Customs Law Advisory - Trade Court Decision Underlines the Necessity for Importers to Follow All Procedural Details or Face Full Duty Liability

A decision earlier this year from the US Court of International Trade (“CIT”) underscores the rule that once a company imports merchandise into the United States , duty liability attaches to that importer. The case is worth reviewing because it demonstrates that duty liability is highly difficult to remove, unless all technical procedures are carefully followed.  This is true even in a case where the importer abandons the merchandise and the Government sells the goods and keeps the proceeds.  Because US law places strict limits on the ability to “unring the bell” of duty liability, importers should always take an active role in identifying and following all the steps necessary any time the company expects to avoid or reduce import duties.

In Resource Club v. United States, the CIT considered the claim of Resource Club, importer of 1,683 dozen ladies’ jeans.  At entry, Resource Club submitted a Cambodian textile visa for the jeans.  US Customs and Border Protection (“CBP”) believed the visa to be counterfeit and seized the shipment.  Resource Club petitioned for relief from the seizure.  CBP denied the petition but offered to release the goods for “export only” upon payment of storage charges and approximately $14,000 (representing 10% of the value of the jeans).  Resource Club did not accept.  Instead, Resource Club notified Customs that it was formally withdrawing its petition for relief and abandoning the shipment of jeans.  CBP conducted forfeiture proceedings and contracted with a third-party contractor to export and sell the merchandise on CBP’s behalf.

Resource Club sued at the CIT for refund of the duties and fees it paid, arguing that it was entitled to a refund under Section 563(b) of the Tariff Act of 1930.  This law states that importers may abandon goods in a bonded warehouse to the Government and obtain a refund of import duties.  CBP argued that Resource Club did not follow the proper procedures under the law and was not eligible for duty refund.  The CIT sided with CBP, holding Resource Club had missed the deadline to respond to CBP and therefore its goods moved into forfeiture proceedings.  Moreover, the importer failed to file the necessary forms for abandonment and duty refund and failed to make arrangements for the goods to be placed in a bonded warehouse.  Thus, the US Government was permitted to keep the duties paid at import and the proceeds of the export sale.

US law places the responsibility on the importer of record to exercise “reasonable care” to confirm that all the information declared to CBP is complete and accurate.  This obligation rests solely with the importer of record, not the customs broker, the supplier, nor any other party.  Once the importer of record enters merchandise, any duty (and/or potential penalty) liability attaches to that importer.  CBP will only allow relief from that liability if the importer demonstrates compliance with all the detailed steps for refund and the courts will support CBP’s strict interpretation.  These strict requirements apply even in a case where the importer abandoned the merchandise and it was sold to benefit the US Government.  In a commercial case, a party might argue that such actions mitigated or eliminated any harm suffered by the opposing side, but such principles do not apply to import duties owed to the United States .  With advance planning, there may be many possible ways to reduce or eliminate duty liability such as utilizing duty drawback rules, importing from a NAFTA country, and using the American Goods Returned provisions, just to name a few.  Each one of these methods carries its own procedural requirements that must be followed carefully in order to successfully detach duty liability.  Any importers planning to use these or similar provisions should map out the steps for compliance before imports are made.

If you have any questions regarding US import compliance issues, please contact Greg McCue at 202.429.6421 and gmccue@steptoe.com or Negar Katirai at 202.429.8028 and nkatirai@steptoe.com.

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Import Safety Webinar—Product Recalls: Effectively Managing the Process

Date: January 10, 2008
Time: 1:00 pm EST
Join Tom Barba, Sandy Chamblee, and Jennifer Quinn-Barabanov from Steptoe & Johnson LLP and Elisha Lawrence, General Counsel, Alltrade Tools, as they discuss the steps companies should take to determine if they face substantial product hazards and negotiate corrective action with the CPSC. The session will also address how to maximize recall effectiveness and minimize the threat of follow-on consumer litigation should a recall become necessary. Registration is free and online - click here for more information.