CAFC Judges Question Proposed Test for Determining If Entry 'for Exportation' to US
Judges at the U.S. Court of Appeals for the Federal Circuit last week appeared skeptical of arguments made by counsel for Midwest-CBK that its goods sent to U.S. customers from Canadian warehouses weren't sold "for exportation into the United States" and thus were properly liquidated using deductive value (Midwest-CBK v. U.S., Fed. Cir. # 24-1142).
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CBP had instead liquidated Midwest-CBK's entries between 2013 and 2014 using transaction value, with a 75.75% "uplift." The relevant goods had been bought from foreign suppliers who would then ship them to Canada. Then, when an order from a U.S. customer was made, the goods would be shipped via third-party overland truck to the U.S. (see 2205200032).
Midwest-CBK argued that the use of the shipping term "[Free on Board] Buffalo, New York" on the purchase orders meant that its customers perceived the transaction as a domestic sale, so the sales were not for export to the U.S. and transaction value couldn't be used for the entries.
Patrick Klein, counsel for Midwest-CBK, said a sale for exportation to the U.S. requires a contract between an exporter and U.S. buyer and a "meeting of the minds" on whether the goods are being exported. CAFC Judges Sharon Prost and Tiffany Cunningham, along with Judge Richard Andrews, who sits on the U.S. District Court for the District of Delaware, questioned Midwest-CBK's proposed test for whether goods are sold for export to the U.S. and the company's argument that its goods were deemed liquidated.
In countering this point, the government said an importer could circumvent the statute that lays out the valuation requirements by picking a particular method of shipment. After Prost picked up on this point, Klein said the "free on board" label is just "one of the few indications that the sale was not for export to the United States." Shipments with this term that are actually for export to the U.S. will obviously be shown to be for export by "some of the other factors," he said.
"Why does that dislodge a conclusion that there's a sale for export?" Prost asked, noting that the goods come over the border from Canada and were actually made in China. Klein responded that the test then is whether the U.S. customers understood the goods were imported.
Prost and Cunningham pressed Klein on this point, with Prost declaring that she's "not clear that the absolute failure of the meeting of the minds would dislodge" the conclusion that the goods are for export to the U.S. The judge asked whether the court should adjudicate these cases by asking every U.S. customer whether they knew the goods they bought came from China or whether they were coming from Baltimore. "I don't understand what your test is and how it would work," Prost said.
In response, Klein invoked a 1989 CIT case, Orbisphere Corp. v. U.S., for the proposition that there are a number of factors to consider in determining if a good is for export to the U.S. While Prost said the Orbisphere case was decided under a different statute, Klein clarified that Orbisphere took a holding from a CAFC case decided under a previous statute, though the actual holding of Orbisphere was on a value statute that used "very similar language" to the current statute. Cunningham noted that the CAFC isn't bound by Orbisphere, asking if there are any cases the present court is bound by. Klein said there "really hasn't been an opinion on point."
The majority of the court's questioning of DOJ attorney Monica Triana concerned Midwest-CBK's other claim in the case, which is that the entries at issue were deemed liquidated, since CBP allegedly had no basis to continue extending liquidation and had all the information it needed in June 2014 to appraise the importer's entries. CBP nonetheless extended the liquidation of the company's entries and requested that CBP's Office of Regulatory Audit conduct an audit of the appraised values.
The audit fieldwork took place in February 2014, and Midwest-CBK said it submitted all requested information by June 2014. However, CBP kept extending liquidation of the importer's entries for two more years. The auditors issued their final report in February 2016, which repeated a conclusion from a draft report from July 2015 that the company's goods should be appraised according to transaction value.
The judges pressed Triana on whether CBP took too long to review Midwest-CBK's entries, first ascertaining from the DOJ attorney that the standard of review is an abuse of discretion standard. Prost asked Triana about CBP's liquidation extension process and about whether the agency had to explain itself prior to extending liquidation, to which Triana responded that it didn't.