UNITED STATES COURT OF INTERNATIONAL TRADE

Slip Op. 23-36

Before the Court in BRAL Corporation v. United States, Court No. 20-00154, Slip Op. 23-36 (March, 20, 2023) were cross motions for summary judgement in an action contesting U.S. Customs and Border Protection’s (“CBP”) denial of two protests relating to twelve entries of plywood imported from the People’s Republic of China between 2017 and 2018, which were entered based on transaction value pursuant to 19 U.S.C. § 1401a(a)(1)(A). The denied protests alleged that the subject plywood imported from China had a latent defect that caused a melamine coating to separate from the subject plywood, warranting a reduced value due to defective merchandise pursuant to 19 C.F.R. § 158.12(a). In March 2020, CBP denied the protests requesting a reduction of the appraised value of the subject plywood to 18 percent of the original value under 19 C.F.R. § 158.12(a).

Plaintiff argues that it can satisfy each of the required elements for an allowance under 19 C.F.R. § 158.12(a). The U.S. Court of Appeals for the Federal Circuit (“CAFC”) has recognized that latent manufacturing defects can qualify as “’damage’ for purposes of the regulation.” Id. In order to claim an allowance under 19 C.F.R. § 158.12(a), “an importer must: (1) show that it contracted for ‘defect-free’ merchandise; (2) link the defective merchandise to specific entries; and (3) prove the amount of the allowance for each entry.” Id. Defendant contended that Plaintiff was unable to satisfy any of the requirements for an allowance.

First, defendant argued that defendant failed to provide any written contracts providing product specifications for the subject plywood. Plaintiff contended that though no written documents existed documenting a defect-free merchandise transaction, the Court could infer an implied contract did exist based on the fact that the plaintiff placed orders of the merchandise after running some tests on certain defect-free sample plywood. The court said that a genuine issue of material fact exists regarding whether there was a contract, implied or otherwise, for defect-free plywood and, thus, summary judgment is not warranted for either party on the first element.

Second, defendant argued that Plaintiff had not connected any of the alleged defects to the specific entries covered by Plaintiff’s protests because Plaintiff imported five shipments of plywood from China prior to the first entry covered by Plaintiff’s protests and, moreover, Plaintiff received two shipments after the first entry covered by Plaintiff’s protests that were not included in Plaintiff’s protests. Defendant argued that Plaintiff has provided no explanation as to why allowances under Section 158.12(a) were not sought for these entries if all entries were after May 2017 were presumed to be defective. However, whereas Plaintiff alleged that all of the imported merchandise was defective, defendant disagrees. As a result, the court determined that genuine issues of material fact exist as to whether all of the subject merchandise was defective.

Lastly, Defendant alleged that Plaintiff has not substantiated its claim of an 18 percent salvage value and argued that even if 18 percent were an appropriate salvage value, Plaintiff has not established that it should be applied to all of the imported plywood included in the subject entries. The Court observed that potentially contrary evidence was elicited during a deposition concerning the value of the plywood. The court determined that due to remaining issues of material fact as to the value of the subject plywood and whether an allowance should be applied to all subject merchandise, summary judgment was not appropriate for either Party on the third element.

The court ordered plaintiff’s motion and defendant’s cross motion for summary judgment denied, and set out to schedule a status conference with parties to discuss pre-trial matters.