HQ 228565 - Application for further review of protest no. 3004-99-100087; extension of time for liquidation; deemed liquidation; 19 U.S.C. 1504 - United States International Trade Commision Rulings

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HQ 228565

December 5, 2000

LIQ-11-RR:CR:DR 228565 IOR

CATEGORY: LIQUIDATION

Port Director
U.S. Customs Service
9901 Pacific Highway
Blaine, WA 98230

Attn: Shelley Wise

RE: Application for further review of protest no. 3004-99-100087; extension of time for liquidation; deemed liquidation; 19 U.S.C. 1504

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the facts and issues raised, and our decision follows.

FACTS:

The protestant entered orange juice products under subheadings 2106.90.48, 2009.11.00, and 2009.19.00, HTSUS, all with the prefix “CA”, indicating the preferential rate under NAFTA. The subject 71 entries were made from April 8, 1997 through July 31, 1997.

On August 29, 1997, a CF 28, Request for Information, was issued to the protestant pertaining to two entries of orange juice concentrate, made in July and August 1997, requesting certificates of origin and the suppliers’ invoices for the ingredients. The entries are not a subject of this protest, but the merchandise is under the same HTSUS classification numbers. The import specialist involved never received a response to the CF 28.

On October 16, 1997 a CF 28, was issued to the protestant pertaining to one of the subject entries, requesting a certificate of origin for the imported merchandise. The entry was picked at random from the group of entries. The protestant responded by letter dated November 3, 1997, and submitted a NAFTA Certificate of Origin dated January 1, 1997 issued by the Mexican exporter and producer, and a NAFTA Certificate of Origin dated January 2, 1997, issued by the U.S. producer and exporter. On November 5, 1997, a CF 28 was issued to the protestant requesting a Certificate of origin executed by the protestant, and a list of all of the protestant’s suppliers of orange juice concentrate shipped to the U.S. As no response was received to the CF 28, a follow up request was issued on December 10, 1997. A response dated November 21, 1997 was received, and the response indicates that the broker would be providing the certificates of origin. According to the import specialist, the response was received by Customs on December 11, 1997. The response included certificates of origin for 1994, 1995 and 1997, executed by the protestant, and a list of suppliers for product made and shipped to the U.S. The response was forwarded to the Office of Investigations on December 11, 1997.

A new CF 28 was issued to the protestant on January 28, 1998, pertaining to all of the entries which are the subject of the protest. The request was for the following:

For all shipments from 1994 to present that contain any non-NAFTA orange juice concentrate please identify the following:

1. The source country of the non-NAFTA concentrate. 2. The percentage by weight of the non-NAFTA concentrate. 3. The entry numbers which contain the non-NAFTA concentrate.

If there are no such shipments please so state.

There is a letter dated February 6, 1998 from counsel for the protestant stating that the protestant will undertake to verify the information provided by its suppliers and that if necessary a request for extension of time in which to respond will be requested. A letter dated March 4, 1998 from counsel for the protestant confirms that the protestant requested and received an extension until March 27, 1998, of time in which to respond. There is a letter dated April 7, 1998 from counsel for protestant, responding to the CF 28 dated January 28, 1998. The letter states that the protestant had been advised by its supplier that a total of 24 shipments of orange juice concentrate shipped to the protestant contained Brazilian concentrated orange juice, and that the shipments occurred between August 1, 1996 and July 18, 1997.

There is a handwritten note dated May 21, 1998, on a facsimile cover sheet from counsel for protestant dated April 9, 1998, referring to counsel for protestant. The note indicates that if needed, counsel for protestant can provide a list of all entries for the period at issue, but that there was no way to identify which entries contain Brazilian orange juice concentrate.

According to ACS records the subject entries made from April 8, 1997 through May 30, 1997 were extended two times. The first extension notice dates were January 17, 1998 through February 14, 1998, and the second extension notice dates were from January 9, 1999 through February 13, 1999. According to ACS records, the entries made from June 1, 1997 through July 30, 1997, were extended once. The extension notice dates were from March 14, 1998 through March 21, 1998. The code for all of the extensions was “01”.

There is a printout of a representative “Automatic Liquidation Alert Report” dated January 4, 1999. Such a list is printed out each month and indicates which entries will liquidate unless the liquidation is unset. Some of the entries on the list have a holding code. The holding code indicates a reason why the particular entry should not be liquidated. The January 4, 1999 list includes twelve of the entries subject to the protest, and they have the holding code 085, 099 or 103. The 085 code indicates that a response to a CF 28 is pending, 099 indicates “other”, and 103 indicates that a NAFTA verification is pending.

