By James Sawyer and Beata K. Spuhler
For most companies importing into the United States, use of available post-importation mechanisms to correct or amend entries is common and an essential part of any trade compliance program. Whether the post-importation filing is accomplished via a Post Entry Amendment (PEA), a Protest, Reconciliation, or otherwise, having these mechanisms available allows importers to exercise reasonable care and make appropriate corrections or adjustments to entry information.
Recently, however, U.S. Customs and Border Protection (CBP) has indicated that the ability to file Protests, and potentially PEAs, in order to claim eligibility under certain Free Trade Agreements (FTAs) may be prohibited due to a policy change within the agency. In other words, according to the broad interpretation CBP now plans to implement based upon ruling and case precedent that were issued a few years ago, the only way to make a valid FTA claim under particular FTAs may be to make such claims at the time of entry.
Up until now, post-importation mechanisms were frequently used by importers to claim duty preferences, including eligibility under various FTAs, the Generalized System of Preferences, and Chapter 98 duty preference provisions. In some cases, the text of certain FTAs and the corresponding CBP laws and regulations provide a specific mechanism for making post-importation claims, i.e., through the filing of a petition under 19 U.S.C. § 1520(d) within one year from the date of importation. This specific post-entry mechanism is limited, however, to the following U.S. FTAs: NAFTA, Chile, CAFTA-DR, Peru, Korea, Colombia, Panama and Oman.
The text of the remaining U.S. FTAs and applicable CBP regulations are silent as to the available post-importation mechanisms for claiming eligibility, including the following bilateral U.S. FTAs: Israel, Jordan, Singapore, Australia, Bahrain and Morocco. Previously, CBP’s position appeared to be that when these (non-Section 1520(d)) FTAs were negotiated and implemented, post-importation claims would default to available post-entry correction mechanisms such as PEAs (or Post Summary Corrections for ACE Filers) prior to liquidation, or via the filing a Protest pursuant to 19 U.S.C. § 1514 within 180 days of entry liquidation, if a refund of duties and fees was being pursued by the importer.
Having such post-importation mechanisms available to importers for these FTAs allows necessary time to exercise reasonable care and ensure that merchandise imported into the United States qualifies for duty-free entry by evaluating applicable Rules of Origin, analyzing Bills of Material or other internal information, and confirming that the corresponding tariff shift, regional value content, or direct costs of processing requirements, as appropriate, have been satisfied. While it may be a best practice to obtain this information prior to the first importation of the corresponding merchandise so that the FTA claim can be made at the time of entry, the reality is that support for such claims cannot always be obtained prior to importation.
Based upon a recent policy change that CBP Headquarters officials have indicated is underway, pending and future Protests to claim FTA eligibility and duty refunds under the Israel, Jordan, Singapore, Australia, Bahrain and Morocco FTAs will likely be denied. The basis for the denial appears to CBP Headquarters Ruling Letter H193959, issued on July 30, 2012. This ruling letter addresses decisions by the Court of Appeals for the Federal Circuit in Xerox Corporation v. United States and Corrpro, Inc. v. United States. Based upon this precedent, CBP is apparently taking a broad-brushed and aggressive position that Protests cannot be filed to challenge the liquidation of entries to claim duty preferences under FTAs without first making the FTA claim at the time of entry. CBP appears to be stretching the holding in these cases to support its departure from longstanding administrative practice.
Notwithstanding this apparent change, the Protest provision within 19 U.S.C. § 1514 and Part 174 of the regulations is clear that a Protest can be filed to challenge “any clerical error, mistake of fact, or other inadvertence, whether or not resulting from or contained in an electronic transmission, adverse to the importer, in any entry, liquidation or reliquidation, and decisions of the Customs Service.” Protests may be filed for a variety of reasons, including changes to the declared value, tariff classification, charges or exactions, the exclusion of merchandise from entry or delivery, or even the liquidation or reliquidation of an entry, or reconciliation as to the issues contained therein, or any modification thereof.
While certain CBP officials have stated that the PEA (and PSC) mechanism will remain a viable option for making post-importation claims under the non-520(d) FTAs (Israel, Jordan, Singapore, Australia, Bahrain and Morocco), other CBP officials have insinuated that PEAs and PSCs may not be accepted going forward either. Such an extreme position appears to directly contradict the implementation instructions that CBP published for each of the FTAs at issue and is inconsistent with CBP’s own Side-by-Side FTA Comparison Chart that was last published on November 19, 2013.
In practice, a number of CBP ports of entry have regularly accepted and approved PEAs and Protests filed in connection with various post-importation duty preference claims, including the specific FTAs at issue here. However, based on this apparent imminent change, importers will be left with no post-importation mechanism for recovering duties and fees paid at the time of entry on merchandise that is subsequently determined to qualify for duty-free entry under one of these FTAs.
Given this likely change to CBP’s policy, we recommend that companies accelerate their qualification programs for the Israel, Jordan, Singapore, Australia, Bahrain and Morocco FTAs and work to make FTA claims at the time of entry, to the extent possible. Where a company is unable to qualify the merchandise prior to importation, companies should be prepared to submit PEAs (on entries filed using ABI) and PSCs (on entries filed on ACE) to recover duties and fees paid at the time of entry for the interim period. We understand that CBP anticipates issuing a CSMS Administrative Message advising companies of these policy changes within the next few weeks, which will presumably outline the agency’s next steps concerning use of the Protest mechanism, as well as PEAs and PSCs to make post-importation FTA claims for the non-520(d) FTAs. Drinker Biddle will be tracking CBP’s publication and providing it as an update once published.
If you have any questions concerning the above information, please do not hesitate to contact any member of the Customs and International Trade Team.