Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

What Should A Lawyer Do To Claim Solicitor-Client Privilege at the Canadian Border?

Posted in Border Security, Cross-border deals, Cross-border litigation, Customs Law

question markAt the present time, the Canada Border Services Agency (“CBSA”) does not have a published or informal policy concerning what a lawyer should do to claim solicitor-client privilege during an examination of documents in a lawyer’s briefcase or electronic documents on a lawyer’s computer or PDA.

Based on the Alain Philippon case, currently before the Nova Scotia Provincial Court, a person could be arrested and charged pursuant to section 153.1 of the Customs Act (Canada) for failing to provide passwords or allowing the examination of the documents in his/her briefcase. The CBSA has the right to examine goods and electronic records are considered to be goods.  A computer is just like a suitcase (to the CBSA).

Breach solicitor-client privilege or get thrown in jail – two bad choices for a lawyer. A recommendation may be to follow the Lavallee principles.  However, any lawyer should understand that the CBSA officer and supervisor most likely have never read the Supreme Court of Canada decision in Lavallee, Rackel & Heinz v. Canada (Attorney General) 2002 SCC 61. If you are going to discuss a Supreme Court of Canada case with the lovely CBSA officer, do so nicely.

In addition, a lawyer may adapt the Law Society of Upper Canada “Guidelines on Law Office Searches“.  However, it is very important to note that the CBSA does not issue search warrants and will not have judicial approval of the examination before inspecting suitcases, briefcases, purses, wallets and electronic devices.

While the Law Society Guidelines have not been accepted by the CBSA as an acceptable approach to claiming solicitor-client privilege at the border, the Guidelines do offer guidance and are better than having no plan at all.

If your relationship with the CBSA officer is not going well, politely ask for him/her to include his/her supervisor in the discussions.  A supervisor’s job is to support the officer while de-escalating the tension. Ask the supervisor politely how you might go about bringing the documents before a court in order to balance the solicitor-client privileged documents and allowing the CBSA to do their job.

Above all else, the CBSA has a job to do and having a valid Law Society card does not give lawyers a pass on customs examinations.

NEXUS Pass Cancellations Can Have Employment Consequences

Posted in NEXUS, Uncategorized

Customs StopWhen you return home to Canada from travel abroad and receive the E311 “Declaration Card” from the airline to make your declaration to the Canada Border Services Agency (CBSA), you might not have your employer on your mind.  If you complete your Declaration Card incorrectly, or forget to declare all purchases and acquisitions while on your trip, the ramifications can move to the workplace.

We recently were retained by a client who needed to have a NEXUS pass by his employer. A valid NEXUS pass was a precondition to getting work related security clearances.  This became a problem when the CBSA cancelled his NEXUS privileges due to a misunderstanding about a declaration when he returned to Canada from the United States. It was one night, one item, one disagreement and employment panic set in.

If the CBSA cancels a NEXUS membership, they might inform you that you cannot reapply to the NEXUS program for up to seven (7) years.  This can create problems for employees who are required by their employer to have a valid NEXUS membership. If a valid NEXUS membership is a requirement to employment and you have to wait seven years to re-apply for NEXUS membership, what are you to do?

The answer is that the CBSA will not issue a NEXUS pass on the basis that is required by your employer.  The CBSA will not take your employment requirements into account.  The CBSA has adopted a zero tolerance policy whether or not your mistake is deliberate or inadvertent. In short, the CBSA will not take into account that you may lose your job.

If your employer requires you to have a valid NEXUS membership or if you work in an area where your employer may require that you obtain a NEXUS membership, you should be extra careful when traveling. Please write down everything that you purchase abroad AND acquire from others (even as gifts of freebies at conventions).  Make sure that you make inquiries as to the correct value for duty of what you receive, but did not purchase yourself. This is where you can get caught up (the CBSA will look for a value on the internet).  Check and double check.  Don’t forget exchange rate adjustments. Add extra cushion and round up.  For example, if you have cushion within your $CDN 800 exemption limit for being away more than 48 hours, use it.  There are no bonus points for declaring less.

I am feeling better

Posted in Personal Comments

Happy Face Cut OutI apologize for being away for a year from my blogging.  I started to experience Graves Disease symptoms in 2014 and needed to take time away from  Canada-US Blog in order to take charge of my health.  I am still recovering from a complete thyroidectomy and am managing my symptoms.  I am feeling much better and will be blogging more regularly.

I am very grateful for the support of those who read my blog.

GSP Refunds Clarified

Posted in Corporate Counsel, Cross-border deals, Customs Law

While the oft-rumored Federal Register notice has yet to be seen, Customs and Border Protection (CBP) did publish information about obtaining refunds under the now reinstated Generalized System of Preferences (GSP). Information about the legislation which authorized the renewal was published in our Alert dated July 14, 2015. See MS&K Alert re GSP Renewal for this Alert.

Since then, CBP has announced its computers will be reprogramed so that starting July 29th, new entries making GSP claims will benefit from the zero rate of duty. CBP has also posted on its website a general announcement and FAQs re GSP refund claims. See Renewal of GSP and GSP FAQs. A more detailed refund process is also summarized at GSP Refund Process

What CBP has announced is if you filed your entry with the GSP Special Program Indicator (“A”, “A+”, or “A*”), CBP will “automatically” refund the duty, without interest. If you did not, then what happened depends on how your entry was filed. If it was filed through ACE, a post-summary correction must be filed. If it was filed through ABI, a post-entry amendment is needed.

CBP states if you filed your entry with the SPI indicator, no action is needed. However, that recommendation anticipates all the entries will be liquidated or reliquidated because they will be identified by CBP’s program and processed. While that is likely, importers would nonetheless be wise to identify the affected entries and track their refunds. The deadline to file refund requests is December 28, 2105, so as that date nears, knowing which entries still require action by CBP is a must. For any claims which are going to be filed, CBP reminded importers to identify the entry number, line number and amount requested.