According to the import specialist involved, in December, 1998 it was determined that liquidation of the subject entries would not jeopardize the open investigation and would be in the interest of the Government.

On January 28, 1999 Customs issued a Notice of Action for the 71 entries proposing a rate advance, on the grounds that the unliquidated entries will be liquidated without NAFTA preference. The notice of proposed action provides the importer with 30 days in which to respond in writing. There is also a Notice of Action dated January 26, 1999 relating to one entry which is a subject of this protest and “others”, stating that the following action has been taken:

Customs has completed its verification of your claim for preferential tariff treatment for orange juice concentrate entered at the Port of Blaine. This orange juice concentrate was entered under tariff #’s 2009.11.00; 2009.19.45; 2106.90.48. The entries occurred during the period 8/13/96 to 8/12/97. Based on your attorneys’ letter of April 7, 1998 that the imported product contains Brazilian concentrate this office denies your NAFTA claim. This notice constitutes official notification of a negative determination of origin.

No response to the notice of proposed action was submitted. The subject entries were liquidated on March 19 and March 26, 1999. The protest was filed on June 17, 1999.

The protestant takes the position that Customs had in its possession the information it required in order to determine the NAFTA claim in April, 1998, and by its failure to liquidate the entries until March, 1999, Customs failed to liquidate the entries timely as required by 19 U.S.C. §1504, and the entries were liquidated by operation of law one year from the date of entry at the preferential NAFTA rate asserted by the importer.

The Customs office at the port of entry takes the position that the subject entries comprised part of a formal investigation that was open at the time the entries were filed, and prior to requesting the information and liquidating the entries, Customs questions regarding jeopardizing the investigation had to be resolved. The investigation was still open as of July 28, 1999, the date of the import specialist’s completion of the Customs Protest and Summons Information Report (CF 6445A). In addition, according to the Port, the April 9, 1998 response on behalf of the protestant only contained a portion of the information that had been requested in the January 28, 1998 request for information.

ISSUE:

Whether the liquidation of the entries was extended within the limits of 19 U.S.C. §1504.

LAW AND ANALYSIS:

Initially we note that the protest was timely filed (i.e., within 90 days of the date of liquidation) and the matter protested is protestable under 19 U.S.C. §1514(a)(5).

Under 19 U.S.C. §1504, an entry of merchandise not liquidated within 1 year from the date of entry of such merchandise shall be deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record, unless this oneyear period for liquidation is extended. The statute authorizes reasons for which liquidation may be extended, including that information needed for the proper appraisement or classification of the merchandise is not available (i.e., code "01" mentioned above). Authority is provided for regulations prescribing the procedures for such extensions of liquidation.

The Customs Regulations issued under this statute are found in 19 CFR § 159.12. Under § 159.12(a)(1)(i), the port director may extend the 1year statutory period for liquidation for an additional period not to exceed 1 year if information needed by Customs for the proper appraisement or classification of the merchandise is not available. Under § 159.12(b), if the port director extends the time for liquidation as provided above, he is required to promptly notify the importer or the consignee and his agent and surety that the time has been extended and the reasons for doing so. Under §159.12(d), if the port director extends the time for liquidation under 159.12(a)(1)(i), the period of time may be extended for an additional year, if the port director determines that more time is needed. Section 159.12(e) provides that the total time for which extensions may be granted by the port director, may not exceed 3 years.

In this case, the evidence in the file is sufficient to create the presumption that proper notice of extension was given (see e.g., International Cargo & Surety Insurance Co. (Data Memory Corp.) v. United States, 15 CIT 541, 779 F.Supp. 174 (1991)). In such a case, when the protestant fails to rebut that presumption (there is no evidence in the file alleged to do so), “the only issue to be decided is whether the extension was permissible under the statute,” (15 CIT at 545).

