Duest

It is a new year and a lot has changed in the world. People in my field are either excited about the possibilities of major changes in trade policy or are horrified by the possibilities of major changes in trade policy.

I have had several calls about whether the U.S. will withdraw from NAFTA, impose new duties on goods made in Mexico by U.S.-based companies, and raise tariffs on goods from China. My answer so far has been, "I wish I knew." The new President and the new Congress will have a lot of authority under domestic law. The bigger questions will relate to how our trading partners respond. The U.S. has agreed many times to hold or lower duties. Going back on those promises will mean violating WTO obligations and multiple free trade agreements. Some people may not care. The U.S. remains fully sovereign and can violate any international agreements it choses. As a former partner used to say, "The WTO has no army."

But, the WTO has the ability to authorize trade retaliation. That means our trading partners will likely raise tariffs on U.S. goods in retaliation for stiffer U.S. tariffs. That makes it harder for U.S. companies to export. Add to that the impact of U.S. tariffs making it harder to import. We could end up with a situation in which domestic producers face higher costs for imported raw materials and components and then can't export their finished goods. That is a bad scenario.

Despite those two paragraphs, I tend to be an optimistic person by nature. I don't really expect the professionals who will be running White House trade policy and Congress to brazenly flout trade agreements and obligations. I don't think anyone wants to start an old fashioned trade war. But, as I said, I can't see the future. It's possible.  We all need to be watching closely. No matter your business needs and policy desires, this is a good time to make sure you have your Senators and Representative on speed dial.

Happy New Year. 2017 will be interesting.

Which brings me to the ruling of the week, N126516 (Oct. 19, 2010), in which we learn that human beings will eat just about anything. In this case, we are talking about snacking on arthropods.

Item 1: Giant toasted leafcutter ants.

Via Wikipedia

Item 2: Oven-baked tarantula spiders.

Also Via Wikipedia

According to the importer, the ants are "grown specially for human consumption" and have a "nutty, bacon-like taste." The spiders, on the other hand are "crisp, crunchy, ready-to-eat snacks." The importer also requested a ruling on scorpions that have been farm raised, detoxified, and are uncooked. For whatever reason, CBP decided it was lacking the necessary information to rule on that tasty snack.

The actual classification of the ants and spiders did not seem to controversial. These are food items prepared and packaged for human consumption. There not being a more specific place these delicacies, CBP classified them as "other prepared or preserved meat, meat offal, or blood." When canned, the classification would be 1602.90.9080; un-canned it is 1602.90.9080.

The importer here is a company called Think Geek Inc. I believe this is its website. Let me just say that this is right in my wheelhouse. I would like one of these and this and this (XL) and even this. Take all my money. I might even trade tariff classifications for gift cards. What I don't want is to eat tarantulas. And, yes, I am fully aware that arthropods provide a valuable source of protein and calories. The fact of the matter is that I get too many calories as it is. Unlike Chicago-mix popcorn and frozen yogurt, I can pass up the spiders and ants.

Next week we in the U.S. will have a new president-elect. Getting there has been an unusually disheartening referendum on the mood and direction of the country. Voting always matters, but it might matter more this year than in a very long time.

With that, we take a quick look at Von Stade v. Arthur, 28 F. Cas. 1274 (S.D.N.Y. 1876)(I cannot find a fee link). Here is the decision in its entirety:

SHIPMAN, District Judge.  The second section of the act of June 6, 1872 (17 Stat. 231), provided, that, on and after August 1st, 1872, the existing duties upon the articles which are enumerated in the section should be reduced ten per centum.  The section specifies, among the enumerated articles, "all wools, hair of the alpaca goat, and other animals, and all manufactures wholly or in part of wool, or hair of the alpaca and other like animals, except as hereinafter provided." The question in this case is, whether the duty of fifteen cents per pound upon hogs' bristles was reduced by virtue of the act which has been cited.