These final cautionary notes to importers qualify as reasonable care reminders:

1)         If you did not file your GSP-eligible entry with the SPI indicator, you will have to file a refund request;

2)         Make sure the origin of your goods is a country that is still GSP eligible (if not, no refund); and

3)         Be prepared to back–up your GSP claims with proper documentation and analysis, especially if the SPI indicator was not used at time of entry.

Many of these refund claims will be relatively straightforward, but a careful review of the records is important before filing any such claims. Regulatory Audit continues to make clear one of the major causes for importers to have adverse audit results is making claims which cannot be properly supported, and GSP is a program where lots of unfounded claims are regularly made.

The Times Are Changing, But Very Slowly

Posted in Aerospace & Defence, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Government Procurement, Trade Agreeements, Trade Remedies

First, we learned relations with Cuba were thawing, and now – on July 14th – there is the nuclear deal with Iran. Many American companies are clambering to make commercial deals with businesses in both countries – but not so fast! In fact, little has changed in terms of U.S. relations with either country, at least at the business level, although significant changes are likely in the future. With Cuba and Iran both, there are laws on the books that Congress will first have to change and only then, will the commercial relationship be regularized.

The first step with Cuba is for the two countries to open embassies and appoint ambassadors. On July 19, 2015, full diplomatic relations are expected to be restored between the two countries. Cuba has had a head of mission in D.C. for some time. The U.S. embassy in Havana will be opened at about the same time, but the festivities of flag raising and a formal opening will await the visit of Secretary of State Kerry in about a month. There have been interest sections in both countries, with diplomats stationed at them, but normalized diplomatic relations are in the near future of the Cuba and the U.S. Until ambassadors are appointed by both countries, the chargé d’affaires serve as chiefs of mission. While the relationship continues to thaw, until the relevant sections of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1995 (Helms-Burton), Trading with the Enemies Act, Cuba Democracy Act of 1992, and the Trade Sanctions and Export Enhancement Act of 2000 are amended by Congress, American companies will still not be able to freely conduct business with Cuban companies, and this means they also cannot do so through third parties or non-U.S. related entities. The state of the U.S. regulations can be found at 31 C.F.R. Part 515 (Office of Foreign Assets Control or OFAC) and 15 C.F.R. Parts 730 through 774 (Bureau of Industry and Security). For now at least, those hoping to travel to Cuba will still need to fall into one of the recognized travel categories, see http://www.treasury.gov/resource-center/sanctions/Documents/tab4.pdf for more details.

With Iran, the situation is even less predictable. The Joint Comprehensive Plan of Action (JCPOA) was entered into last week between Iran, China, France, Germany, Russia, the U.K., the U.S. and the High Representative for Foreign Affairs and Security Policy for the European Union. The first step is this plan must be approved by the U.N. Security Council. The reaction of the U.S. can be found at: https://geneva.usmission.gov/2015/07/15/key-excerpts-of-the-joint-comprehensive-plan-of-action/. The key excerpts include:

  • A Joint Commission consisting of representatives from the above-listed countries will be established to monitor the implementation of the JCPOA and to carry out its functions.
  • The IAEA (International Atomic Energy Agency) will be requested to monitor and verify the voluntary nuclear-related measures as detailed in the JCPOA. The IAEA will also be requested to provide regular updates to the Board of Governors of the JCPOA and the U.N. Security Council.
  • The signatory countries will submit a draft resolution to the U.N. Security Council endorsing the JCPOA, affirming that its successful conclusion marks a fundamental shift in its consideration of this issue and expressing its desire to build a new relationship with Iran.

Of immediate interest to American businesses is the following language regarding the sanctions currently in place by the U.S. on Iran:

  • The U.N. Security Council resolution endorsing the JCPOA will terminate all the provisions of the previous U.N. Security Council resolutions on the Iranian nuclear issue simultaneously with the IAEA-verified implementation of agreed nuclear-related measures by Iran and will establish specific restrictions.
  • The EU will terminate all provisions of the EU Regulation, as subsequently amended, implementing all the nuclear related economic and financial sanctions, including related designations, simultaneously with IAEA-verified implementation of agreed nuclear related measures by Iran as specified in Annex V (the implementation plan).
  • The United States will cease the application, and will continue to do so, in accordance with the JCPOA, of the sanctions specified in Annex II (starting in the U.S. with the sale of commercial aircraft, and the importation of Iranian carpets and caviar), to take effect simultaneously with the IAEA-verified implementation of the agreed upon related measures by Iran as specified in Appendix V. (Note: U.S. statutory sanctions focused on Iran’s support for terrorism, human rights abuses, and missile activities will remain in effect and continue to be enforced.)

– Eight years after adoption or when the IAEA has reached the Broader Conclusion that all the nuclear material in Iran remains in peaceful activities, whichever is earlier, the United States will seek such legislative action as may be appropriate to terminate or modify to effectuate the termination of sanctions specified in Annex II.

The plan of the parties to implement this deal is contained in the implementation provisions, as noted, that is Annex V. The EU will take the lead on the enabling U.N. Security Council resolution. Once the U.N. acts, IAEA will be asked to validate Iran’s compliance with the terms of the JCPOA. Only once compliance is validated are the current sanctions relaxed on the schedule agreed between the parties. The text of the agreement (with annexes) can be found at: http://eeas.europa.eu/top_stories/2015/150714_iran_nuclear_deal_en.htm.

While the framework exists for normalized relations between the U.S. and both Cuba and Iran, actual normalization will take quite some time, and so companies are wise to not “jump the gun.” While the Cuba relationship has gotten to the point where financial transactions can be accomplished more easily than pre-thaw times, there remain many roadblocks to making a commercial deal with a Cuban company. With Iran, the nuclear deal is a great accomplishment in its own right, but a very small step in moving towards regularized commercial dealings.

