IMPORTERS, EXPORTERS SAW SOME BIG VICTORIES IN COURT OF INTERNATIONAL TRADE LAST YEAR

IMPORTERS, EXPORTERS SAW SOME BIG VICTORIES IN COURT OF INTERNATIONAL TRADE LAST YEAR

Challenging Customs Service decisions before the U.S. Court of International Trade (''CIT'') can be a formidable task. Customs' decision - no matter how absurd - is presumed to be correct, and the party challenging it must overcome the presumption.

In some cases, the government enjoys the benefit of a deferential standard of review, which directs the courts to uphold the agency's decision unless it is plainly arbitrary, capricious or contrary to law. Despite these hurdles, private plaintiffs prevail in a fairly high percentage of cases.Because the Court of International Trade has exclusive national jurisdiction over a wide range of Customs and trade matters, its decisions, and those of its appellate court - the U.S. Court of Appeals for the Federal Circuit - are followed closely by businesses across the nation. Often, a decision involving one importer's small transaction may have an impact on thousands of large transactions by other importers.

Moreover, the CIT's unique ''test case/suspension'' procedure allows importers to file claims with the court and, instead of litigating them actively, await the court's decision in a designated ''test case'' involving a common issue of law or fact.

Surveying the courts in 1997, importers and exporters have scored some substantial victories. Here is a sampler of some of the most important and interesting decisions of the year.

THE BIG ONE: U.S. SHOE

CORP. VS. UNITED STATES

Such a fuss over an $8,800 tax payment!

Of course, this wasn't your ordinary tax payment. It was United States Shoe Corp.'s $8,800 Harbor Maintenance Tax payments for exports made during the third quarter of 1994, which has been selected as the ''lead case'' regarding the constitutionality of the export HMT.

With more than 4,500 challenges to the export HMT filed in the CIT to date, virtually all of corporate America is watching this one.

And the Federal Circuit made all of the watchers happy this June, when, by a 4-1 margin, it upheld the CIT's unanimous decision that the export HMT did in fact violate the Export Clause of the Constitution, which prohibits the imposition of a tax or duty on exports.

The Supreme Court has agreed to hear the United States Shoe appeal. However, if it upholds the Federal Circuit's decision striking down the tax, U.S. exporters stand to receive up to $1 billion in tax refunds.

A MATTER OF INTEREST:

TRAVENOL LAB SUIT

Prior to enactment of the Customs Informed Compliance and Modernization Act, importers who had been overcharged duties were only given interest on refunds of monies which had been deposited as ''additional duties'' assessed at the time their entries liquidated.

Importers who were forced to deposit the excess duties at the time of entry - and who had been deprived of their duties for a longer time - received their refunds without interest.

The ''Mod Act,'' which became effective on Dec. 8, 1993, changed the law to provide equity in interest payments. Importers who had been overcharged duties would receive interest on their refunds, regardless of when the excess duties were assessed.

By the same token, importers who were charged with additional duties upon liquidation would be required to pay these sums, with interest running from the date of entry.

Travenol was assessed with excess duties on entries made before the Dec. 8, 1993, effective date of the Mod Act, but received a refund of these duties after the act went into effect. It brought a lawsuit in the CIT, seeking interest on the ddfund.

The CIT ruled, however, that the new Mod Act ''interest'' provision only applied to entries made on or after Dec. 8, 1993.

This summer - much to everyone's surprise - the Federal Circuit reversed that decision. It held that no determination of ''excess duties'' had been made until after the effective date of the Mod Act, and that Travenol was entitled to interest on its refund.

The Travenol decision could cost the government millions of dollars, since there are plenty of importers who are still pursuing duty refunds, either through protests or in courts, in respect of pre-Mod Act entries.

Travenol is a two-edged sword, however, and might also give the government the right to charge importers interest on excess duties assessed on pre-Mod Act entries.

The Federal Circuit recently refused a government request that it rehear its Travenol decision. The Justice Department is currently considering whether to ask the Supreme Court to review the issue.

CHRISTMAS IN JULY:

MIDWEST OF CANNON FALLS

''Festive articles'' classified in heading 9505 of the Harmonized Tariff Schedule, became duty-free on July 1, 1995, as the result of the Uruguay Round Trade Agreements duty reductions.

No big deal, said Customs: goods can only be classified as ''festive articles'' if they are inherently festive in nature (not just decorated with a holiday motif) and only if they are of a ''traditional'' kind.

What's more, Customs said in dozens of rulings, articles only qualify for classification as ''festive articles'' if they are inexpensive, and made of nondurable materials. And nothing is classifiable as a ''Christmas ornament,'' said Customs, unless it is designed to hang from a Christmas tree.

Wrong on all counts, the CIT told Customs last year in deciding a case brought by Midwest of Cannon Falls, a Minnesota-based importer of holiday decorations.

Nothing in the tariff or its legislative history requires ''festive articles'' or Christmas ornaments'' to meet the conditions which Customs had imposed.

The Midwest case posed a classic example of a situation where a case brought by a single importer, and involving a selected number of products (29 in all) had the potential to impact the tariff treatment of a much larger number of goods entered by other companies.

Importers of holiday decorations celebrated again this summer, when the Federal Circuit affirmed the Midwest decision. Indeed, the Federal Circuit went farther than the CIT, holding that some articles having a useful function - such as earthenware pitchers and mugs having a holiday motif - were properly classifiable as ''festive articles.''

Importers of holiday decorations and ''Trim-A-Tree'' goods have bombarded Customs with protests covering hundreds of different kinds of imported festive articles, ranging from dinnerware with holiday themes to electric light sculptures.

So pervasive was the interest in the Midwest decision that Customs recently published an extensive ''informed compliance'' publication, setting out the agency's post-Midwest view of the ''festive articles'' provision - and trying to limit the decisions reach. More litigation is sure to follow.

IT'S IN THE BAG _

AND COAL, BESIDES

Importers hate to have their products classified as ''luggage'' or similar bags in heading 4202 of the Harmonized Tariff Schedule.

Duty rates range as high as 20 percent ad valorem, and goods with outer surfaces of textile materials are subject to quota restrictions. Customs and the courts have taken a very expansive view of the tariff's ''luggage'' provisions, ruling that it incorporates such diverse items as metal tool boxes and ''trunk organizers'' for automobile fluids and tools.

In 1994, Sports Graphics Inc. (now SGI), in a case arising under the former Tariff Schedules of the United States (TSUS), persuaded the Federal Circuit that soft-sided insulated cooler bags of the kind used for picnics and similar outings, were not ''luggage'' for tariff purposes, but were instead classified as articles for preserving or preparing foods, at a much lower rate of duty.

But Customs refused to apply this decision to the classification of identical cooler bags under the HTS. Customs argued that the HTS ''luggage'' provisions were broader than those under the TSUS. Moreover, the HTS had no provision for articles used for preparing or preserving foods.

The CIT agreed with Customs, and classified the cooler bags under the HTS heading 4202 ''luggage'' provisions.

Once again, the Federal Circuit reversed, holding that, while the tariff definition of ''luggage'' might be broad, it did not go so far as to encompass articles used for storing foods and beverages. The appellate court held the cooler bags were properly classified as other household articles of plastics, and a 3.4 percent ad valorem rate of duty.