Waiving the question, whether it was the intention of congress to reduce the duty upon the hair of all animals, whether such hair was used or not in the manufacture of textile fabrics, I am of opinion, that, in the tariff acts, the article of bristles is separately classified, and is regarded as a different article from hair. This will appear from the act of June 30, 1864 (13 Stat. 212), which prescribes a duty upon bristles of fifteen cents per pound, and upon hogs' hair of one cent per pound. The language of the Revised Statutes of 1874 (page 480) is "Bristles, fifteen cents per pound;" "hair of hogs, one cent per pound." The term "bristles" is used in the tariff acts to denote a separate and distinct article from hair, and the bristles are not included in the general words "the hair of an animal," but have a distinct classification.

Let judgment be entered for the defendant. 

The issue here is whether a bill reducing the duty on certain animal hair applies to hog bristles? My initial thought was, are bristles hair? It turns out that they are, but that they are a unique variety of short, stiff hair. Most important to the decision is that the Tariff Act of 1864 had a separate and more specific paragraph covering bristles. By this early application of the rule of relative specificity, the Court upheld the higher duty collected by Customs.

Why is this my "Presidential Edition?" This is why:


The defendant in this case is the Collector of Customs in New York, a man known as Chester A. Arthur. President Grant had given Republican New York Congressman Roscoe Conkling authority to dole out the federal patronage jobs in New York. The Collector was the plum appointment. In that position, Arthur was able to hire hundreds of customs officers to collect duties at the then-busiest port in the country. The Collector earned as much as any federal official at the time including a portion of the value of seized property and penalties assessed. That created an incentive to find real or imagined violations. Eventually, this stopped and Customs employees became members of a professional civil service with regular salaries.

Arthur continued to rise through Republican ranks. He eventually became the leader of the party in New York and then Vice President to James Garfield. Things did not go well for Garfield.

Garfield, shot by Charles J. Guiteau, collapses as Secretary of State Blaine gestures for help. Engraving from Frank Leslie's Illustrated Newspaper

Thus, the Collector of Customs becomes President of the United States.

Did you ever see a marlin or other game fish proudly displayed as a mounted trophy and wonder exactly how one goes from landing the fish to hanging it over the mantel? I have always assumed that some portion of that trophy is the actual fish that was murdered caught through the skill and patience of the angler. I pictured a taxidermy shop where meat and entrails were scooped out and skin carefully laid over some sort of interior structure. This was, in my mind at least, a gruesome art form.

It turns out that in at least one case, modern anglers do not rely on the real fish at all for their mounted trophies. Apparently, a mounted fish trophy can now be made based entirely on the recollection of the one that got away (or was released). Don't get me wrong, in an era of over fishing and increasing sensitivity to the needless destruction of animal life, this makes perfect sense. Why kill the fish when you can have a replica made and mounted?

For our purposes, the question is whether the plastic "fish blank" that is painted to become the "release mount" is classifiable as an article of plastic in Heading 3926 or in Heading 9705 as a collector's piece of zoological interest. This was tackled (see that?) in HQ H188945 (May 9, 2016).

Any guesses?

The importer claimed that the plastic fish mounts are used "in the taxidermy industry" to make replicas of game fish and are akin to taxidermied fish mounts in construction, purpose, and channels of trade.



Customs had previously classified fish mounts in 9705. See HQ 952687 (Apr. 30, 1993). In that case, the mount was used as a base to which actual fish parts were attached. Specifically, the skin, teeth, fins, and tail of a once live fish were attached to the plastic mount. Here, the process completely dispenses with the organic fish parts.

Rather than be zoological specimens, according to Customs, these are mass produced from molds made of fish that have been caught, molded, and released. Further, these are decorative items, not likely to be used in, say, museums for scientific or educational reasons. Consequently, Customs classified the plastic fish release mounts in 3926.40.00 as "Other articles of plastic . . . statuettes and other ornamental articles."

Of course, this also dispenses with potentially troublesome compliance issues such as the Convention on Traffic in Endangered Species and APHIS clearance. It also means I can get a mounting of a purely fictional fish like the shark from Jaws or Dory.

You may recall that last year my final exam for Trade Remedies was an elaborate, cinematic fact pattern involving the DC superhero universe. See here for that. Read the comments, which are really quite good.

