Reasonable Care and Liability for Marking Duties under Section 592

January 1, 2003

The Court of International Trade has handed down a very important decision in The United States v. Golden Ship Trading Company, et al., Slip Op 01-7 (Decided January 24, 2001). In that case the government had sued an importer of tee shirts from Dominican Republic, claiming that the true country of origin of the tee shirts was China. The government sought a monetary penalty for negligence as well as 10% marking duties.

The Court agreed that the importer had acted negligently. This determination was based on a finding of the court that the importer had not taken any affirmative action to confirm the country of origin. The court rejected the importer's argument that, even if it had questioned the exporter, if the exporter was intent on misleading the importer, there was no way that the false country of origin could have been discovered. The importer argued that it was a small company of limited resources and that it had proceeded to purchase the goods based on its knowledge that the seller had a factory in the Dominican Republic which produced tee shirts. The Court, however took a different view and held that by failing to take any affirmative steps to make a country of origin determination, it had failed the test of reasonable care. In the Court's view, had the defendant made any effort to confirm country of origin, it would have been exercising reasonable care. However, simply relying on the representations of the exporter as to country of origin negated a finding that the importer had exercised reasonable care.

This decision is one of the first attempts by the CIT to instruct importers on what conduct the CIT may require for a finding of reasonable care, and is in contrast to the criteria suggested by the Customs Service in its Informed Compliance Publication on Reasonable Care.

The Golden Ship decision also dealt with the government's claim that, as a result of the mismarking of the goods, as well as the false statements of origin on the entry documents, the government was owed 10% marking duties. The Court, however rejected this argument, deciding that the government had not met the "but for causation" test that had been established by the Court of Appeals for the Federal Circuit in the Pentax case (Pentax Corp. v Robison, (decided 1997). The Pentax court had that in order for the government to collect marking duties in a penalty case, the act of culpably mismarking the goods must have caused the government to be deprived of the marking duties.

The Court in Golden Ship found that if the government had discovered the marking error at the time of entry, the goods would have been denied admission into the United States and, consequently, no marking duties would have been owed. Therefore, the Court concluded that the "but for causation" test had not been met.

While the Court sided with the importer on the marking duties issue, the more encompassing part of the Court's decision on the exercise of reasonable care should be closely read by all importers