CBP Still Considering Appeal of Excise Tax Drawback Ruling

CBP and the Justice Department are still considering whether to file an appeal of a Court of International Trade ruling against CBP regulations to prevent excise tax drawback (see 2002270062), said Alexandra Khrebtukova, a lawyer at CBP. “That decision is not yet final” because the appeals period has not yet completed, she said. An appeal would need to be filed by April 20 and “the United States is evaluating whether to file its appeal,” she said. Khrebtukova, who spoke as part of a March 6 panel at the Georgetown University Law Center International Trade Update conference, said she was speaking on her own behalf and not for CBP or the government.

Litigation over CBP's enforcement of Section 337 exclusion orders is one issue that “has really been occupying” the Justice Department recently, said Patrica McCarthy, assistant director, Commercial Litigation Branch. McCarthy was also speaking only for herself. “I think there will be a lot of interesting developments to be decided, presumably by the Federal Circuit someday, but you never know, it could be the D.C. Circuit,” she said. McCarthy said those issues are being argued over in multiple venues, including the CIT (see 2003040057). McCarthy noted that there is a DOJ customs enforcement task force and that she expects to see more civil penalty cases during periods when there aren't many criminal referrals.

There continues to be disagreement over the case involving the Ford Motor Company and tariff engineering of imported transit vans (see 2002190033). The Ford decision is a “holding on the statutory language of that heading and is not, in my view, a broad holding on what counts as tariff engineering and what does not,” Khrebtukova said. The court was clear that in order to determine if “something is 'principally designed' for one thing or another you have to look beyond the physical structure of that merchandise as imported,” she said. The post-import processing of the vans was less relevant than the “pre-importation design goals,” she said. The court found that, based on marketing research and purchase orders for the vans, “the vehicles were not principally designed for the transport of persons,” she said.

The court also didn't address a question of whether Ford's actions were meant solely to get around the tariffs through artifice (see 1906070061), Khrebtukova said. However, “that is still the valued principle here,” she said. There are certainly legitimate ways of tariff engineering, Khrebtukova said. For example, some companies have started to add components to sets in order to change the essential character and avoid recently imposed tariffs, she said. But the companies don't remove that part after it's imported, “it just changes the set,” she said. “They did that intentionally to get into a different classification with a lower duty rate, but that's what that merchandise is.”

Barbara Broussard, a lawyer with Sidley Austin, which represents Ford in the case, disagreed about the narrowness of the decisions. As a direct result of the Ford decisions, importers will need further guidance as to “when does something inherently suggest use,” she said. If the “intended use” test can “override 'condition as imported,' you do have to understand when does the tariff classification inherently suggest use, and at the moment, that's an unpredictable test.”

Meanwhile, CBP seems to be taking longer in issuing rulings in general due to an increase in requests around the Section 301 tariffs, said Heather Pinnock, a lawyer at Cassidy Levy. As a result, businesses are looking at other options to fulfill the due diligence around changes to origin, she said. That has meant “much more involvement in supply chain decisions” early in the process, she said. Broussard agreed and said, “from a reasonable care perspective, with the increase of rulings coming out, there also needs to be more review of those rulings.”