US Customs & International Trade Law: A Brief Orientation
January 1, 2003
Rufus E Jarman, Jr., President of The Customs and International Trade Bar Association and a partner at Barnes, Richardson & Colburn, New York, looks at the historical evolution of a traditionally low-profile area of law now coming into prominence with the growth of cross-border trade. This article first appeared in Trade and Customs: An International Who's Who of Trade and Customs Lawyers published by Law Business Research.
Despite the omnipresence of customs and international trade ("CIT") in the media, it is surprising what a hazy idea the average lay person has, and indeed many lawyers have, of just what CIT law is. It seldom occurs to many people that, in addition to court matters, international sourcing, production and pricing decisions can have important financial ramifications, and that much of the input needed to make these decisions involves lawyers.
It is my experience that large corporations traditionally have trouble finding "homes" for their CIT functions. Some classify CIT under tax, some under competition, some handle it under their traffic or "logistics" departments, while yet others lodge it in their legal departments. This difficulty of classification reflects the sui generis character of the field. Currently, however, along with the increasing economic importance of trade, we are seeing a trend towards the development of separate corporate trade departments and recognized, discrete CIT legal functions.
As an American CIT law practitioner, I am, of course, most familiar with the field in my own country. It is my impression, however, that the United States is probably in the vanguard of the development of CIT legal systems marked by established, and at times quite complex, procedures for administrative and judicial enforcement of rights and challenge to government decisions.
The United States has had a firmly established system of judicial review of customs actions since its birth as a nation. Despite the existence of substantial free trade sentiment, it was necessary from the outset to raise revenue and protect nascent industries. In those early days, long before the introduction of income tax, customs duties were the main source of federal revenue. Thus, the first US legislature wasted no time in passing a Tariff Act and, from the beginning, a large part of the business of the federal court system, including much of the business of the Supreme Court, was taken up in deciding tariff appeals.
In the first US Tariff Acts, the Congress imposed duties, but failed to provide specific procedures for contesting their assessment. Importers therefore claimed refunds pursuant to common law forms of action, generally assumpit. With the government immune from suit, importers brought their suits against the Collectors of Customs - officers appointed by the government, but distinguishable for purposes of sovereign immunity.
No one appears to have questioned the propriety of this jurisprudence until Congress enacted the statute of March 3, 1839, which the Supreme Court, in Cary v. Curtis, 11 L. Ed. 567 (1845), interpreted as effectively removing the importer's ability to sue the Collector in assumpit. Mr. Justice Storey wrote a memorable dissent in which he characterized the issue "stripped of all formalities [as] neither more nor less than this: Whether Congress have a right to take from the citizens all right of action in any court to recover back money claimed illegally, and extorted by compulsion, by its officers, under color of law, but without any legal authority... and to clothe the Secretary of the Treasury with the sole and exclusive authority to withhold or restore that money according to his own notions of justice or right."
Based on his perception of the common law, he found that "an action for money had and received lies in all cases to recover back money which a person pays to another in order to obtain possession of his goods from the latter who wrongfully withholds them from him upon illegal demand" and that "Such doctrine is maintained in our day as the undeniable right of every Englishman, against... officers of the Crown." He concludes that the Congress could not have intended such a result, or, if it had, would have violated the Constitution.
In the majority opinion, on the other hand, Mr. Justice Daniel dismisses any intention to effect such a sweeping denial of rights. He states that the Court's opinion merely flows from application of established law concerning money had and received, and, even though the statute might eliminate assumpit: "The claimant ... was not without other modes of redress.... He might have asserted his... exemption from the duties demanded either by replevin, or in an action of detinue, or perhaps by an action of trover.... The legitimate inquiry before this court is not whether all right of action has been taken away ... and the court responds to no such inquiry."
Whatever the true import of the case, the Congress acted quickly to establish that the importer did, in fact, have a meaningful legal action. From that time onward, while jurisdictional and other procedures have changed over the years, US importers have had the right to sue in federal court for refunds of duty or otherwise challenge customs and other federal agencies' decisions.
Cary v. Curtis must surely rank among the most controversial CIT cases, and litigants still argue as to its true meaning. Indeed, an amicus curiae brief filed by the Customs and International Trade Bar Association in 1997 argued that the current North American Free Trade Agreement (NAFTA) procedure whereby certain disputes are settled by non-judicial "bi-national panels" is unconstitutional because it is the first instance in which the right to judicial review of duty refund claims has been withdrawn, while the US government argued on the basis of Cary v. Curtis that the propriety of such withdrawal is established.
"Customs" and "trade" law
Minimization of regular customs duty, whether in consultation, administrative procedures, or judicial appeal, has generally been known as "customs law". Typical issues involve selecting the correct rate of duty from among several competing rates, determining the correct value for duty purposes, determining the legal country of origin for marking or quota purposes, and contesting customs penalty claims based on alleged negligence or fraud. While the US Customs Service is the most common regulator of imported goods, the category "customs law" includes issues involving the regulation of imports by many other agencies as well. A list of these would include the Food and Drug Administration, the Department of Agriculture, the Federal Aviation Administration, the Occupational Safety and Health Administration, and many others. The category would normally also be understood to take in export, as well as import, matters.