The great wild card in all of this is what will Congress do and when? Any doubt things have not changed yet when it comes to trading with Iran can be found on the OFAC website at: http://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx, where OFAC states: “The U.S. government will publish detailed guidance related to the JCPOA prior to Implementation Day.” Implementation Day is the combination of when the U.N. Security Council passes its resolution removing the sanctions and the EU and U.S. do the same as relates to Annex II sanctions, but the sanctions removal only occurs once IAEA confirms compliance by Iran with the terms of the JCPOA. In the meantime, when it comes to trade with Iran, those regulations will continue to be found in 31 C.F.R. 560.

Trade Preference Programs Get New Life

Posted in Cross-border deals, Cross-border trade, Customs Law, Trade Agreeements

Originally published by the Journal of Comerce in July 2015

In the last few months, there has been extensive press coverage about the President’s trade agenda and the ultimate Congressional grant of Trade Promotion Authority. As noted in that coverage, the Trans-Pacific Partnership (TPP) (the Trans-Pacific trade deal being negotiated with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) and the Transatlantic Trade and Investment Partnership (TTIP) (the equally important trade deal proposed with the EU countries – Austria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece (yes – still, at least as of date of initial publication), Hungary, Ireland, Italy, Latvia, Lithuanian, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom), are now likely realities, but not in the next few months. While those negotiations continue, and later this month there is a TPP meeting in Hawaii, of more immediate interest to international traders is the Trade Preferences Extension Act of 2015. On June 29, 2015, it became Public Law No. 114-27.

Pursuant to its terms, the Generalized System of Preferences (GSP) was extended to December 31, 2017 with retroactive effect to July 31, 2013 (when it last expired). The African Growth and Opportunity Act (AGOA) was extended to September 30, 2025, and continues to include third country yarns and fabrics. Plus, Haiti continues to receive duty deferral benefits for its apparel articles under the Caribbean Basin Economic Recovery Act (CBERA) until September 30, 2025.

Regarding AGOA, third country yarn eligibility includes yarns originating in the United States or one or more beneficiary sub-Saharan African countries or former beneficiary sub-Saharan African countries. The third country fabric program grants duty-free treatment of apparel articles wholly assembled, or knit-to-shape and wholly assembled, or both, in one or more lesser developed beneficiary sub-Saharan African countries, regardless of the country of origin of the fabric or the yarn used to make those articles.

With much of the benefit of these various trade preference programs focuses on apparel and textile products, by this new law, the President, through the Department of Agriculture, is directed to identify AGOA eligible sub-Saharan African countries having the greatest potential to increase marketable exports of agricultural products to the United States and the greatest need for agricultural technical assistance, particularly with respect to developing food safety standards, and provide assistance.

Regarding GSP, Section 201 of the new law provides:

(B) REQUESTS.—A liquidation or reliquidation may be made under [the provision which extends the effective date] with respect to an entry only if a request therefor is filed with U.S. Customs and Border Protection not later than 180 days after the date of the enactment of this Act that contains sufficient information to enable U.S. Customs and Border Protection—

(i) to locate the entry; or

(ii) to reconstruct the entry if it cannot be located.

(C) PAYMENT OF AMOUNTS OWED.—Any amounts owed by the United States pursuant to the liquidation or reliquidation of an entry of [an eligible] article under subparagraph (A) shall be paid, without interest, not later than 90 days after the date of the liquidation or reliquidation (as the case may be).

After GSP expired, importers were still able to file their entries with the “A”, “A*” or “A+” indicator, but had to pay full duty and wait for the program to be reinstated, see CSMS 13-000348 dated July 12, 2013. This “A” flag allows CBP to now quickly identify the eligible entries and issue refunds. In CSMS 14-000286 dated May 16, 2014 and CSMS 14-000326 dated June 9, 2014, importers were reminded that liquidation extensions and protests could not be entertained for goods otherwise GSP eligible, as the law had expired.

If you continued to file your entries with the “A” indicator, you will benefit in the refund process. The “A” flag allows CBP to readily identify GSP entries and issue refunds. If your entries were filed without the “A” flag, your only option is to file refund requests. Regardless of the timing, importers are advised to carefully review their records, identify each entry on which GSP could have been claimed, and make sure those refunds are timely received. If not, do not wait until the last minute to file your refund request.

Refund claims must be filed no later than 180 days after enactment, or by December 28, 2015, and must be filed for a given entry at the port where the entry was originally filed, just like any other refund claim. If you have only a handful of entries on which refunds are due, it may make sense to wait until close to the deadline to file but that is a matter of business judgment. However, if you are an importer with many such claims, it is prudent to file your claims in smaller batches, and to do so as soon as you are able to adequately identify them. At the same time, importers are cautioned CBP could seek supporting documentation which establishes the eligibility of the goods for GSP benefits, especially if GSP was not claimed at time of entry filing. So, in order to streamline the refund process as much as possible, when filing refund requests, importers should consider doing more than simply saying here is a list of my entries (or entry lines) and give me my money! Do you have documentation from your supplier which supports GSP eligibility? Have you performed a recent analysis to establish the 35% value added requirement (labor and materials) is met? Does double substantial transformation occur? Are you able to fully document and support your GSP claims? If not, it is late to start, but be prepared to support those claims when you file your refund requests.

