HQ 116052 - Further Review of Protests; Tariff-Rate Quota; Steel Wire Rod; Protest Nos. 4102-03-100037 and 4101-03-100146 - United States International Trade Commision Rulings

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HQ 116052

February 10, 2004

QUO-2-RR:IT:EC 116052/116057rb

CATEGORY: QUOTA

Port Director
Bureau of Customs and Border Protection
Cleveland Service Port
6747 Engle Road
Middleburg Heights, OH 44130-7939 (ATTN: Jill Balfour and Lisa Brendle)

RE: Further Review of Protests; Tariff-Rate Quota; Steel Wire Rod; Protest Nos. 4102-03-100037 and 4101-03-100146

Dear Sir or Madam:

The above-referenced numbered protests which your office submitted for further review have been consolidated pursuant to 19 CFR 174.15(a). Our decision on these protests is explained in detail below.

FACTS:

Two protests were filed on behalf of the same importer and concern steel wire rod subject to the tariff-rate quota under Presidential Proclamation 7273 of February 16, 2000. Protest number 4102-03-100037 was received on June 13, 2003, with respect to a warehouse withdrawal for consumption that was liquidated on March 21, 2003; and protest number 4101-03-100146, also received on June 13, 2003, covers an entry for consumption that was likewise liquidated on March 21, 2003.

Specifically, the steel wire rod was either entered, or withdrawn, for consumption upon the opening of the 4th quarter beginning in December 2002. The quota for this period oversubscribed upon opening, so Headquarters (HQ) Quota issued instructions that included the proper prorated percentage (82.982%), as required by 19 CFR 132.12(c)(1), for determining the quantity of steel wire rod on each eligible entry or withdrawal that was entitled to be, and which was, accepted for quota and released at the in-quota (lower) rate of duty. However, after the release of the merchandise at the in-quota rate of duty pursuant to the 82.982% proration, HQ Quota issued an amended proration (78.4283%) which led to a retroactive
assessment of duty at the over-quota (higher) rate on a portion of the importer’s merchandise. It is this additional duty assessed under the revised proration which is at issue in the 2 protests.

Notably, it is your firm recommendation in this case that the additional duty retroactively assessed at the over-quota rate based upon the second proration was improper and that this additional duty should be refunded to the importer.

ISSUE:

Whether an over-quota duty assessment against tariff-rate quota merchandise (steel wire rod) based upon a revised proration is permissible once the merchandise has been entered, or withdrawn from warehouse, for consumption in proper form, has acquired quota status, and been released from Customs custody at the in-quota rate of duty under an initial proration.

LAW AND ANALYSIS:

The procedure, as described, of assessing the over-quota duty rate against tariff-rate quota goods already released at the in-quota rate, conclusively and impermissibly contravenes the prevailing regulatory scheme in part 132, Customs Regulations (19 CFR part 132), governing the implementation of tariff-rate quotas, including that for steel wire rod in Presidential Proclamation 7273, which are administered by Customs and Border Protection (CBP) (formerly Customs) Headquarters (see §§ 132.0 and 132.2(b), Customs Regulations; 19 CFR 132.0 and 132.2(b)). In particular, in order to succeed, the procedure under review would patently require that § 132.5(b) and (c) (19 CFR 132.5(b) and (c)) be overruled or disregarded. Yet, § 132.2(c), in pertinent part, requires strict compliance not only with the terms of a Presidential proclamation establishing a quota, but also with the regulations in part 132 which implement that quota.

Specifically, § 132.5(b) provides that while merchandise imported in excess of the quantity admissible at the reduced (in-quota) rate is “permitted entry at the higher [over-quota] duty rate,” such merchandise may also be disposed of in accordance with § 132.5(c); and, in this respect, § 132.5(c) provides that such over-quota merchandise may otherwise be disposed of by admission into a foreign trade zone, or by entry into a bonded warehouse, pending the opening of the next quota period; or that the merchandise may either be exported or destroyed under Customs supervision. And, § 132.12(c)(1) expressly makes § 132.5 applicable in this regard to those cases where the quota is expected to fill upon opening (and a proration must be undertaken).

Notably, “to the extent that a customs regulation is a proper one, it is mandatory for customs officials to observe and follow it, and this, whether or not it is mandatory for the Secretary of the Treasury to adopt and promulgate such regulation” (Plywood & Door Southern Corp. v. United States, 57 Cust. Ct. 309, at 314-315 (1966)). To this latter end, paragraphs (b) and (c) of § 132.5 were issued under the general authority of 19 U.S.C. 66, 1624, and 1202, as amended (currently, General Note 3(i), HTSUS (2004)) in T.D. 73-203 (Vol. 7 Cust. Bull. 660, at 663 (1973)). As such, these provisions have been in effect for over 30 years, and they plainly constitute proper regulations.

Moreover, it is fairly evident under the circumstances that § 132.5(b) and (c) have the force and effect of law, further making their observance mandatory; thus, they may not be negated or disregarded, so as to dispossess an importer of its right to otherwise dispose of merchandise imported in excess of the in-quota quantity, as an alternative to paying the over-quota rate of duty on the merchandise, a rate which could impose a prohibitive financial burden upon the importer (see, e.g., Penick & Ford (Ltd., Inc.) v. United States, 12 Cust. Ct. Appls. 432, at 437-438 (1925) (quoting French v. Edwards, 80 U.S. 506) (regulation mandatory where intended to protect the citizen and prevent a sacrifice of his property, and by a disregard of which his rights might be and generally would be injuriously affected; such regulation must be followed or the acts done will be invalid)).

Furthermore, in wrongly disregarding § 132.5(b) and (c), the described procedure would also make it possible for the Government in fact to profit from its own error by applying the over-quota rate of duty to the goods after their release when the importer lacked any other recourse than being required to pay the higher rate (compare Plywood & Door, supra, at 315 (construction placed by Government upon noncompliance with proper customs regulation would enable it to benefit from its own default)).

Consequently, once tariff-rate quota goods have been entered, or withdrawn, for consumption in proper form, have acquired quota status, and been released from Customs custody at the in-quota rate of duty under an initial proration pursuant to § 132.12(c)(1), such goods may not thereafter be reassessed at the over-quota rate based upon a revised proration, because at that point the importer would be preempted from otherwise being able to dispose of the merchandise, as specifically authorized under § 132.5(b) and (c), as an alternative to paying the over-quota rate of duty on the goods. Hence, the first proration officially issued in this instance by HQ Quota must per force be recognized in this context as the valid, and binding, legal proration in relation to the subject released merchandise.

Parenthetically, it is understood that the process of retroactively imposing a revised proration upon already-released tariff-rate quota goods was undertaken in an effort to prevent the overfilling of the quota. Nevertheless, while it is axiomatic that the Government must of course take all appropriate measures to ensure that the in-quota quantity limit of a tariff-rate quota is not exceeded, at the same time, such efforts may not lawfully extend to correcting Governmental errors in this regard through forfeiture of the rights of the instant protestant as guaranteed by mandatory and longstanding Customs Regulations under the facts herein presented.

HOLDING:

Once tariff-rate quota goods have been entered, or withdrawn, for consumption in proper form, have acquired quota status, and been released from Customs custody at the in-quota rate of duty under an initial proration, such goods may not thereafter be reassessed at the over-quota rate based upon a revised proration. Protests numbered 4102-03-100037 and 4101-03-100146 should therefore be granted. Any additional duties that were assessed as a result of the subsequently changed tariff-rate quota proration in this case should be refunded.

Sincerely,

Glen E. Vereb

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