LIQ 4-01; LIQ-11; OT:RR:CTF:ER 230879 LLB
Bureau of Customs and Border Protection
Attn: Michael Willis
301 E. Ocean Boulevard
Long Beach, CA 90802
RE: Protest number 2704 04 101544; American Home Assurance Co. as surety for Pan Pacific Products, Inc; 19 U.S.C. § § 1504, 1514, 1623, 1624; 19 C.F.R. §§ 113.62, 159.61, 174.24, 174.25; HQ 230339 (June 25, 2004); HQ 231135 (Nov. 4, 2005); Hanover Insurance Co. v. United States, 25 CIT 447 (2001) and 26 CIT 796 (2002).
Dear Mr. Willis:
The above referenced protest was forwarded to this office for further review. According to the Protest and Summons Report, you conclude that HQ 230339 (June 25, 2004) addresses all the issues raised by the surety/protestant, American Home Assurance Co., with exception of one issue. Based on our review of the protest, the protest raises six issues which are: 1) CBP did not notify the protestant of suspension of liquidation; 2) that “the new shipper review bonding option does not apply to sales by exporter of subject merchandise produced or supplied by uncertified companies;” 3) the surety was prejudiced by the Department of Commerce's failure to follow its own regulations; 4) fraud committed by the importer absolved the protestant of liability for the duties; 5) duties collected under the Byrd Amendment amount to an unconstitutional civil penalty; 6) compromise of CBP's claim under 19 U.S.C. § 1617.
We believe that issues 2-6, for which your office did not grant further review, are addressed in HQ 230339. Further review of issue 1 concerning the effect of a failure to issue a notice of suspension under 19 U.S.C. 1504 is appropriate.
In issue 1 of the protest, the protestant specifically argues that because the protestant did not receive personal notices that liquidation of the entries was suspended, the entries liquidated by operation of law and the protestant is therefore, relieved of its obligation under the bonds it issued. The protestant's argument in issue 1 of its protest raises several sub issues: A) whether the entries deemed liquidated under the circumstances presented by the protestant; B) whether such deemed liquidation would result in relieving the surety under the bonds it issued; and C) whether the surety is liable for the “rate of duty, value, quantity, and amount of duty asserted at the time of entry by the importer” when such rate is a higher amount then later determined in light of the litigation in Koyo Corporation of USA v. United States, 403 F. Supp. 2d 1305 (Ct. Int'I Trade 2005), aff’d, in part remanded 2007 US App Lexis 17929. As explained below, because we find that the entries did not deem liquidate, we will not address sub-issues B and C.
Facts:
The subject protest involves 10 entries of canned mushrooms made between July 11, 2001, and January 23, 2002. According to the entry documents, Pan Pacific Products, Inc. (Pan Pacific) imported the canned mushrooms. The packing invoices and Bills of Lading submitted with 8 of the entries, show that the mushrooms are the product of China and that the mushrooms were exported and manufactured by Shantou Hongda Industrial General Corp. (Shantou). The packing invoices and Bills of Lading submitted with the remaining 2 entries also show that the mushrooms are the product of China; however, those documents show that the mushrooms were manufactured and exported by Shenxian Dongxing Foods Co. Ltd. (Shenxian).
At the time of entry, canned mushrooms from China were the subject of an antidumping duty order issued by the Department of Commerce (Commerce). See Notice of Amendment of Final Determination of Sales at Less Than Fair Value and Antidumping Duty Order. Certain Preserved Mushrooms From the Peoples Republic of China, 64 Fed. Reg. 8308 (Feb. 19, 1999). The order stated that the merchandise was subject to a dumping margin of 198.63%. Id. at 8310. According to the CF 7501s submitted, the Commerce antidumping number, A570 851, and the corresponding dumping margin, 198.63% are indicated on the entry. Each CF 7501 has a single transaction bond attached thereto, issued by American Home Assurance Co. (AHAC), with a limit of liability up to 198.63% of the entered value. Commerce published the preliminary determination on case A570-851 on August 5,1998, (63 Fed. Reg. 41794), its final determination on the case A570-851 on December 31,1998, (63 Fed. Reg. 72255) and a notice of new shipper review request by Shenxian Dongxian Foods on the case A570-851 on March 30,2001. Each of those notices stated that liquidation of entries of mushrooms covered by case A570-851 would be suspended.
