Customs Law Advisory - US Court Decision Provides Cautionary Tale for Importers Challenging a US Customs Decision

In a recent case decided by the US Court of International Trade (United States v. Golden Gate Petroleum Co., Slip Op. 07-5, Jan. 17, 2007), the Court granted the United States’ claim for 21 years of interest (which could mean over $6 million in interest charges alone) on import duties at issue in the litigation. This decision provides a cautionary tale regarding one of the risks that an importer must manage when choosing to challenge an import duty assessment by US Customs and Border Protection (“CBP”).

In 1985, Golden Gate Petroleum imported certain leaded fuel through the Port of San Francisco. At the time of liquidation, CBP determined that reclassification of the merchandise under a different tariff code was appropriate. Because the tariff classification number selected by CBP carried a higher duty rate than the tariff number declared by Golden Gate, CBP sought to collect additional duties. Golden Gate protested the reclassification and did not make any payment for the additional amount claimed by CBP. 

When Golden Gate challenged the duty claim without making a payment, interest began to accrue on the amount owed. Accrual of interest is not interrupted when a protest is filed, only when the duties are paid. CBP denied the protest and, several years later, sued Golden Gate to collect both the unpaid duties and all the accrued interest. Golden Gate argued against both (a) CBP’s classification of the merchandise and (b) the accrual of interest over such a long period of time. Golden Gate lost on both issues. The classification issue is specific to importers of petroleum products, but the interest issue could impact any importer challenging a CBP liquidation that uses a duty rate higher than the one the importer thinks should apply.

The Court of International Trade noted that the US Government had been responsible for some significant delay in brining the lawsuit. Nonetheless, the Court found that US law requires that a party pay interest on its unpaid duties from the “15th day after the date of liquidation or reliquidation.” Further, the Court found that the language of the statute does not allow the Court any discretion regarding the collection of interest. As a result of its holding, the Court ordered Golden Gate to pay not only the additional duties claimed but all interest on the unpaid duties, going back to 1985. Although the Court does not specify the amount of interest owing at the time of its decision in January 2007, based on the amount of unpaid duties (approximately $1.3 million), and using CBP’s official interest rates since 1986, the total interest charge may be in excess of $6 million.

The lesson for importers here is clear—the payment of duties claimed by CBP on an import shipment is necessary to stop the accumulation of interest. Absent a provisional payment, an importer challenging a Customs decision assumes the risk of receiving a bill for interest, perhaps years in the future, in addition to the underlying duties being challenged. Accordingly, when challenging a duty assessment by CBP, importers should consider whether the right strategy in their circumstance is to make a provisional payment and initiate the court appeal, rather than waiting to be sued by CBP. 

If you have any questions regarding US import duty issues, please contact Greg McCue at (202) 429-6421 and gmccue@steptoe.com or Michael Pass at (202) 429-8101 and mpass@steptoe.com.