The sooner you file, the sooner you are likely to get your GSP refund, so why wait? So far, at least, CBP has not issued the expected notice about how it intends to process these refunds. As such, waiting to see what CBP says is a good move, but don’t sit around. Right now, figure out which entries are eligible for refunds, and get your paperwork in order. Then, once CBP issues its guidance document, you will be ready to file your refund claims. In this context, it is important to recall the August 11, 2014 letter from Headquarters to the CBP filed offices, and subsequent CSMS (see 14-000458 and 14-000460 dated August 14 and August 15, 2014) . This combination of messages took issue with using post-entry amendments, including protests, as the vehicle by which for the first time to raise a duty refund claim for GSP claims (and others). CBP concluded the law does not allow it. There is much speculation in the legal community about whether that conclusion would be upheld by the courts, but for now, it remains the standard. For that reason alone, seeing what CBP has to say about how it intends to process GSP refunds is worth the wait.

Further, while the law mandates those refunds should be issued within 90 days of filing, it is likely some refunds will take longer to process – either due to staffing considerations, or less than ideal refund requests. Whenever you receive your refund check, keep in mind, it will be without interest. Also, if you think CBP did not refund enough money, consult with your Customs or trade counsel to figure out your appeal options.

Be Careful What You Wish For!

Posted in Border Security, Customs Law

Originally published by the Journal of Commerce in June 2015

This oft-stated warning is certainly true for those who engage in international trade. For many years, industry has complained to government about different agencies wanting different information at different times in the release process; some would take the data electronically, while others insisted on hard copies; the data elements were not identical; and, if filers have to input the data more than once, the likelihood of clerical errors rises. Well, all that comes to an end on November 1, 2015 when use of ACE becomes mandatory for all cargo release and entry summary filing. October 1, 2016 is the date by which use of ACE becomes mandatory for all remaining electronic portions of the CBP cargo process. What does this mean for importers and exporters?

On February 14, 2015, President Obama issued Executive Order 13659. It requires by December 31, 2016 that all federal agencies have the “capabilities, agreements, and other requirements in place to utilize the [government’s single window system, including] the Automated Commercial Environment, as the primary means of receiving from users the standard set of data and other relevant documentation (exclusive of applications for permits, licenses, or certifications) required for the release of imported cargo and clearance of cargo for export…” Customs and Border Protection (CBP or Customs) has announced it is ceasing operation of its existing computer system, the Automated Commercial System (ACS), on November 1, 2015. Everything migrates to ACE by then!

The single window concept has been long in coming. The idea is the filer (customs broker, freight forwarder, self-filing importer or self-filing exporter) provides information about his shipment into one computer system run by the government. That system makes the information available to the federal agencies with jurisdiction over the goods in question which review it, and then determine whether or not the shipment may proceed. Many have heard the term – ITDS – International Trade Data System. ITDS is the computer portal that provides the means by which the data is shared with the relevant agencies overseeing the goods being reviewed. The CBP piece of this system is ACE. The concept is called single window because it meets the trade’s request to the government to provide one computer portal into which all shipment details are reported, and through which permission to proceed is given by the agencies with hold authority over those goods, and is now close to becoming a reality.

To be clear, major functionality in ACE already exists, but not everything can be done in the system and certainly the interface with agencies other than CBP is a major consideration, especially to facilitate the release of shipments to export or import. On the plus side, many of the federal agencies are already working closely with CBP to be ready by the November 1 deadline, but some still lag behind. CBP held its Trade Symposium in Tacoma, WA on May 27th. Honestly, the more interesting and relevant topics were covered at the event which occurred the following day, at the “ACE / ITDS / Single Window Conference” hosted by the Pacific Coast Council. The most impressive panel of the day featured representatives from the Food and Drug Administration (FDA); U.S. Consumer Product Safety Commission (CPSC); U.S. Department of Agriculture (USDA), Animal & Plant Health Inspection Service (APHIS), Plant Protection & Quarantine (PPQ); USDA, APHIS, Veterinary Services; USDA, Food Safety and Inspection Service (FSIS); USDA, Agricultural Marketing Service (AMS); and Environmental Protection Agency (EPA), Office of Environmental Information discussing together their efforts to be ready by November 1, 2015.

Once fully operational, ACE will fundamentally change the way in which industry and the government conduct business. Because customs broker interface with CBP and so will use ACE, all shipment data will be electronically transmitted through ACE (with rare exceptions) for all the federal agencies with release authority, and so the review of shipment data (export and import) by those agencies should be faster. Risk management will also take a major step forward as information will be promptly available to the deciding agencies. To be clear, ACE applies to exports as well as imports. In fact, exporters should benefit greatly just from the fact Census is uploading its AES data into ACE. As of late June, exporters will now be able to retrieve shipment data for auditing and compliance review without the need to make a formal written request to Census. All you need is an ACE account.

Holds on shipments will be managed by CBP for those agencies which do not directly interface with the filing public. By way of example, FDA will continue to process shipments under its jurisdiction, plus, ACE will allow the agency to eliminate paper notices. Instead, importers will receive their notices through their ACE accounts. On the other hand, EPA and the USDA agencies will issue their releases through CBP via ACE.

The part about being careful what you wish for comes with the significant challenges which remain.   First, FDA released its programming requirements on May 20th. This was the last significant set of data elements needed for software vendors to finalize their systems. No more excuses! Anyone who has ever installed new programming knows you need lots of time to test. First, the vendors (or self-programmers) need to program and test, then they need to roll the software out to their customers – the customs brokers and self-filing importers – who also need time to test, and then all the bugs need to be worked out. Obviously the time between May 20th and November 1st is very short. There is massive concern whether everyone will be ready, the government included. However, CBP, FDA and other agencies are saying they will stand up war rooms when testing starts this summer, so that when the switch is thrown on November 1, as many glitches as possible will have been identified and resolved.

