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Court Upholds Differing Treatment of NAFTA Post-Entry Duty Refund Claims

Tuesday, May 13, 2014
Sandler, Travis & Rosenberg Trade Report

In a May 9 decision, the Court of International Trade upheld U.S. Customs and Border Protection’s reasoning for treating post-entry claims of NAFTA preferential duty treatment under 19 USC 1520(d) differently for purposes of waiver depending on whether they were submitted traditionally or through CBP’s reconciliation program.

In the test case Ford Motor Company v. U.S., the CIT ruled in 2011 that CBP properly denied Ford’s NAFTA post-entry duty refund claims for certain shipments of automotive parts from Canada because the associated certificates of origin were not submitted within one year of the date of importation. The Court of Appeals for the Federal Circuit later agreed but pointed out that NAFTA allows the one-year CO filing requirement to be waived. Because CBP did not extend such a waiver to Ford’s traditionally-filed claims while granting a waiver to claims filed through the reconciliation program, the CAFC remanded the case to the CIT to determine whether there is a reasonable explanation for this differing treatment.

CBP subsequently explained that the difference is the result not of two different interpretations of 1520(d), as Ford had argued, but of the reasonable application of two different statutory schemes: one controlling reconciliation, which holds that the presentation of the CO may be waived, based on a general policy determination that the entry process should be automated and streamlined, but also requires the COs to be retained; and the other controlling post-entry NAFTA claims only, which allows CBP to waive possession of the CO for purposes of granting NAFTA eligibility. CBP also pointed out that it can reliquidate reconciliation entries and penalize importers if the CO presentation requirement is waived but the goods are later found to not be NAFTA eligible, safeguards that are not available once CBP has taken the irreversible decision to waive the requirement under 1520(d) for the CO to be in the importer’s possession.

The CIT accepted this reasoning despite noting that CBP “has not always provided importers the clearest guidance on this issue.” The court also said that Ford’s argument would effectively remove the discretion expressly provided to the port director (as allowed by statute) to grant or deny waiver under the traditional process for filing NAFTA post-importation claims. The court thus rejected Ford’s argument that CBP must approve all of the disputed claims and refund the duties paid with interest.

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