CIT Denies Surety's Challenge to Length of NAFTA Verification
The Court of International Trade on May 30 (here) denied a surety’s challenge to CBP’s extensions of liquidation on several entries while the agency conducted NAFTA verifications. International Fidelity Insurance contended that CBP’s investigation, which eventually found the textile entries did not qualify for NAFTA treatment, was rife with unreasonable delays, and that the entries it bonded should have been deemed liquidated because the extensions of liquidation were not justified. But finding CBP’s investigation “continual, if not consistent,” the court found CBP’s decisions to extend were based on well-founded agency policy.
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At issue in the case were four entries of textiles imported by Family Warehouse through the Port of Laredo in July 2007. The four entries, secured by single transaction bonds issued by International Fidelity, were among a total of 33 in 2007 and 2008 for which Family Warehouse claimed NAFTA treatment as originating goods of Mexico. Two of the entries were of a fabric called poketin, and the other two of poplin. The entries were eventually liquidated in July 2010, following two one-year extensions of the liquidation period.
After deciding to conduct a NAFTA verification, CBP in February 2008 issued a one-year extension of the liquidation period. With the liquidation deadline for all four entries now extended until July 2009, CBP issued a series of requests for information on the poketin entries to both the Mexican exporter and the producer, all of which went unanswered. CBP sent its notice of intent to deny NAFTA treatment in December 2008, followed by a notice of action denying NAFTA treatment in February 2009. Embarking on an examination of the correct classification of the poketin entries, CBP in April 2009 extended liquidation for a second time. In September 2009, having received no response from Family Warehouse, CBP sent a notice of action reclassifying the poketin entries.
Meanwhile, when checking its work in June 2009, CBP discovered it did not verify the poplin entries at all. It quickly sent a request for information to the producer, receiving no response. The next month, it notified the exporter of its intent to deny NAFTA treatment on the poplin unless more information was supplied. Nine days later, on July 25, 2009, CBP extended liquidation a second time, until July 2010. Though the exporter did supply additional information, CBP found it didn’t support the NAFTA claim and denied NAFTA treatment for the poplin entries in a notice of action sent in October 2009.
Both entries were liquidated in July 2010, before the second extension notice expired. The poketin entries were liquidated at a duty rate of 14.9%, and the poplin entries at 10.5%. Family Warehouse paid neither bill, so CBP went to collect from the surety, International Fidelity.
Considering the first suspension of liquidation, the court found the delay between entry in July 2007 and the first extension of liquidation in February 2008 was reasonable. CBP sensibly waited until the last of Family Warehouse’s 33 shipments of poketin and poplin was entered in January 2008 before embarking on its investigation. From the start, “it became clear to Customs (due to the quantity and variety of the fabrics)” that the investigation would require more time. “Customs’ reasonable practice was to cumulate entries and to send verification letters for the accumulated number of entries rather than for each entry,” CBP said. And given what’s at stake, NAFTA verifications allow multiple opportunities for the exporter or producer to respond.
The second extensions were justified because, in both cases, CBP was actively waiting for information at the time and eventually sent out more requests. There was consistent activity in the investigation, and “Customs tried to obtain information from new sources after previous requests went unanswered.” Delays resulted, but that’s because it was more efficient for CBP to combine its investigations of all the entries. Though International Fidelity pointed to customs regulations that suggest a deadline of 30 days for requests for information in NAFTA verifications, those regulations only specify how long CBP must wait for an importer’s response, not how it must act after not receiving one. “Although Customs may act after the thirty-day period has passed, it is not mandated to do so,” CIT said.
(International Fidelity Insurance Co. v. U.S., Slip Op. 17-64, CIT # 12-00064, dated 05/30/17, Judge Eaton)
(Attorneys: Taylor Pillsbury of Meeks Sheppard for plaintiff International Fidelity Insurance Co.; Amy Rubin for defendant U.S. government)