact us for more information and assistance.