United States Court of International Trade

20-03

Before the Court in United States v. Harvic Int’l, Ltd., Slip Op. 20-03, Court No. 16- 00273 (January 3, 2020) were cross motions for summary judgment in a case bought by the Government to recover the maximum allowable civil penalty for a non-revenue-loss violation of Section 592 of the Tariff Act, stemming from entries of wearing apparel allegedly transshipped from China through Bangladesh, the Philippines, or Korea. During Customs investigation the agency requested documents, including bills of lading, from Harvic regarding the subject entries. Customs also requested bills of lading from other shipping companies, including Hanjin and Hyundai, for shipments of textile goods. Customs reviewed the Harvic documents and compared them to the Hanjin/Hyundai bills of lading. The comparison showed that Harvic’s documentation did not substantiate its country of origin declarations, leading to the penalty claim. Harvic argued the disputed bills of lading at the center of the penalty case were inadmissible hearsay in litigation. The Government argued, under the incorporation doctrine, that the documents were admissible as an exception to the hearsay rule. For the following reasons, the Court found the documents admissible but denied both motions for summary judgment.

“Hearsay generally cannot be considered …, unless a federal statute, the Federal Rules of Evidence, or other rule prescribed by the Supreme Court provides otherwise.” Id. at 7. The Court said the Government had “shown that Customs incorporated entry documents … into its own records and relied on those records in its day-to-day.” Id. at 14. The “Hanjin/Hyundai bills of lading have indicia of reliability and trustworthiness and otherwise satisfy the requirements of” the rule of evidence. Id. Accordingly, the Court held the Hanjin/Hyundai bills of lading were admissible. The Court also dismissed arguments that the documents were not admissible because they were collected in a law enforcement investigation. However, the Court also dismissed the Government’s motion for summary judgment because the Court must resolve the discrepancy between the country of origin as identified in Harvic’s import documentation and the country of origin as identified in the Hanjin/Hyundai bills of lading. The Court informed the parties to prepare for trial.

United States District Court for Northern District of Texas

District Court Reverses OFAC Penalty Against Oil Company

In an interesting decision, a United States District Court has thrown out a $2 million penalty imposed by Treasury’s Office of Foreign Assets Control (OFAC) against ExxonMobil Corporation and its subsidiaries resulting from a claimed violation of Ukraine-related sanctions. The Court concluded that the penalty was improper because ExxonMobil lacked fair notice that its conduct was prohibited.

In ExxonMobil Inc. v. Mnuchin, Court No. 17:CV-1930-B (N.D. Tex., December 31, 2019), the Court indicated that it was called upon to determine “which party receives the benefit of having its cake and eating it, too – the regulating agency that failed to clarify or the regulated party that failed to ask.” OFAC in 2014 issued sanction orders which prohibited United States firms from dealing with certain officials or representatives of the Russian government. At the time, OFAC indicated that its goal was to “identify those cronies of the Russian government and target their personal assets and wealth”, rather than the business entities and industries that they may manage or oversee.

ExxonMobil signed a contract with Rosneft, a leading petroleum company in Russia. The agreement was signed for Rosneft by Igor Sechin, who had been targeted individually for the sanctions. Subsequently, OFAC determined that ExxonMobil had violated the sanctions against Sechin by signing the contract with Rossneft, indicating that “U.S. persons may not… enter into contracts that are signed by a blocked individual.”

In reviewing the penalty, the Court utilized the Administrative Procedure Act. It vacated the penalty against ExxonMobil on the ground that the company had not received due process under the Fifth Amendment of the Constitution, since it had not been advised clearly by OFAC that the conduct for which it was penalized was prohibited. It found the OFAC regulations implementing the sanctions to be vague.

Much of the problem resolved around whether a person who receives a contract signed by a blocked individual on behalf of a corporate entity receives “services” from that person. Indeed, internal email exchanges within OFAC had acknowledged confusion regarding whether signing a new contract with a designated individual was prohibited.

The Court noted that ExxonMobil might have done more to clarify the status of its transaction, for instance, by seeking a specific ruling from OFAC on the activity it was conducting. Ultimately, however, the Court set the penalty aside because it concluded that Exxon had not been fairly notified that the activity it was conducting was prohibited.