FDA announced it will start testing ACE functionality in July. Various agencies within USDA are seeking participants in pilots they want to run this summer, too. All-in-all, there is much left to do. Whether you are a customs broker or self-filing importer, does your software vendor have its programming ready? If not, when will it be released for testing? If you are an importer, have you figured out the additional data elements you will need to provide to your customs broker? Keep in mind that whereas in the past, the customs broker received the hard copy document (such as licenses, permits and certificates) and conveyed those originals to the relevant agency, now your customs broker is going to be keying that data into ACE. Do you have a way to transmit the data to your broker electronically? If not, why not? On the export side, AES is going to migrate into ACE. Are you ready for that change?

The general consensus among all the agencies is the earlier entries can be filed in advance of arrival, and declarations in advance of export, the more likely it is the release will occur prior to or at time of arrival/departure. The agreed upon pre-file time frame minimum seems to be three (3) days for ocean shipments, with shorter periods for other modes of transportation. That’s the good news. The less than good news is the possibility of data creep. This is the phenomenon where agencies ask for more data elements than are mandatory for an admissibility/release decision. CBP is on the look out for this, but in the end, each agency sets its own requirements.

For importers, the key factor to keep in mind is whatever agencies have jurisdiction over the entry and release of your goods will now be able to see that data in real time in ACE. Similarly, whereas many of those agencies previously saw only release data, once on ACE, they will now also be able to see entry data. That means, if there are changes made to your import declaration between time of release and time of duty payment, those changes will be obvious. As such, you can bet if those changes have to anything do with admissibility factors, the path to enforcement action will be swift and based on easily retrievable ACE data.

On the export side, the tedious delays arising when CBP has a question about whether a license is required for a particular export, and so routes that question through the Exodus Command Center which interfaces in D.C. with State and Commerce (or others), should now be reduced as a result of quicker communications between the agencies. At the same time, on the enforcement side, State and Commerce will more easily be able to see license declinations and discern patterns about exported goods, simply by accessing data in ACE.

CPSC has already announced it will not be one of the agencies on-boarding on November 1st. This delay is caused by the Commission needing to first resolve the electronic filing of the certifications required by the Consumer Product Safety Improvement Act, but other legal and regulatory changes are also needed. Nonetheless, CPSC expects to begin testing electronic targeting this summer.

The changes in the law/regulations issue CPSC acknowledges is one which other agencies may need to work through as well. If you import a product that requires a phytosanitary certificate (for example), the relevant USDA agencies may be willing to accept that data electronically since they are on ACE, but if you are audited or investigators start looking at your operation, will they understand and accept you no longer receive a written release from CBP? It’s now all electronic.. How will that work in your world?

One thing common whether we are discussing imports or exports, and something companies need to think carefully about, is the impact of all the agencies being able to look at your shipment data in ACE. This fact will allow the agencies to use data mining in a way that has not been possible in the past, and could lead to some “interesting” enforcement actions in the future.

If your customs broker or freight forwarder has not already started talking to you about the changes to your operation coming with ACE, now is the time you should be asking questions. Waiting until October is too late! Set up your ACE account now!

To learn more about ACE and how it will impact your business, take a look at the ACE portion of the CBP website, see http://www.cbp.gov/trade/automated. You can sign up there for messages about ACE, locate training sessions and check the Frequently Asked Questions for more details. The ACE program on May 28th was just the first of many CBP is sponsoring with the support and direct involvement of many partner government agencies. Unless you are sleeping through the next few months, there is no excuse for you not to know what changes are coming to your business – whether import or export. Also keep in mind, ACE is one step, with the longer term expectation of an international single window!!!

Defaltegate and International Business?

Posted in Uncategorized

Originally published by the Journal of Commerce in May 2015

Deflategate and laptop searches – these are not topics which seemingly have much in common. Their relationship to international business appears even more remote, but like so many international business/commercial issues, their outcome turned on the quality of the policies and procedures of the involved parties.

Let’s start at the beginning. For those who do not follow sports, Deflategate is all about allegations the New England Patriots cheated by using under-inflated balls during the first half of the American Football Conference playoff game against the Indianapolis Colts on January 18, 2015. The Patriots went on to win that game and eventually the Super Bowl. The cheating allegations were investigated by the National Football League (NFL) which meted out its own punishment. The relevance of this incident for our purposes is the outcome of the case turned, in large part, on text messages of two team employees whom the NFL required to turn over their cell phones, and the refusal of Quarterback Tom Brady to make his text messages available to the NFL under any circumstances. There is no doubt if the investigation had instead been a lawsuit, Mr. Brady would be required to turn over his text messages or run the risk of incurring the judge’s wrath, charges of spoliation of evidence and other sanctions, such as being barred from introducing specific evidence at trial.

As far as the policies and procedures issue goes, the team owned the cell phones of the employees so their production could be compelled. On the other hand, as a member the player’s union, Mr. Brady’s compliance could not be compelled. This incident serves as a reminder to employers to review their policies about cell phones and other electronic devices. For example, it is common for employers to have policies that allow complete access to all company-owned devices. Does your policy extend to those devices where cost is reimbursed? How about those devices on which company business is conducted (regardless of ownership)? Do your company policies need to be updated?

The laptop search case involved action by Homeland Security Investigations (HSI) in seizing a laptop computer from an outbound traveler for the sole purpose of seeking evidence of criminal activity. See U.S. v. Jae Shik Kim, Karham Eng. Corp., Crim. Action No. 13-0100 (ABJ), U.S. District Court for the District of Columbia (May 2015). The defendant brought a motion in his criminal case to suppress the seized evidence. The court granted it! This all began as an HSI agent was conducting an investigation into export violations involving controlled articles sold to Chinese businessmen who resold them to Iranian buyers. One individual had been arrested and was cooperating. The HSI agent suspected the outbound traveler, but had no real evidence beyond an allegation from the cooperating suspect.