Pursuant to the notice of March 30, 2001, the entries were suspended as Commerce initiated a new shipper review of Shantou and Shenxian. See Certain Preserved Mushrooms from the Peoples Republic of China: Initiation of New Shipper Antidumping Review, 66 Fed. Reg. 17406 (May 30, 2001). At the same time, Commerce also initiated an administrative review on canned mushrooms from China for a period covering February 1, 2000, through January 31, 2001. See Initiation of Antidumping and Countervailing Duty Administrative Reviews, 66 Fed. Reg. 16037, 16039 (May 23, 2001). On July 11, 2003, Commerce published the final results of the administrative review and the new shipper review, indicating that the weighted average margin for canned mushrooms for Shantou was 122.07%, and for Shenxian, 61.37%. See Certain Preserved Mushrooms From the Peoples Republic of China: Final Results and Partial Rescission of the New Shipper Review and Final Results and Partial Rescission of the Third Antidumping Duty Administrative Review, 68 Fed. Reg. 41304, 41309 (July 11, 2003).
ACS records show that notice of suspension was sent to the importer and to the surety identified on the entry summary. For example, the ACS record for entry XXX XXXX981-0 shows that notice of suspension was sent to the importer and to the surety identified on the entry summary on July 28, 2001.
On August 8, 2003, Commerce issued to CBP instructions to liquidate entries of canned mushrooms manufactured by Shantou and imported by Pan Pacific between February 1, 2001, and January 31, 2002, at $1.85 per unit. Subsequently, on August 11, 2003, Commerce issued to CBP instructions to liquidate entries of canned mushrooms manufactured by Shenxian and imported by Pan Pacific between February 1, 2001, and January 31, 2002, at a dumping margin of 61.73%. CBP liquidated all of the subject entries according to the foregoing instructions on October 17, 2003. A timely surety protest was filed thereto on June 29, 2004.
For each of the entries covered by the protest, the importer asserted the Department of Commerce dumping case number, the applicable dumping margin, the corresponding dumping duty amount and the typed annotation “(BONDED)” on the relevant entry summary. For example, the entry summary for entry XXX XXXX981-0 lists the merchandise covered by the entry as other mushrooms, identifies those mushrooms as covered by dumping case A570-851, the deposit rate of 198.63% and dumping duties of $33,806.83. Each entry package contains a single transaction bond identifying the relevant entry number annotated with the surety’s rating code of “4” which corresponds to “ AD/CVD” that is signed by the importer’s agent and the protestant surety. For example, entry XXX XXXX981-0 covers merchandise entered on July 11,2001, and the protestant surety’s bond for that entry was executed July 9, 2001.
Issue:
Whether an entry for which a suspension of liquidation is in place would liquidate by operation of law if CBP fails to notify each surety that posted a bond to secure the importer’s performance on that entry?
Law And Analysis:
The protestant argues that the entries liquidated by operation of law because it did not receive personal notice that the entries were suspended as required by 19 U.S.C. 1504. For the period of time relevant to this protest, § 1504 provided, in pertinent part:
(a) Unless an entry is extended under subsection (b) or suspended as required by statute or court order, an entry of merchandise not liquidated within one year from: (1) the date of entry of such merchandise . . . shall be deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record. . . . (c) If the liquidation of any entry is suspended, the Secretary shall by regulation require that notice of the suspension be provided, in such manner as the Secretary considers appropriate, to the importer of record or drawback claimant, as the case may be, and to any authorized agent and surety of such importer of record or drawback claimant.