United States Court of Appeals for the Federal Circuit

Federal Circuit Grants Customs Power to Suspend Liquidation of Entries Where Scope of Dumping, Countervailing Duties Unclear

An unexpected .decision by the Court of Appeals for the Federal Circuit holds that Customs officers do have the power to suspend liquidation of entries suspected of being subject to antidumping or countervailing duty orders, even where the scope of those orders is ambiguous.

In Sunpreme, Inc. v. United States, No. 2018-1116 et seq., the 12 judges of the CAFC vacated and remanded an earlier panel decision which held, by a 2-1 vote that Customs did not have the authority to suspend liquidation of entries absent clear guidance or instructions from the Commerce Department. AAEI filed an amicus curiae brief urging the Federal Circuit not to reconsider the Merit Panel’s decision.

Now, however, the Federal Circuit has vacated the panel opinion and an earlier decision of the Court of International Trade and ruled – unanimously, with one Judge not participating– that Customs does have the authority to suspend liquidation of entries under antidumping or countervailing duty orders even where those orders are ambiguous.

In Sunpreme, Customs suspended liquidation of certain entries of a particular type of solar panel, asserting that they were within the scope of an antidumping and countervailing duty order against Solar Cells from the People’s Republic of China. After Customs suspended liquidation, the Commerce Department initiated a scope proceeding. It ultimately determined that the products in question were within the scope of the order, a decision subsequently upheld by both the CIT and the Federal Circuit. However, both the CIT and the Federal Circuit said that entries made prior to the initiation of the scope determination must be liquidated without the assessment of AD and CVD duties.

One judge dissented, asserting that Customs should have the ability to suspend liquidation of liquidation even where the scope of an antidumping or countervailing duty order is ambiguous.

Rather than granting a motion for rehearing and holding new arguments before an en banc panel of the Court, the Federal Circuit simply granted the rehearing request and vacated and replaced the Merit Panel’s opinion.

The CAFC concluded that Customs’ 19 U.S.C. § 1500 power to determine and fix duties gives it the power to suspend liquidation of entries even where the scope of an AD or CVD order is unclear. If, following a Commerce scope proceeding the goods are determined to be within scope, Customs’ suspension is to be treated as the continuation of an existing suspension. Commerce’s scope determination regulation [19 C.F.R. §351.225] permits the assessment of AD or CVD duties on such entries. The panel concluded that:

“While Customs may not expand or alter the scope of such orders, its authority and responsibility to determine whether they apply does not dissipate simply because an order lacks perfect clarity. Contrary to the CIT’s conclusion, Customs’ yes-or-no answer to whether an order applies does not invade the interpretative province of Commerce. Any other result would significantly limit Customs’ ability to perform its statutory role and would encourage gamesmanship by importers hoping to receive the type of windfall that Sunpreme seeks here.”

The en banc panel asserted that Customs’ power to “fix the final amount of duty” under 19 U.S.C. § 1500 did not simply exist in cases where the scope of an AD or CVD order was perfectly clear, but also extended to cases where AD or CVD orders are ambiguous. The Court took pains to distinguish earlier decisions limiting Customs’ power to make determinations regarding whether goods are covered by the scope of AD or CVD orders, and overruled them to the extent they suggested that Customs lacked the power to suspend liquidation.

The Federal Circuit held that Customs’ decisions to suspend liquidation are ministerial and are not entitled to the same type of deference as Commerce’s formal scope determinations The court’s decision appears to assume that, after Customs suspends liquidation, the importer will have access to the Commerce Department scope procedure to obtain clarity. But this may not be true in many cases, creating considerable legal issues, and situations where the courts may be called upon to review scope decisions made by Customs, without any input from the Commerce Department. The court said:

“When Customs believes an antidumping order covers a particular imported good, it suspends liquidation of that entry. Answering that question does not transform Customs’ yes-or-no question into an interpretative act that would “modify Commerce’s determinations” or otherwise impinge upon Commerce’s authority to issue and set the scope of duty orders.”

Finally, turning to policy considerations, the en banc panel suggested that barring Customs from suspending liquidation based on ambiguous orders “would create perverse incentives for importers, contrary to the remedial and revenue-driven policy of the statute” to try and avoid the assessment of AD and CVD duties.

As a result of this decision, Customs is expected to become much more aggressive in demanding deposits of AD and CVD duties from importers in questionable cases. The decision will be problematic for many importers.