The issue of the permissibility of extension of liquidation was addressed by the Court of Appeals for the Federal Circuit in St. Paul Fire & Marine Ins. Co. [Carreon] v. United States, 6 F.3d 763 (Fed. Cir. 1993) (reversing the CIT decision (16 CIT 663, 779 F.Supp. 120 (1992)), wherein the court concluded:

...Customs may, for statutory purposes and with the requisite notice, employ up to four years to effect liquidation so long as the extensions it grants are not abusive of its discretionary authority. Such an abuse of discretionary authority may arise only when an extension is granted even following elimination of all possible grounds for such an extension. There is, in sum, a narrow limitation on Customs discretion to extend the period of liquidation. (6 F.3d at 768)

The court went on to state that "Customs decisions to extend are entitled to a presumption of legality unless [the plaintiff] can prove that these decisions were unreasonable." (6 F.3d at 768). In Ford Motor Company v. United States, No. 00-103, slip op. at 43 (C.I.T. August 21, 2000) (Ford I) (on remand from the U.S. Court of Appeals for the Federal Circuit, Ford Motor Company v. United States, 157 F.3d 849 (Fed. Cir. 1998) (Ford II)), the court made it’s finding in light of the foregoing presumption. The court in Ford I stated “the government is entitled to rely on the presumption of regularity, that is, ‘it may be presumed that the import specialistproperly performed [his] duties’.”

We find that the protestant has not met its burden and has not rebutted the above presumptions. There is insufficient evidence submitted by the protestant or otherwise to prove that all possible grounds for extension of liquidation had been eliminated. That is, the merchandise under consideration was claimed to be eligible for preferential tariff treatment under NAFTA. After issuing several CF 28’s, Customs received information, by letter dated April 7, 1998, that at least a portion of the subject entries were not entitled to preferential tariff treatment. At that point all of the entries had already been extended once. In addition there is evidence that the entries were the subject of an investigation. Clearly there is affirmative evidence that the extensions made through March 21, 1998 were not an abuse of discretion. The protest must be denied with respect to the 41 entries which were extended once, and for which those extensions took place prior to Customs receipt of the protestant’s April, 1998 response to the CF 28.

The file contains evidence that on May 21, 1998 Customs was considering the protestant’s assertion that it could not identify which entries contained the Brazilian orange juice concentrate. There is then the assertion that in December, 1998 it was determined by Customs that the entries could be liquidated without jeopardizing the ongoing investigation. After such determination, within one month the notice of proposed action was issued, on January 28, 1999. The second set of extensions, which was for 30 of the 71 subject entries, took place from January 9, 1999 through February 13, 1999. Had this second set of extensions not been made, the entries would have liquidated during the 30 day time period within which the protestant had time to respond to the notice of proposed action. Clearly the extensions made within the 30 day period were not an abuse of discretion.

In Ford I and Ford II, Ford alleged that Customs had abused its discretion in extending the liquidation of entries three times. In that case the entries were also the subject of an investigation. Customs took the position that it extended the entries while waiting for further information to ensure the correct classification and appraisement of the imported merchandise, and that it extended the liquidations because it was the policy to extend liquidation pending a §1592 investigation, and it was reasonably expected that the investigation could produce information affecting the classification or appraisement of the merchandise. Ford I, at 29. With respect to the evidence presented, and the arguments of the parties, the Court stated:

[T]he mere absence of evidence to support the proposition that information needed to classify and appraise the merchandise properly was unavailable to [Customs] does not prove that such information was not needed.Thus, the alleged lack of evidence to support the proposition that information needed for the proper appraisement or classification of the merchandise at issue was not available to the appropriate Customs officer would not prove the proposition is false or that it was unreasonable for Customs to extend liquidation on that premise.

Moreover, this Court finds Customs did not abuse its discretion in extending liquidation as plaintiff has not shown Customs did not reasonably expect the investigation to produce information about appraisement or classification. A need for internal information like that sought by Customs in the fraud investigation, may satisfy the requirements of section 1504(b)(1).

Id., at 40.

The evidence indicates that one of the pieces of information sought by Customs was identification of the specific entries which included Brazilian orange juice concentrate. It is reasonable for Customs to have expected the investigation to produce such information.

