Protests and Other Challenges to U.S. Customs
January 1, 2003
By: Lawrence M. Friedman
Importers do not have to accept all decisions Customs makes regarding their imports. Despite its best efforts, Customs often incorrectly classifies or values merchandise or makes other incorrect decisions regarding the entry and liquidation of goods. These decisions affect an importer's business. When appropriate, importers should challenge Customs to ensure a steady flow of merchandise at the lowest legal rate of duty.
The basic means of challenging a Customs Service decision is through an administrative protest usually on Customs Form 19. The regulations specifying how to file a protest can be found at 19 C.F.R. Part 174. These regulations are complex and must be understood and carefully followed to ensure that the protest is valid, receives consideration by Customs and preserves all of the importer's rights to judicial review.
To be valid, the port of entry must receive a protest challenging a liquidation within 90 days of liquidation as officially posted at the port of entry. For matters not relating to liquidation, such as a notice to mark or redeliver, the protest is due within 90 days of the challenged decision. Before liquidation, importers may file a Supplemental Letter with the port of entry to inform the port of corrected information that it should use for liquidation.
A protest must identify the affected entries by entry number, entry date and liquidation (or decision) date and specifically describe the merchandise. The protest must also identify the party making the protest, the importer by importer number and the nature of the decision being challenged with enough clarity to alert Customs to the decision in question. Thus, it is probably not sufficient for a protest to say "wrong classification." Instead, the protest should specify that, for example, the motor vehicle merchandise was liquidated at 8704.31.00 at 25% but should have been liquidated under 8703.24.00 at 2.5%. In addition, the protest must give the date and number of prior similar protests the importer has filed. Only the importer, its broker, attorney or in some circumstances surety may file a protest. If Customs grants the protest, it will reliquidate the entries and, if necessary, refund any excess duties paid plus interest to the importer.
Once filed successfully, Customs will review the protest and decide if it should be granted. In many cases, it is advisable to supplement the protest form with descriptive literature and a clear statement as to why the protest should be granted. It is a good practice to reference the attached documents on the protest form in case they are separated.
Normally, Customs must act on a protest within two years although Customs decides protests relating to the exclusion of merchandise within 30 days. However, importers can request in writing accelerated disposition of protests. This is helpful when the protest is sure to be granted or where the importer knows Customs will deny the protest and wants to take the matter to court quickly. The request for accelerated disposition can be made 90 days after the date the protest was filed. If Customs then does not act on the protest within 30 days, it is considered denied.
Not all issues regarding an entry may be the subject of a protest. For example, importers cannot protest certain matters relating to payments to Customs to settle a penalty case. However, the protest process is a valuable means of addressing classification, valuation, country of origin marking, rate of duty and other issues.
A protest is typically decided at the port level. However, an importer can requested that Customs Headquarters review the protest by designating it as an Application for Further Review ("AFR"). An AFR is appropriate where the protesting party has not already received an adverse court decision or ruling and does not have a similar claim pending before Customs or a court. In addition, the AFR must satisfy one of these conditions:
- the protested decision is inconsistent with a local or Headquarters ruling regarding the same or similar merchandise;
- the protested decision involves questions of law or fact which have not been decided by the Commissioner or the courts;
- new facts or arguments distinguish the protest from a prior ruling of the Commissioner or courts; or
- Headquarters refused to consider the question in the form of a request for internal advice.
When Customs receives a valid AFR, it is first reviewed at the port like a protest. If the port disagrees with the importer, it sends the protest on to Customs Headquarters for further review by attorneys in the Office of Regulations and Rulings. Thus, an AFR is often subjected to more careful scrutiny than a standard protest receives.
Requests to Reliquidate
One issue that cannot be protested is the failure to liquidate with NAFTA duty benefits where the importer failed to claim the preference at the time of entry. Customs has taken the position that the only avenue available to correct that error is a post-entry NAFTA claim under 19 U.S.C. § 1520(d). These claims must be filed within one year of the date of entry and must be supported by a valid NAFTA Certificate of Origin.
Other liquidation errors resulting from a mistake of fact or clerical error may be addressed through a request for reliquidation under 19 U.S.C. § 1520(c). These requests cover a range of errors not necessarily related to Customs' actions. For example, if an importer enters a tractor in a dutiable provision believing it to be for use in construction but later learns that the tractor was in fact for agricultural applications, the importer may seek reliquidation under the conditionally duty-free provision for agricultural tractors.
Requests for reliquidation are also useful for correcting clerical errors such as where the importer inadvertently reports the extended price rather than unit price of merchandise. A request to reliquidate cannot, however, address mistakes in the interpretation of law. For example, it would not be appropriate to file a request where, more than 90 days after liquidation, the importer learns of a legal reason that the articles it entered in a dutiable provision for office machines should be classified as duty-free automatic data processing machines. Requests for reliquidation may be filed up to one year following the date of liquidation.
When Customs reliquidates the entry, it refunds any excess duties paid with interest. When Customs denies a meritorious request for reliquidation, the importer should file a protest against that decision.
The Court of International Trade
A denied protest may be challenged in the United States Court of International Trade ("CIT"). Importers may also appear in the CIT to challenge Customs Service actions that were not "protestable." However, if the subject of the challenge could have been protested, the importer must have a denied protest to secure review in Court. To begin a case in the CIT, an importer files a summons with the Clerk of the Court within 180 days of the date Customs denied the protest or two years from the non-protestable decision being challenged. An importer may file the summons but it is best done by an attorney with experience practicing before the CIT. A broker or consultant may not represent importers before the court.
Often, a single denied protest will not warrant the expense of litigation. As a result, importers typically allow multiple denied protests to accumulate before filing a summons provided the summons is filed within 180 days of the date on which Customs first denied a protest. Once commenced, a Customs related lawsuit proceeds through the CIT in much the same way any civil case goes through the federal courts. The plaintiff files a complaint and the U.S. responds with its answer. The parties then engage in discovery to completely expose the pertinent facts. Following discovery, the parties may ask the court to rule on the question of law or may submit the case for trial before a judge. Except in extraordinary circumstances, juries are not permitted in the CIT. The losing party in the CIT may appeal the decision to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. and, if necessary, from there to the United States Supreme Court.
Many importers are reluctant to bring a claim in the CIT. There are a number of reasons for this including the perceived expense of litigation, a general reluctance on the part of some importers to be seen suing the U.S. government and the incorrect notion that whatever Customs says will ultimately prevail. Despite these concerns, importers asserting a well reasoned position that is supported by facts and the law should make a serious analysis of the benefits of success versus the possible costs of litigation. Importers can be and often are successful in court.