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Importer to be Penalized for Lack of Reasonable Care, False Statements

Monday, July 24, 2017
Sandler, Travis & Rosenberg Trade Report

The Court of International Trade ruled recently that an importer negligently entered three types of freezable products designed to keep beverages cold by means of misclassification. The court ordered the importer to pay $8,228.20 in unpaid duties plus prejudgment interest but said more information is needed before a penalty can be assessed.

The importer consulted a customs broker concerning the classification of one of the items and argued that he exercised reasonable care because he relied on the broker’s recommended classification. However, the broker suggested three possible classifications within 20 minutes and the importer ultimately used the one with the lowest duty rate.

“Under these circumstances,” the court said, “a reasonable importer would have taken some further steps to investigate the proper classification.” Such steps might have included seeking a binding ruling, consulting the CROSS database of CBP rulings, or consulting the tariff schedule, informed compliance publications, court cases, or a lawyer, accountant, or customs consultant, none of which the importer did. It also appears that the importer did not take any such steps or even consult with the broker concerning the classification of the other two products at issue.

The CIT also finds that the importer’s classification of all three items as insulated beverage bags under HTSUS 4202.92.1000 was erroneous and that the importer thus negligently submitted materially false entry documents. The court explains that the ability to insulate within the meaning of this provision means a product can maintain temperature regardless of whether the food or beverage is hot or cold, whereas none of the component materials of the subject goods have the ability to maintain the temperature of a hot food or beverage.

CBP sought a penalty of more than $45,000 and demanded payment of the duties that had not been paid by the importer’s surety. The CIT ordered the importer to pay the unpaid duties because it failed to file a timely protest, rejecting the importer’s argument that a letter from its broker sent in response to CBP’s proposed notice of action constitutes a protest. However, the court declined to issue summary judgment on the penalty amount, citing the need for more details on the importer’s history of previous violations and ability to pay and the effect of a penalty on the importer’s ability to continue doing business.

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