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CIT Upholds Requirement to Pay Duties Before Filing Suit

Monday, September 16, 2013
Sandler, Travis & Rosenberg Trade Report

A long-running court battle being waged by an importer hit with a 2,400% tariff increase took another turn this month when the Court of International Trade threw out a case because the importer did not pay the duties owed before filing suit. The CIT acknowledged that this requirement imposed a significant burden in this case but rejected the importer’s claim that it is unconstitutional.

The CIT’s Sept. 4 decision in International Customs Products Inc. v. U.S. is the latest in a succession of cases involving the classification of 99 entries of white sauce. In 1999, ICP received a CBP ruling classifying the goods under HTSUS 2103.90.90, which carries a 6.4% duty rate. In April 2005 CBP issued a CF 29 reclassifying the goods under HTSUS 0405.20.30, dutiable at$1.996/kg, a 2,400% increase. CBP did not revoke its initial ruling until late 2007.

ICP timely protested all 99 entries. One was protested separately, accelerated disposition was requested, and after the protest was deemed denied ICP paid the duties owing on that entry and filed suit with the CIT. In that case the CIT found in favor of ICP and ordered CBP to abide by its original ruling until the effective date of the revocation. CBP has appealed that decision to the Court of Appeals for the Federal Circuit and has suspended action on other protests covering 85 additional entries pending a final ruling.

The remaining 13 entries were covered by another protest that was also denied by CBP, but in this instance ICP did not comply with the mandate under 28 USC 2637(a) to pay the duties owed before filing suit with the CIT because of the amount involved - $28 million. ICP argued that the CIT has jurisdiction to hear the case anyway, but the court said the pre-payment requirement is a condition on the waiver of sovereign immunity and must therefore be strictly observed and is not subject to implied exceptions.

ICP then asserted that 2637(a) itself is unconstitutional because it effectively prevents ICP from accessing the courts and thereby deprives it of property without due process of law. ICP thus requested what the court calls the “unprecedented and startling relief” of dispensing with this provision in this case to permit the CIT to have jurisdiction over ICP’s other claims.

The CIT rejected this request, but not without some sympathy for ICP’s position. The court noted that the pre-payment requirement has been around in one form or another since at least 1774 and that no court since then has found it to be unconstitutional. On the other hand, there appears to have been no other case in which the allegedly unlawful reclassification and liquidation of an importer’s goods has resulted in an increase in duty liability approaching the magnitude alleged in this case, either in relative (2,400%) or absolute ($28 million) terms. The court warned that if the pre-payment requirement does not violate ICP’s constitutional rights in this case, “CBP would seem to have an effective license to insulate its future actions from judicial review” because “there would appear to be no meaningful check on [its] power to arbitrarily and retroactively reclassify goods of a disfavored importer, with total disregard to any binding ruling letter, under a tariff subheading that would impose a duty liability too great for the importer to pay.” As long as such a reclassification created an insurmountable financial barrier to the plaintiff, the CIT would not have jurisdiction under 19 USC 1581(a) to review “even the most egregious agency action.” The court concluded that while in this case the pre-payment requirement “seems both harsh and unfair,” this situation does not rise to the level of unconstitutionality.

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