Pursuant to the regulation, 19 CFR 159.12(c), promulgated under the authority of § 1504(c), “if the liquidation of an entry is suspended as required by statute or court order. . . the port director promptly shall notify the importer or the consignee and his agent and surety on Customs Form 4333 A, appropriately modified, of the suspension.” In the present case, the entries were made between July 11, 2001, and January 23, 2002. The liquidation of the entries were suspended by statute 19 U.S.C. § 1673d(c)(1)(C) effective May 30, 2001.
The relevant text of § 1504(a) generally provides that an entry is liquidated by operation unless liquidation has been suspended as required by statute or court order. While paragraph (c) of section 1504 requires notice of suspension to be given to the importer and the importer’s surety, that paragraph does not provide a consequence if notice to a surety is not given. In Canadian Fur Trappers v U.S., 884 F.2d 565 (Fed. Cir. 1989) the court explained the effect of the lack of consequential language. (The lack of consequential language in the latter part of [former] section [1504] (d) if the Customs Service does not meet that time frame leads us to conclude that Congress intended this part of [former] section (d) to be only directory). In Fujitsu General America v. U.S., 283 F.3d 1364 (Fed Cir 2002), the court compared 19 U.S.C. § 1504 with 19 U.S.C. § 1516a(e) ( . . . there is no language in section 1516a(e) that attaches a consequence to a failure by Commerce to meet the ten-day publication requirement, let alone the consequence of deemed liquidation under section 1504(d). Accordingly, to the extent that CBP failed to provide personal notice to the surety, instead of deemed liquidation, the appropriate result is for the surety to have the opportunity to demonstrate that it was harmed by that failure.
The case of Pagoda Trading Co v. U.S., 804 F.2d 665 (Fed. Cir. 1986) which also involved a question of notice is not inapposite. In that case, there was no suspension of liquidation with respect to the entries when notice was sent. Here, the liquidation of the entries was suspended under the dumping laws. The critical circumstances before the Pagoda court was that four and five months after suspension of liquidation was lifted, Customs sent unexplained computer-generated notices that liquidation was suspended. Having found that liquidation of the entries was not suspended under any statute or court order at the time of the notice and that there was no evidence that any Customs officer extended the period in which to liquidate the entries, the Pagoda court held that the entries were liquidated by operation of law. Those circumstances are in sharp contrast to the facts before the Pagoda court.
The surety-protestant argues that pursuant to Hanover Insurance Co. v. United States, 25 CT. INT’L TRADE 447(2001) (Hanover I); 26 CT. INT’L TRADE 796 (2002) (Hanover II), CBP's failure to notify the surety of suspension resulted in entries liquidating by operation of law. The facts in Hanover differ radically from the facts here. In Hanover, the merchandise was imported pursuant to a contract with the Department of the Interior under which the assessment of dumping duties triggered an increase in the contract price to the United States and potentially eliminated the basis for dumping duties. The Hanover I court noted, in denying the Government’s motion to dismiss the surety’s claim, that the claim was a challenge to the legality of the liquidation on the ground that in liquidating the entry, Customs failed to follow Commerce’s liquidation instructions by the failure to report the escalation clause in the Interior purchase contract which might have affected the appraised values of the goods. The court cannot have failed to recognize that purchase of the goods by the Department of the Interior at the dumped price without giving effect to the escalation clause and the Government’s collection of dumping duties as though that contract escalation clause did not exist would have resulted in a windfall to the Government to the surety’s detriment.
In Hanover II, the court found that Hanover’s underwriting manager was not aware of the outstanding dumping finding. In pertinent part, 44 U.S.C. § 1507 states that unless otherwise specifically provided by statute as in situations where notice by publication is insufficient in law publication in the Federal Register is sufficient to give notice to a person subject to or affected by it. The court, in International Trading .Co v. U.S., 281 F.3d 1268 (Fed. Cir. 2002) noted that liquidation of a particular class of entries is suspended when Commerce publishes in the Federal Register an affirmative preliminary or final determination covering those entries. The court held that the publication of the removal worked in parallel with the event that initiated suspension of liquidation. In International Trading Co v. U.S., 412 F.3d 1303, (Fed. Cir 2005), the court discussed the effect of 44 U.S.C. § 1507 with respect to notice from one Agency to another Agency, but did not depart from the reasoning in the 2002 decision with respect to notice of suspension occurring when Commerce publishes an affirmative preliminary or final determination.
