Recent CIT Decisions on Negligence and Customs Rulings, NAFTA Ineligibility of Forgings Machined in Mexico
No negligence due to "approving" Customs ruling and "erroneous" Customs ruling. In U.S. v. Washington International Insurance Co. (WIIC), the Court of International Trade (CIT) ruled there was no basis for recovering $540,000 in duties from WIIC, the surety for importer(s) the U.S. had argued were, at minimum, negligent in classifying imported sweaters from Guam.
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Customs contended that the importer(s) of record had violated 19 USC 1592 in connection with the duty-free importation of sweaters assembled (by a related company) in Guam from otherwise-completed, knit-to-shape components of foreign origin, as (1) the amount declared by the importer(s) for "Guam expense and profit" was a forced number to ensure that the value added in the territory was above the 50% threshold for duty-free status, (2) the importer(s) could afford this approach as they periodically received post-importation dividends (refunded profits) from the related company, (3) etc.
However, the CIT ruled that there was no violation of 19 USC 1592 resulting from negligence (the failure to exercise reasonable care and competence), as Customs did not satisfy its burden of proof. According to the CIT, the importer had disclosed its "forced" approach and Customs had allowed it in HQ 542580 (1981). In addition, Customs had erred in HQ 661821 (2001) when it determined that the post importation dividends received by the importer(s) were according to a formula for determining transaction value (19 CFR 152.103(a)). (CIT Slip Op. 05-57, decided 05/12/05, available at http://www.cit.uscourts.gov/slip_op/Slip_op05/05-57.pdf)
NAFTA ineligibility of Brazilian forgings further machined in Mexico. In Cummins Incorporated v. U.S., the CIT agreed with Customs and ruled that alloy steel die-forged into the general shape of diesel engine crankshafts in Brazil and subject to two machining operations in Brazil and then 14 machining operations in Mexico were not eligible for duty-free treatment under the North American Free Trade Agreement (NAFTA) as "originating goods" of Mexico.
Cummins contended that, upon entry into Mexico, the product should have been classified under HTS 7224 as semi-finished products of other alloy steel. However, the CIT rejected this assertion because the product, which the CIT determined were "blanks," were not the type of blank allowed under HTS Chapter 72, and were worked to a further state in Brazil than is allowed under HTS Chapter 72.
The CIT ruled that the items were properly classified under HTS 8483 as (unfinished) crankshafts upon entry into Mexico as the product was sufficiently advanced to have the recognizable shape of the finished product and could only be converted into a single product. As the crankshafts were classified under HTS 8483.10.30 upon entry into the U.S., they did not undergo a tariff shift in Mexico to qualify as "originating goods" of Mexico for purposes of NAFTA duty-free treatment. (See ITT's Online Archives or 02/01/00 news, (Ref:00020166D), for BP summary of an earlier CIT ruling that similar Cummins crankshafts (but with less machining in Mexico and more in Brazil) also did not qualify for NAFTA duty-free treatment.)(Slip Op. 05-59, decided 05/17/05, available at http://www.cit.uscourts.gov/slip_op/Slip_op05/05-59.pdf )
Cummins Engine Company was renamed Cummins Incorporated during the pendency of this CIT proceeding.