This year, I was not able to string together quite as detailed a fact pattern for my Customs Law class. I did, however, ask this question. Tell me what you think is the correct answer. I will be flexible, but you should not need to stretch too much.

I'll be back soon. I promise.


QUESTION 3: 25 POINTS

Ralph Dibny is the CEO of Plastico, which imports plastic in various forms from suppliers all over the world into the United States. To find suppliers, Ralph relies on two representatives. Reed Richards is responsible for suppliers in South America. Patrick “Eel” O’Brian is responsible for suppliers in Asia. Neither representative is an employee of Plastico.

When Plastico wants to purchase materials from South America, Dibny contacts Richards who then finds suppliers that can provide the necessary material. Richards facilitates the transaction by locating and approving suppliers to Plastico’s standards, creating Plastico Purchase Orders, reviewing supplier invoices for Plastico, approving payment by Plastico, and arranging transportation. For these services, Richards earns a fee of 5% of the invoice price Plastico pays to the supplier. That amount is not shown on the commercial invoice for the imported product and has not been declared to Customs as part of the dutiable value of the merchandise.

Purchasing from Asia is a different process. Eel O’Brian has relationships with several plastic manufacturers throughout Asia. When a manufacturer in Asia has excess inventory, it contacts O’Brian and asks him to sell it to customers in the U.S. The supplier dictates the lowest acceptable price and usually refuses to take responsibility for the cost of shipping and transportation insurance, which must be paid by the customer, including Plastico. O’Brian will then contact Dibny and offer the merchandise to Plastico. If Plastico wants to purchase the merchandise on O’Brian’s terms, it agrees to purchase it from O’Brian. At that point, Plastico will create a Purchase Order naming O’Brian as the supplier. O’Brian places the order with the supplier, who ships the merchandise directly to Plastico in the United States according to the terms of Plastico’s P.O. with O’Brian. The supplier invoices O’Brian who then sends Plastico an invoice showing O’Brian as the seller and including a markup to add his profit. Plastico may not know the identity of the supplier until it receives the shipment, if even then. O’Brian has similar arrangements with several U.S. customers. He negotiates prices with the U.S. customer to maximize his income. The O’Brian’s markup is included in the commercial invoice used for entry and, therefore, has been declared to Customs as part of the dutiable value of the merchandise.

Plastico is always the importer of record and is not related to Richards, O’Brian, or to any foreign manufacturer of plastics. Transaction value is the applicable basis of appraisal.

Dibny has asked for your legal advice on whether the fee paid to Richards and O’Brian’s markup are legally part of the dutiable value of the merchandise. Dibny also wants to know whether there are adjustments Plastico can make to ensure that the amounts paid to Richards and O’Brian’s markup are not dutiable.

Dear Lex Luthor,

This is in response to your implied inquiry concerning the importation of a large sample of kryptonite into the United States. You can find my response here, as published by the fine folks over at Law and the Multiverse.

That will be $3 million for service. An itemized invoice may be provided if you so request.

Very sincerely,

Larry Friedman

By my calculation, this is week 10 of 2016 and this is ROTW 8, I am getting close.

Today's ruling might make the squeamish among you go "Eww," but it shouldn't. The product in question is a three-dimensional reconstructed human epidermis. When I read that, I pictured a fully human-shaped skin ready for taxidermy or some more nefarious use. The reality is far more mundane and much more scientifically cool.

The ruling is NY N270364 (February 19, 2016). The product turns out to be an "in vitro " epidermis grown from human skin and other cells cultured on a polycarbonate substrate. Here is the technical lowdown on it. The commercial purpose of this is not to build Buffalo Bill-style human skin suits or to give Mr. Data goosebumps. The idea is to have an in vitro model for testing drugs, cosmetics, etc.

Star Trek: First Contact

According to Customs, this item is classified as "Human blood . . . vaccines, toxins, cultures of micro-organisms (excluding yeasts) and similar products" in HTSUS item 3002.90.5150, which is duty free.

Customs and Border Protection noted that this product may be subject to regulations of the Centers for Disease Control and Prevention, which should make us all happy.