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Failure of Customs To Reliquidate Entries In Accordance With A Favorable Ruling Is
Not a “Mistake of Fact”

June 21, 2004

The moral behind this recent international trade case is that importers and their brokers have the sole responsibility to ensure that Customs applies any favorable classification treatment to both liquidated and unliquidated entries before the expiration of the 90-day protest period.

Recently, in Fujitsu Compound Semiconductor, Inc. v. U.S . (2004), the Court of Appeals for the Federal Circuit (CAFC) affirmed a decision by the Court of International Trade, which held that Customs' failure to reliquidate entries of laser diode modules on its own initiative did not constitute a mistake of fact, and could not be corrected under 19 U.S.C. §1520(c).

For about 6 months Fujitsu imported the laser diodes at a duty rate of 4.2%.  The entries all liquidated in early May 1992 at this same rate.   If Fujitsu objected to this classification, it had to file a protest no later than August 1992.  On June 2, 1992, however, Customs issued a ruling to Toshiba, changing the classification of laser diode modules, and lowering the duty rate to only 2%.

Fujitsu did not learn of the favorable ruling in time, and missed its opportunity to file a 1514 protest on its entries. Instead, Fujitsu filed a Petition to Reliquidate Entries under 19 U.S.C. §1520(c), arguing that Customs had an affirmative obligation to reliquidate the entries at the lower rate. This was premised on the argument that, at the time that Customs changed the classification of Toshiba's laser diode modules, the liquidation of Fujitsu entries had not become final (as they were within the 90-day protest period).

Both the Court of International Trade and the CAFC rejected Fujitsu's argument, and held that Customs was not obligated to reliquidate Fujitsu's entries, noting that Customs' lack of action in applying the ruling did not constitute a mistake of fact or omission.  Instead, the court concluded that Fujitsu had the obligation to timely file its protests within the 90-day statutory period, and that the failure to do so meant that the company had lost its legal rights to contest the duty rate assessed on those entries.

The result in Fujitsu Compound Semiconductor, Inc. v. U.S . is based on a traditional application of Customs law, and the statutory division of responsibilities between importers and Customs. Had the court ruled otherwise, Customs offices around the country could be besieged with claims, long after a protest period had closed, that it should have known of a Headquarters decision and applied it to the importer's merchandise before the liquidation and protest period closed. While this has a certain fairness to it because Import Specialists are often the first to receive a ruling, they may not have enough information on other products to know if the ruling applies.  However, this highlights another, more serious problem.  Had Fujitsu known right away that the ruling was issued, or even that the classification of laser diodes was before Customs Headquarters, it could have filed protests on its products to suspend the tolling of the liquidation.  While Customs' rulings database is now available to the public, it includes only final decisions, and often those decisions are released 60 days or more after the initial issuance of the ruling.  Of equal benefit to the importing public would be information related to rulings or protests that are currently pending before Customs.  This way, importers would be better informed of the issues affecting the goods they import, and prepared to take action if the circumstances require.

In conclusion, importers have an affirmative obligation to be proactive with respect to the Customs treatment of products they import.  Failure to be aware of current issues affecting their goods can result in loss of favorable tariff and duty rate changes.  To learn more on how you can be better informed of possible issues affecting the goods you import, please contact us.

If you have questions on any of the issues raised in this newsletter, please contact George R. Tuttle, III at (415) 288-0428 or via email at geo@tuttlelaw.com.

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in San Francisco. The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright 2005 by Tuttle Law Offices.

All rights reserved. Information has been obtained from sources believed to be reliable. However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

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