Both individuals were thought to have participated in an illegal export in 2008. The agent testified he wanted to get his hands on the laptop as he thought it would contain evidence about that past violation and possibly current illegal activities, but he could not list any current illegal activities for which Mr. Kim was under suspicion. Due to this past activity, Mr. Kim’s name was in the relevant database, so when he arrived and left the country was known to HSI. HSI waited to seize the laptop until he was leaving, in the hope there might be something on it about current illegal activity.

The laptop was seized at LAX. It was neither opened nor activated at the time. Mr. Kim was considered so low risk, he was allowed to catch his flight. HSI sent the laptop to its forensic lab in San Diego for further analysis. As is common practice, the laptop was mirrored, software was used to identify relevant email traffic based on key word search terms, and the identified emails were reviewed by the investigating HSI agent. The agent then swore out an affidavit to support a search warrant which was granted by the judge. The affidavit went into detail, as they commonly do, about the steps that would be taken as part of the forensic analysis. However, all the steps described in the affidavit had already been taken. At the hearing on the motion to suppress, the HSI agent admitted nothing more was done to that data as a result of the search warrant being issued. The computer itself has long since been returned to Mr. Kim.

The judge spent some time in the decision discussing prior decisions by various courts, but, in the end, she found there was no reasonable suspicion to stop Mr. Kim. There was nothing in the record about his travels in the U.S. between arrival and departure which were questionable. The agent testified he just wanted to get his hands on the laptop, nothing more. The judge dealt with the issue about which anyone carrying an electronic device is concerned – it contains my life, who should have access to that data and under what circumstances? The government argued it has an absolute right to search anything at the border. The judge held that may be true for national security, public safety and public health reasons, but none of those were present here. First, there was no evidence a crime had been committed at the time of the seizure, much less a reasonable suspicion about one. Second, as a general proposition, the law requires a search warrant before property can be seized. The recognized exception is in the context of an arrest and then only to protect the arresting officers from harm, or if evidence could be lost or destroyed. Those factors were not present here.

Another troubling factor (although the judge did not dwell on it) was the agent swore out an affidavit for a search warrant but never mentioned the 2008 case either there or in his contemporaneous report! Just how important could it have been if it escaped earlier mention?

While the government argued the reasonable suspicion was tied to such factors as trying to identify co-conspirators or possible buyers, the judge was not convinced. In the end, the lack of a reasonable suspicion about contemporaneous criminal activity, coupled with the fact the laptop was sent 120 miles away, and its contents mirrored and carefully reviewed over quite some time, the judge granted the motion to quash.

In rendering its decision, the District of Columbia District Court looked to Riley v. California, 134 S.Ct. 2473 (2014). That case involved a cell phone which was viewed without a warrant following the arrest of Mr. Riley. He had been stopped for a traffic violation which led to his arrest on weapons charges. What was on the cell phone (pictures, videos, caller ID and the like) was then used by the prosecution to argue gang membership with the aim of an enhanced sentence. The U.S. Supreme Court held that generally to search an electronic device, law enforcement needs to first obtain a warrant. While agencies at the border are given broader discretion, their power is not unlimited. This case reinforces the point that even the government needs proper policies and procedures. HSI needed to make sure that when personal property was seized, that seizure complied with all the legal requirements. Here, the HSI agent was totally out of line and a possible piece of evidence of a potentially serious crime was lost.

Given their context, these cases are stark reminders that everyone must have policies and procedures in place which are current and followed. The government lost evidence in the Kim case because the agent took improper action. Mr. Brady has appealed the punishment the NFL imposed on him. Whether or not he manages to lessen that punishment, the court of public opinion yields a naïve but typical reaction – if he had nothing to hide, why not turn over his text messages? Can the damage to his reputation be repaired?

While neither of these cases is the sort of situation where the typical business finds itself, these cases are strong reminders for entities of all sizes and business purposes to regularly review their policies and procedures, make sure they are up-to-date, employees are properly trained and those policies and procedures are actually being followed.

Too Little, Too Late!

Posted in Corporate Counsel, Transportation

First published by the Journal of Commerce – May 2015

On April 3, 2015, the Federal Maritime Commission (FMC) issued a report entitled: “Rules, Rates and Practices Related to Detention, Demurrage and Free Time for Containerized Imports and Exports Moving Through Selected United States Ports.” The report summarized the results of a series of listening sessions the FMC conducted during the recent port congestion challenges. While it is understandable the FMC wanted to report what it learned, the FMC missed a golden chance to be relevant during a critical time. Yes, it is true the steamship lines wanted to charge a $1,000 congestion fee which the FMC stopped by pointing out such a surcharge was not provided in the carriers’ tariffs, but that really did nothing to help the shipping public not get stuck with ridiculous amounts of demurrage and detention in circumstances where the carriers could not deliver the cargo due to their own actions. There should be no confusion – the unions are not off the hook. They made mess of the economy, too, but in this context, it is the carriers which the FMC oversees, and they were totally ridiculous in how they dealt with port congestion and their inability to release cargo!

The listening sessions took place in Los Angeles, Baltimore, Charleston and New Orleans. What the FMC heard was relatively uniform. Shippers were repeatedly told cargo could not be picked-up due to on-dock congestion and gate delays, and demurrage and detention were still charged even though there was nothing the beneficial owner could do to get his goods moving. A corresponding problem which the FMC did not report on was the mess the situation caused for truckers, many of whom reported multiple occasions of being told a shipment was available only to arrive, find out it was not, and have this happen time and again – in at least one case 13 times!

The FMC report also acknowledged that after its listening sessions were completed, many more informal complaints were received. The Commission then instructed its staff to prepare a report about demurrage and detention free times, rates, practices and the like, and also to summarize situations where charges were assessed even though it was the carrier causing the delays and charges.