The Hanover decisions do not address the issue of notice of suspension being accomplished by publication in the Federal Register. Here, as noted in the facts, notices of suspension of liquidation were published by Commerce in the Federal Register on at least three separate instances. Each notice identified the merchandise and the case number. In addition, the Hanover decisions need to be read consistent with the decisions in Rheem Metalurgica S/A v. US, 160 F.3d. 1357 (Fed. Cir. 1998) and Koyo Corp, supra. That is the effect of a deemed liquidation does not result in a discharge of the underlying obligation; instead, the obligation to pay duty is limited to the amount set forth in the entry. The Hanover, court appears to have determined that the Government was both the cause and beneficiary of the harm done to the surety. Moreover, the Hanover decisions interpreted 19 USC 1504, prior to the 1993 amendment.
As noted above each bond executed by the surety-protestant to secure payment of antidumping duties, as shown by the surety’s rating code for antidumping and countervailing duties, identified the entry. Each entry described the merchandise as mushrooms covered by dumping case A570-851. The Federal Register notices of August 5, 1998, December 31, 1998, and March 30, 2001, provided notice that the liquidation of any entry of mushrooms covered by dumping case A570-851 would be suspended. The text of 44 U.S.C. § 1507 provides that notice in the Federal Register is notice to any person affected by the contained information. Subsequent to the Hanover decisions, the International Trading Co. court based its decision on notice by linking the public nature of the Federal Register notice of the suspension of liquidation with the notice of removal of that suspension. Consequently, given the different statutory provisions involved in Hanover and this protest, the surety’s knowledge on the bonds themselves that the bonds here were to secure payment of antidumping duties and the Federal Circuit decisions on the adequacy of Federal Register notice as to both suspension and removal of suspension of liquidation, reliance on the Hanover decisions is misplaced.
The case of L.G. Electronics v. U.S., 991 F. Supp. 668,676 (Ct. Int’l Trade 1997) provides guidance whether a liquidation of an entry by operation of law under 19 U.S.C. § 1504 can occur when there is a suspension of liquidation in place( Accordingly, erroneous notice cannot create a deemed liquidation) . The court concluded that as a matter of law when liquidation of an entry was suspended there could be no liquidation by operation of 19 U.S.C. § 1504. In American National Fire Insurance Co v. U.S., 441 F. Supp. 2d 1275 (Ct. Int’l Trade 2006) the surety argued that a deemed liquidation occurred because there was a failure to give notice of the suspension of liquidation. The court held that suspension of liquidation occurs as soon as the appropriate Commerce determination is made and does not require subsequent action by Customs because a suspension occurs by operation of law. In that case, the court noted that the failure to give a notice does not necessarily vitiate a suspension citing L.G. Electronics v U.S. and held that the failure to issue a notice of suspension was a procedural error. The American National Fire Insurance, supra, court further held that the failure to give notice was a procedural error by CBP that is harmless unless the party seeking to have the action declared invalid can show harm. Here, each of the bonds on the protested entries were posted to secure the payment of dumping duties. Each bond was a single transaction bond that was posted to secure payment of dumping and countervailing duties for each entry. Each bond lists the relevant entry and states that is was to cover dumping duties. The protestant’s bonds were taken, in addition to the continuous bond that secured the importer’s performance, consistent with the provisions set in T.D. 85-145 (1985) which required CBP to release merchandise on single transaction bonds when merchandise that would be subject to dumping duties at a rate in excess of 5% ad valorem. Consequently, the protestant cannot have been unaware of the purpose of its bond obligation.
Holding:
The entries did not liquidate by operation of law when CBP failed to provide notice of the suspension of liquidation of the entries. The PROTEST IS NOT ALLOWED regarding this issue.
In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2002, pp. 18 and 21), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division