Together with "customs law", the sub-category "international unfair trade law" or simply "international trade law", which has expanded rapidly in the last few decades, makes up CIT law. This includes representation of domestic parties seeking protection from allegedly unfair import trade practices, or representation defending accused import interests, including, at times, governments. Most cases arise under the antidumping statute, which seeks to protect domestic industries from injurious, unfairly priced imports, and the countervailing duty statutes designed to offset injurious government subsidies. The process involves administrative proceedings before the International Trade Commission (injury cases) and the Department of Commerce (pricing/subsidy issues), often followed by judicial challenge by one or more parties.
While such issues have been reviewable judicially for many years, a surge in litigation in recent years was triggered by federal legislation in 1979 establishing detailed rules for compilation of the administrative record and court review of the same. Before that, there was very little for the court to review and, therefore, judicial challenges were much less common.
Most CIT cases, whether on the "customs" or "trade" side, are heard in the United States by the US Court of International Trade (USCIT). The USCIT is equal in rank to a federal district court. Its headquarters building is in New York City, and its specialized and exclusive jurisdiction is national. The Court sits throughout the country at the port of entry or other appropriate venue.
Most "customs" cases are heard de novo, with issues decided on the basis of a preponderance of evidence adduced through pleading, discovery and trial. "Trade" cases, on the other hand, are characterized by review of the agency record, with considerable deference given to agency determinations. Thus, very generally, in a "customs" case the function of the Court is to find the correct answer, whereas, in a "trade" case, the Court will let the agency decision stand if supported by substantial evidence, even though the Court might have reached a different conclusion de novo.
Appeals may in all cases be taken as of right to the US Court of Appeals for the Federal Circuit in Washington, DC. The CAFC, a specialized appellate court with the rank of a federal circuit court, has exclusive jurisdiction over appeals from the USCIT as well as a disparate group of non-CIT issues, patent appeals being the most common.
An issue causing some comment in recent years has been the proper roles of these two Courts in "trade" cases. Since the lower Court reviews essentially for legal error in the first instance, the Courts' roles have sometimes been seen as duplicating each other.
The role of the CIT lawyer, traditionally perhaps somewhat arcane and anonymous, is becoming more visible and complex. While it might be thought that simple economics dictates decisions as to location of materials vendors, production sites, target buyers and so on, the fact that each international border crossing represents a movement from one legal system into another adds an important dimension. A company must know what the rules are, how to operate within them, how to obtain the result it desires, and, of course, how to contest decisions. Some of the significant trends, developments and challenges that can be foreseen are:
- Globalization. Many legal areas, including classification of goods (under the "Harmonized System"), valuation of goods, anti-dumping and CVD rules, and determination of country of origin, have already been the subjects of considerable international movement towards uniformity. Increasingly, CIT lawyers will find that they can (and should) effectively represent their clients outside the specific jurisdictions in which they are licensed to practice. At the same time, the general subject of practice by foreign lawyers is receiving considerable attention internationally.
- Trading areas. There seems no reason to expect a halt in the trend toward the creation of ad hoc trading blocs and "free trade" areas of various kinds. These interlinkages result in complex regulatory systems, separate from traditional national systems, and which the CIT lawyer must master. NAFTA is a perfect example. To be competitive, many companies have virtually no choice but to take advantage of the cost savings NAFTA makes available. But to do so involves compliance with a whole new system of documentation and compliance assurance, and heavy penalties for failure to implement appropriate compliance systems.
- Importer self-policing. Under the aegis of the 1993 Customs Modernization Act, US customs has already moved quite far; the twin duties of "reasonable care" and "informed compliance" will require that importers actively ascertain the correct legal basis of all representations made to customs and other agencies and be prepared for periodic audits, in which customs matters will increasingly be approached on an annual account, rather than a transactional, basis. As part of this trend, I see revenue collection per se declining in importance relative to systems for achieving accuracy and legal correctness. Canada is not far behind the United States in this regard, and the trend will almost certainly be global.
- Extraterritoriality. The more important trade becomes, the more likely it is that governments and legislatures in the United States and elsewhere will be tempted to seek to influence or control the internal policies of foreign states in non-trade areas. Some we have already observed include human rights (US Jackson-Vanick law), accord to the rights of citizens in the enacting country (Helms-Burton), or environment and labor regulation, which figured so prominently in the defeat of President Clinton's soughtafter "fast-track" legislation in the autumn of 1997. Without expressing any view as to the propriety of such non-trade baggage for trade policy, it seems clear that the CIT practitioner will increasingly need to be conversant with these fields too.
In conclusion, I would suggest that the continuation of these trends (and others omitted here for reasons of space), building on the historic and well-defined body of American CIT law as it has developed over two centuries, will bring the smartest and most competitive businesses' as they become increasingly global, to rely increasingly on CIT lawyers