This report has some interesting facts in it, but little more which is truly useful. For example, the FMC found demurrage and detention charges are higher for imports than exports. There is also no generally used formula to determine free time, or when it might be increased or decreased. There were shippers who reported steamship lines waived or reduced fees arising due to terminal congestion, but no clarification as to how many of those instances arose because the cargo owner had a service contract (i.e., buying clout) on which to rely. Another fact reported was there is no standard measure of terminal velocity as terminals and truckers have different opinions as to how to measure wait time, and then finally, there was the point that steamship lines/terminals set detention charges which vary widely.

One common factor for imports and exports was the inability to move goods. On top of that, exporters suffered the indignity of rolled booking fees. To that gets added the widespread reports of truckers not being able to timely return empties and the mess of how the G6 members stow their vessels. East Cost terminals have a habit of extending free time in the face of bad weather, but shippers using those ports made clear to the FMC, adding one day’s free time is not enough to clear out the congestion.

The critical point the FMC did report was that vessel operators have the power to “stop the clock” and waive, reduce or compromise their fees if so provided in their tariffs or service contracts. What the FMC did not do was publicize to cargo owners during the port congestion mess those carriers with such provisions in their tariffs. Anyone with a service contract with such a provision is likely a sophisticated shipper with little need for assistance, but few individual shippers know what is in a carrier’s tariff (or how to get that data) and the carriers certainly were not advertising their flexibility. Oddly, even if one knew of the provision, the carriers still put the burden on the claimant to document the delays. What – they couldn’t tell from their own records?

The FMC report also points out that both terminals and ports have the ability to require productivity standards. In the real world, what may exist on paper often has nothing to do with how things work. One need only look at what happened in Portland to realize how bad things can get, even if labor understands that job loss is a real risk.

The FMC report acknowledged truckers will need to resolve their steamship lines/terminals disputes through the arbitration provisions in their interchange agreements, but there again, how does that help cargo owners? The trucker faced a Hobson’s choice – refuse to pay and arbitrate (thereby holding up cargo release) or pay and arbitrate later (but not get paid by your customer in the meantime)!

Finally, the FMC outlined its options. It begins by stating that since the Ocean Shipping Reform Act, and based on Congressional instruction, the Commission should rely more on complaints about Shipping Act violations to take action. While understandable as a statement of how the agency is proceeding, this really does nothing to address the mess. First, now that the labor situation seems resolved, businesses are going about getting their cargo and trying to fill orders. They are not focused on making complaints, nor are they likely to do so in the future. Once things get back to normal (however that is defined), even should the FMC decide to take action, the parties who shelled out the tens of thousands of dollars which were assessed are not going to get those funds back. If the FMC ever decides to do something, it will likely proceed with enforcement efforts which, at their core, collect fines from violators. That money does not result in refunds to aggrieved shippers or consignees.

The report acknowledges the FMC could proceed on a public petition or its own initiative. It could explore the establishment of a public-private advisory committee whose recommendations would be non-binding. The FMC could also seek reports about certain filed agreements or even explore whether vessel operators’ charges were “unreasonable revenue sources.” Other options the Commission could employ are also mentioned. While each one of them carries unique outcomes to the parties, the one recommendation the FMC has consistently made is it wants the shipping public to file complaints. While a few will do so, the basic question one has to ask is why bother? What good does a complaint do as it will not get money back into the pockets of those aggrieved?

Any question about why filing complaints will not solve the underlying issues can be found in the statement at the end of the report: “In the absence of documented facts that provide a basis for the Commission to take action, issues regarding application of demurrage and detention charges will continue to be reviewed as part of the broader examination of port congestion.” There is only one way to read that conclusion – the FMC blinked! Instead of getting out in front of the port congestion problem by publicizing to the shipping public the contents of carriers’ tariffs, the FMC missed a golden opportunity to show its relevance to cargo owners. Despite statements from FMC Commissioners about wanting to take action, anything done now by the FMC is too little, too late!

Customs Is Again Getting Overly Creative

Posted in Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Legal Developments, NAFTA, Trade Remedies

In late October 2014, Customs and Border Protection (CBP) issued a guidance message in which it laid down new rules regarding post-importation/post-entry claims for duty preference and duty reduction programs – see CSMS re PEA/1520(d) Claims for the exact text. Specifically, CBP decided unless the program under which the duty free claim is being made specifically contains a post-entry claim process, the importer is barred from raising his claim for the first time by way of a protest. This positon may well get overturned by the courts, but in the meantime, importers need to be careful how they proceed. On the one hand, reasonable care mandates an importer not make claims he cannot support. At the same time, not all the duty deferral programs contain provisions for post-entry claims.

In its message, CBP stated the free trade agreements with the Caribbean countries (CAFTA-DR), Chile, Colombia, Korea, Mexico/Canada (NAFTA), Oman, Panama and Peru contain provisions allowing for post-entry claims. Therefore, those duty free claims must be raised by way of a 1520(d) claim, and not for the first time when filing a protest. For all the others, you must make the claim before the entry is liquidated by way of a Post-Entry Amendment (PEA) or Post-Summary Correction (PSC), or you are out of luck. Those stated by CBP to require the PEA/PSC process are AGOA, CBERA, CBTPA, Civil Aircraft Agreements, GSP, Insular Possessions, Intermediate Chemicals for Dyes and the Uruguay Round of Concession, the Pharmaceutical Products Agreement, and the free trade agreements with Australia, Bahrain, Israel, Jordan, Morocco and Singapore.

To justify its decision, CBP reached back to a case decided in 2005, Xerox Corp. v. U.S., 423 F.3d 1356 (Fed. Cir. 2005). There, Xerox filed protests seeking reliquidation of its goods as NAFTA eligible, in circumstances where the original entries contained no such claims. The trial court found Xerox’s protests were timely filed, but their claims were raised too late. NAFTA requires duty refund claims to be made within a year of entry, and Xerox’s claims were raised much later. There is admittedly language stating CBP’s decision to liquidate as entered is not a protestable decision, but the context of that discussion was on the fact the NAFTA claims were not raised in the original entry or timely thereafter. As a result, CBP could not make a decision about NAFTA when it liquidated the entries, and so no protestable decision occurred to resurrect those claims when filed after the one year deadline.