In Ford II, the CAFC stated “[a] full airing of the facts may disclose that [Custom’s delay] was unreasonable and therefore an abuse of Customs’ discretion” and “the length of the fraud investigation is subject to scrutiny for reasonableness.” Ford II, 157 F.3d at 856. Accordingly, the Court in Ford I considered whether the length of time it took Customs to process information and liquidate the entries and the length of the investigation are reasonable. Ford I, at 44. The Court considered the evidence which included the reasonableness of the gaps between activity on the “case”, the amount of information to be reviewed, the activity of the office at the time, and other responsibilities assigned to the Customs officers, and concluded that Ford had not demonstrated the amount of time consumed was unreasonable or that the investigation could or should have ended sooner. For example, the court considered a period of activity and inactivity of one agent:

The record shows there was activity on the case from the time the case was assigned to Fritz in August 1986 at least through March 4, 1987. Although it does not appear Fritz conducted additional activities on the case between March-November 1987, such an observation does not show the inactivity on the case was necessarily unreasonable. Rather, evidence suggests Fritz had other commitments and time constraints which limited his ability to work on the case.

Id., at 49-50.

As the protestant asserts that the extension of the liquidation of the entries was an abuse of discretion, we will consider whether it appears that between April, 1998 and March, 1999 Customs took an unreasonable amount of time in which to liquidate the entries. In the instant case, the evidence shows activity on the part of the Import Specialist from August 29, 1997 through May, 1998, with a period in which there is no specific evidence of activity from June, 1998 to December, 1998. Unlike in Ford I, we do not have the benefit of evidence and testimony from other Customs offices involved in the case and do not know what if any activity actually did take place. However, in Ford I, a period of 9 months of complete inactivity was not deemed unreasonable. In this case, we do not have evidence of activity or inactivity for the period between May 21, 1988 and December, 1998, but based on Ford I, we can conclude that the six month period was not unreasonable per se, even if no activity on the matter took place. Therefore, we conclude that the delay in completing the investigation and liquidating the entries was not so great as to constitute an abuse of discretion and thereby invalidate the extensions, and the second extensions of the liquidation of 30 entries were not an abuse of discretion, and the protest must be denied as to those entries as well.

We conclude that the protestant has not establish the elimination of all grounds for extension, nor has the protestant proved that the decision to extend the liquidations was unreasonable.

It should be further noted that the presumption of legality accorded Customs decisions to extend liquidation discussed in St. Paul, supra, was further bolstered by the CAFC in Intercargo Insurance Company f/k/a International Cargo & Surety Co., (Surety for M. Genauer) v. United States, 83 F.3d 391(Fed. Cir. 1996,) petition for cert. filed, (U.S. Oct. 22, 1996) (No. 96-650) (reversing the CIT decision (879 F.Supp. 1338)). In that case the liquidation extension notices in question, which were verbatim of the ones at issue in this protest, read as follows:

THIS IS A COURTESY NOTICE.
THE LIQUIDATION OF THIS ENTRY HAS BEEN EXTENDED; ADDITIONAL TIME IS REQUIRED BY CUSTOMS TO PROCESS THIS TRANSACTION. NO ACTION IS NECESSARY ON YOUR PART UNLESS INFORMATION IS SPECIFICALLY REQUESTED BY CUSTOMS.

The plaintiff claimed that the liquidation extensions were invalid, and the subject entries therefore deemed liquidated by operation of law, because the extension notices did not recite one of the statutory reasons for obtaining additional time for liquidations set forth in 19 U.S.C. § 1504. Notwithstanding the defective notices, the CAFC determined that fact alone did not render the extended liquidations invalid so long as Customs error in this regard had no prejudicial impact on the plaintiff. In determining that no such prejudicial impact existed in that case, the court stated that the purpose of the notice ("to increase certainty in the customs process by apprising the importer and its surety of the precise period within which final action would be taken on the liquidation") was met. Moreover, the court stated that if the plaintiff believed that Customs did not have a valid statutory reason for the extensions, the plaintiff could seek to have them judicially invalidated on that ground.

Using the analysis of the CAFC in Intercargo, supra, we reach the same conclusion with respect to the protest under consideration. Since the importer was advised of the subject extensions, and was not deprived of the opportunity to challenge the extensions in court on the ground that the extensions were not obtained for a statutorily valid reason, the importer did not suffer prejudicial impact justifying an invalidation of the liquidation extensions in question.

Accordingly, the protest must be denied.

HOLDING:

The protest in this case may not be granted because the protestant has not met its burden of proving that Customs extension of liquidation was unreasonable, that all possible grounds for extension of liquidation may be eliminated, nor did the protestant suffer prejudicial impact resulting from the liquidation extension notices.

The protest should be DENIED. In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, this decision should be mailed by your office to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.

Sincerely,

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