UNITED STATES COURT OF INTERNATIONAL TRADE

Slip Op. 23-20

Before the Court in SGS Sports, Inc. v. United States, Court No. 18-00128, Slip Op. 23-20 (February 17, 2023) was defendant’s motion for a new trial rehearing or rehearing for Slip Op. 22-26. Defendant argued that the Court had failed to address its argument regarding the additional issue of whether there is a valid agreement under applicable Canadian corporate law. For the following reasons, the court granted defendant’s motion and issued an amended opinion addressing the additional issue of whether there was a valid agreement under applicable Canadian corporate law.

In Slip Op. 22-26, Plaintiff SGS Sports Inc. contested U.S. Customs and Border Protection’s denial of its administrative protests concerning swimwear and related accessories that it entered the United States in 2013 and 2014 under Harmonized Tariff Schedule (HTS) subheading 9801.00.20 duty-free, but which Customs reclassified and liquidated. A bench trial was conducted to determine if this subject merchandise was entitled to duty-free treatment under HTS subheading 9801.00.20, for which it was necessary to determine whether the Warehousing Agreement between SGS and 147483 Canada, Inc. constituted a lease or similar use agreement under subheading 9801.00.20 because this subheading provides for:

Articles, previously imported, with respect to which the duty was paid upon such previous importation . . . , if (1) reimported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad, after having been exported under lease or similar use agreements, and (2) reimported by or for the account of the person who imported it into, and exported it from, the United States.

The issue turned on Customs’ determination for reclassification of the subject merchandise. In denying SGS’ protests, Customs stated that the subject merchandise had not been properly exported under a lease or similar use agreement required under the duty-free subheading because “no bailment occurred.” In 2020, the parties filed cross-motions for summary judgment, the court denied plaintiff’s motion and granted defendant’s cross motion. But the court set aside its previous opinion and judgment when plaintiff filed a motion for rehearing. In a bifourcated trial, where phase one would resolve the issue of whether the Warehousing Agreement between SGS and 147483 Canada, Inc. is a lease or similar use agreement, and phase two would resolve remaining issues of this question, the court determined that a Warehousing Agreement existed. Evidence elicited at trial established that SGS Sport and 147483 Canada expressed mutual understanding that 147483 Canada would use the subject merchandise for the accomplishment of the purpose of action of providing warehousing and “pick and pack” services that satisfies the meaning of a similar use agreement under HTSUS subheading 9801.00.20.

In the instant opinion, the court amended its previous opinion by establishing the validity of the Warehousing Agreement under applicable Canadian corporate law. Though the government argued that the Warehousing Agreement is not a valid because SGS and Canada 147483 are a single entity that operate at the direction and sole discretion of one shareholder for the benefit of SGS, the court disagreed because the evidence was insufficient to pierce the corporate veil. Both entities were properly incorporated under Canada Business Corporations Act. Moreover, fraud, under Article 317 of the Civil Code of Quebec, was not satisfied because the government did not present sufficient evidence dishonesty or loss; nor was evidence presented to establish that SGS committed abuse of right, or contravention of a rule of public order as required under Canadian law to pierce the corporate veil. Therefore, the Court reiterated that the Warehousing Agreement is a lease or similar use agreement for purposes of HTSUS subheading 9801.00.20 and held that a trial should proceed under Phase Two of the Bifurcation Order to determine whether the subject entries qualify for duty-free treatment under HTSUS subheading 9801.00.20.