Customs Law Advisory - Appellate Court Decisions Highlight Importance of Protest Procedure to Contest Adverse Decisions by US Customs

In a pair of recent decisions, the US Court of Appeals for the Federal Circuit (“Federal Circuit”) found that US Customs and Border Protection (“CBP”) need not consult with an importer — or the public — when rescinding a long-standing classification ruling.  The Federal Circuit reached this result despite the fact that CBP did not follow the law, or even its own regulations, for changing a ruling, and even though the importer had made substantial commercial commitments based on the ruling.  Instead, the Federal Circuit held that because the importer had not filed a protest, the importer did not have the right to challenge CBP’s decision in court. These Federal Circuit decisions highlight the need for importers to monitor the liquidation of their entries and to file a timely protest to preserve their rights to challenge CBP decisions on specific shipments.

Both cases involved International Custom Products’ (“ICP”) importations of “white sauce” under a tariff number that had been approved by CBP in a 1999 classification ruling issued to ICP on this same sauce.  In April 2005, CBP notified ICP that the agency would apply a different tariff number to recent entries of ICP’s white sauce, along with a substantially higher duty rate.  In May 2005, CBP liquidated several of ICP’s entries and charged the higher duty rate. ICP immediately challenged CBP in the US Court of International Trade (“CIT”), explaining that ICP had signed supply agreements and purchased a manufacturing plant based on the results of the 1999 ruling.  ICP also explained to the CIT that the company risked bankruptcy if it was required to wait the usual period of several months before a protest could be filed, processed and denied by CBP, all before a court challenge could even begin. In June 2005, the CIT declared CBP’s action to be null and void and ordered the agency to follow the law, and its own regulations, which require public notice and the opportunity for public comments before CBP changes one of its rulings.  CBP appealed from the CIT to the Federal Circuit.

In October 2006, the Federal Circuit overturned the CIT’s decision.  The Federal Circuit found that the CIT had no jurisdiction to hear ICP’s challenge because ICP had not filed a protest, waited for a denial from CBP and then appealed to the CIT.  The Federal Circuit ruled that even though the protest procedure might involve delay and financial hardship for the importer, the protest procedure was the path created by Congress to challenge CBP decisions of this kind, and that path could not be circumvented.

In August 2005, while the first ICP case was in progress, CBP issued a public notice announcing its intent to change the 1999 ruling and reclassify the sauce.  ICP also challenged that action at the CIT. This time, however, the CIT found that it did not have jurisdiction to hear the appeal.  The CIT stated that even though protest procedures may be “time consuming and vexing,” protests are necessary before a court appeal. Because ICP had not filed a protest on any particular shipment, the CIT found that the second case had to be dismissed. ICP appealed from the CIT to the Federal Circuit.  In its second decision on the matter, issued in January 2007, the Federal Circuit agreed with the CIT that ICP had no right to a court challenge without a protest.

Together, these court decisions present a clear lesson on the importance of liquidation and protest to an importer that disagrees with a CBP decision on a particular shipment or series of shipments.  Even with the advantages of a CBP classification ruling, such as the one on which ICP relied, the importer needs to monitor the liquidation of its entries. If CBP takes any action that requires a challenge, the importer must consider filing protests as part of its strategy.  Liquidation typically will not occur until about ten months after the date of entry. Protest may not be filed until after liquidation and generally must be received at the port of entry within six months of the liquidation date.  This timeline can create some delay and hardship for the importer. However, once the importer files its protest, a procedure exists to get an expedited decision from CBP so that the importer can appeal to the CIT more rapidly, if necessary, to challenge CBP’s position.

If you have any questions regarding US import duty issues, please contact Greg McCue at (202) 429-6421 and gmccue@steptoe.com or Tom Best at (202) 429-8079 and tbest@steptoe.com.