Interestingly, CBP listed Civil Aircraft Agreement claims in its CSMS memo. When those may be filed has already been addressed by the courts. In Aviall of Texas, Inc. v. U.S., 70 F.3d 1248 (1995), Aviall filed its post-entry claims in accord with 19 U.S.C. 1520(c) (the clerical error provision then in effect, since superseded by the current protest framework, and effective for an amount of time beyond the then permitted protest period). Both the Court of International Trade and the Court of Appeals for the Federal Circuit held Availl’s claims valid, despite CBP’s attempt to enforce a regulation which mandated the required certification be filed only at time of entry, and the regulation which CBP enacted was invalidated as a result. Also in accord is Gulfstream Aerospace Corp. v U.S., 981 F.Supp. 654 (1997). Having lost the argument once, CBP stuck to its guns, invoked the discredited regulation and again tried to assert Gulfstream could not file the needed certifications at time of protest – CBP lost again!

The judgment in Gulfstream, supra at 668, well makes the point about why CBP is dead wrong with the position it has taken in its recent message:

Customs has explicitly held that § 10.112 allows duty-free documentation to be submitted with a protest, even where the documentation was required at time of entry:

[A]lthough the proper documentation … establishing protestant’s GSP claim, was not filed at the time of entry, as long as failure to file it was not due to willful negligence or fraudulent intent, the documentation may be filed at any time before liquidation or … before liquidation became final…. [I]f liquidation was timely protested, the protestant should be afforded an opportunity to submit documentation establishing free or reduced duty entry.

HQ 544455 (Mar. 14, 1995) (citing HQ 555269 (Dec. 20, 1990)) (emphasis added).

The protestant was required to file, in connection with its entries, documents that would have established the eligibility of its merchandise for a duty reduction…. [T]he protestant did not file the necessary documents at time of entry, but submitted them [five months after liquidation]…. 19 CFR 10.112[sic][] provides that if the importer fails to file the documents [] at the time of entry … but failure to file was not due to willful negligence or fraudulent intent, then they may be filed at any time prior to [final] liquidation….

HQ 221603 (April 30, 1991) (emphasis added).

19 CFR 10.112 [sic] provides … that a free entry document required in connection with entry … may be filed before liquidation becomes final, if lack of presentation at time of entry was not willful or negligent. This section is applicable because [the regulation requiring reduced duty documentation] requires [the documentation] at the time of entry.

The relevant portions of current 19 C.F.R. 10.112 read: “Whenever a free entry or a reduced duty document, form, or statement required to be filed in connection with the entry is not filed at the time of the entry or within the period for which a bond was filed for its production, but failure to file it was not due to willful negligence or fraudulent intent, such document, form, or statement may be filed at any time prior to liquidation of the entry or, if the entry was liquidated, before the liquidation becomes final…” In other words, the importer may file the document(s) with the post-entry claim or protest before the liquidation becomes final! Either method is permitted.

Similarly, 19 C.F.R. 10.172 authorizes a GSP claim to be made post-entry: “A claim for an exemption from duty on the ground that the Generalized System of Preferences applies shall be allowed by the port director … If duty free treatment is claimed at the time of entry, a written claim shall be filed on the entry document by placing the symbol ‘‘A’’ as a prefix to the subheading of the Harmonized Tariff Schedule of the United States for each article for which such treatment is claimed [emphasis added].” Here again, if the importer does not make the claim at time of entry, he is permitted to make it as either a post-entry claim or a protest.

In its October CSMS message, CBP cites H193959, a ruling dealing with a Singapore-US free trade agreement claim. In this case, the goods were imported without benefit of the claim. The entry was liquidated and a timely protest filed. CBP simply said no to the claim being made for the first time by way of a protest. While citing the Xerox case mentioned above, CBP also relied on Corrpro Companies, Inc. v U.S., 433 F.3d 1360 (2006). In that decision, the court found at Point 16: “… We observed, “[i]n the absence of a proper claim for NAFTA treatment, either at entry or within a year of entry … Customs cannot make a protestable decision to deny an importer preferential NAFTA treatment. Id. at 1365…” The court’s decision is not surprising – if the law requires a claim to be made within a given time frame and the importer is too late, his request is denied. With its current position, CBP has turned that holding on its ear in order to bar duty free claims in as many ways as possible.

When it comes to duty reduction or preference claims, as illustrated above, CBP’s own regulations typically contain language making clear the claim may be made at time of entry, by a post-entry claim, but also later – before liquidation is final – by protesting. What CBP is doing with this October CSMS is forcing importer’s into an impossible situation – fail to exercise reasonable care and make the claim in the face of a lack of documentation, not make the claim and hope to get the needed documentation prior to liquidation, or waive the claim altogether if you are in doubt about your ability to get the needed documentation before liquidation. You have to wonder whether CBP considered the additional work this guidance might well create for its own staff. How many pre-liquidation claims will now be filed as close to the deadline as possible because the importer had doubt about obtaining the needed documentation earlier? Filed close to the liquidation date, CBP will not have time to consider the claim, but the letter of the October CSMS will have been met – the claim was filed prior to liquidation. Is CBP’s next step to challenge the importer for having filed his claim too close to the liquidation date and deny his protest on that ground alone?

One also has to wonder how the courts will view CBP’s position, in the face of the very clear language in so many regulations and court decisions authorizing the right to protest, especially in view of the fact of the October CSMS was issued as a guidance document and not the result of a proposed regulatory change which subjects CBP’s position to notice and comment?