Customs Law Advisory - US Appeals Court Defines Time For Liquidation By Operation of Law

US Appeals Court Defines Time For Liquidation By Operation of Law
Earlier this month, the US Court of Appeals for the Federal Circuit (“CAFC”) declared a six-month deadline for US Customs and Border Protection (“Customs”) to liquidate after an antidumping (“AD”) or countervailing duty (“CVD”) review, or the entries would be liquidated by operation of law at the cash deposit rate. This decision is a useful reminder that all entries, not just AD/CVD entries, may be subject to liquidation by operation of law after some deadline. If that occurs, and Customs later issues bills for additional duty payments, the importer may be able to have the bills cancelled.    In International Trading Co. v. United States, the CAFC examined a March 1994 importation of shop towels from Bangladesh subject to an estimated AD cash deposit of 2.72% at entry.  Following its usual procedures, the Department of Commerce (“DOC”) conducted an administrative review that covered this entry.  In October 1996, the DOC finished the review and found the final AD rate to be 27.31%.

In July 1997, the DOC issued instructions to Customs to liquidate the entry and apply the higher AD rate.  In September 1997, Customs liquidated and issued a bill to the importer for the 24.59% difference between the cash deposit and the final assessment rate.  The importer protested, arguing that the bill must be withdrawn because Customs had not acted within six months of DOC’s October 1996 decision and, thus, the entry liquidated by operation of law in April 1997 at the 2.72% cash deposit rate.  Customs denied the protest but, on appeal, the CAFC agreed with the importer’s interpretation of US law.  Apart from the International Trading decision, even for entries not subject to any AD/CVD order, liquidation by operation of law can apply.  The amount of duties declared at entry (even zero) is the importer’s best estimate and is accepted by Customs at liquidation.  In the absence of AD/CVD issues, or some other reason for suspension, liquidation should occur within one year, otherwise, the entry will liquidate by operation of law (six months applies to AD/CVD entries).  Customs usually beats the one-year deadline, but if liquidation by operation of law occurs, the importer may lose the opportunity to claim a refund or gain an opportunity to have a bill cancelled.  In either case it may be necessary to file a timely protest after liquidation.  Thus, it is a critical part of an importer’s compliance program to monitor when its entries liquidate.  Although Customs may request CAFC reconsideration or even appeal to the Supreme Court for International Trading, it is unusual for this type of CAFC decision to be reversed.

Regardless of the final outcome, liquidation by operation of law does not in any way change an importer’s duty to exercise reasonable care when declaring entry data.  If an entry liquidates by operation of law but Customs finds that the importer failed to exercise reasonable care in presenting the correct information in its declaration at entry, Customs may initiate an investigation even five years later.  Depending on the outcome, Customs may collect any unpaid duties, as well as additional penalties up to the amount of the value of the merchandise for the worst violations.  If you have any questions regarding the liquidation of entries, please contact Greg  McCue at (202) 429-6421.