Recently U.S. Customs and Border Protection (CBP or Customs) denied a protest by an importer based on a new CBP interpretation of the deemed liquidation statute (19 U.S.C. 1501, 19 U.S.C. 1504).   CBP relied on a 2004 change to 19 U.S.C. 1501 which allows for “re-liquidation” of deemed liquidated entries within 90 days of notice given to the importer.  This article will discuss these recent developments, CBP’s interpretation of the deemed liquidation statute (19 U.S.C. 1504), and how importers may be affected.

Many importers are familiar with the procedure required when notifying Customs about their imports into the U.S. through the process of filing a CBP form 3461, known as an entry.  Based on the specific entry information provided, Customs may then clear the entry for delivery, thereby triggering the importer’s responsibility to calculate and pay the duties and taxes it owes to Customs.  (CBP form 7501).  Customs then has one year from the date of such entries to review the importer’s calculations and either agree with them, or recalculate what is owed.  This process is known as liquidation.  Liquidation is legally significant because it triggers statutory time limits within which the importer or Customs must act if either party wishes to challenge the liquidation decision. For example, if an importer wishes to challenge CBP’s assessment of duties they must file a “protest” within 180 days of the liquidation of the entry.

Liquidation is defined by Customs regulations as the “final computation or ascertainment of duties on entries for consumption,” (19 CFR 159.1).  According to 19 U.S.C. 1504 imported goods subject to anti-dumping and countervailing duties are deemed liquidated if CBP fails to affirmatively liquidate the goods within one year of their entry. The goods are deemed liquidated at the rate of duty, value, quantity, and amount, as asserted by the importer of record.  (19 U.S.C. 1504(a)(1)).  If the imported goods are subject to anti-dumping or countervailing duty proceedings, and suspension of liquidation is required, the statute further stipulates that CBP must liquidate entries within six months after receiving notification of suspension. (19 U.S.C. 1504(d)).

In a recent CBP case (HQ H215035, April 2014) Customs relied on a 2004 amendment (19 U.S.C. 1501) to the deemed liquidation statute permitting re-liquidation of “a liquidation made in accordance with section 1500 or 1504.” Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. No. 108-429, 119 Stat. 2598.  The importer in this case, Consolidated Fibers, made an entry of polyester staple fiber in 2005 from South Korea that was subject to an anti-dumping duty order.  At the time of the import CBP required cash deposits of 7.91 percent for the goods, using the “all-others” rate because the exporter in Korea did not have its own cash deposit rate.  However in 2007, the Department of Commerce (DOC) reviewed polyester staple fiber imports and subsequently assigned a 48.14 percent assessment rate.  In 2008 the DOC notified CBP to liquidate all entries by the Korean exporter during the period of Consolidated Fibers import.

Six months after the notice to CBP the import was deemed liquidated (as per 19 U.S.C. 1504(d)).  In 2011, almost four years after the deemed liquidation due to CBP’s inaction, CBP re-liquidated the entry at the much higher 48.14 percent rate, causing Consolidated Fibers to file a protest. Three years after the entry had been deemed liquidated CBP notified Consolidated Fibers that it had re-liquidated the entry at the higher rate.  CBP asserted that because they re-liquidated within 90 days of discovering the deemed liquidation and notified Consolidated Fibers the protest was rightfully denied. (HQ H215035).

The court ruled that CBP was allowed to take this action because they had abided by the 2004 amendment of 19 U.S.C. 1501, whereby Congress gave Customs the authority to re-liquidate entries within 90 days from the date of notice of deemed liquidation.  CBP’s new twist on this language is that it can re-liquidate within 90 days of finding out about the deemed liquidation. This essentially means that the most important date is the one in which CBP learns of deemed liquidation, and from that date they are granted 90 more days to re-liquidate.

The issue with CBP’s interpretation is not the lack of authority to generally re-liquidate after deemed liquidation occurred, but rather the interpretation of Section 1501, which makes the start date for the 90 day extension the date that they learned of the deemed liquidation and provided notice to the importer, rather than 90 days from the date of the deemed liquidation. This interpretation creates a great deal of uncertainty for importers with respect to their import transactions. Some speculate that CBP’s interpretation of the statute will be overturned in a matter of time, but in the meantime, what does this all mean for importers?

Importers should be wary of the CBP’s power to re-liquidate their entries at any time.  Because of this, importers will feel less secure in the finality of deemed liquidation and should prepare for the possibility of re-liquidation.

Some critics of the liquidation system point to the fact that there aren’t enough incentives for U.S. government agencies to timely collect preliminary and final duty rates.  (Lundberg).  They warn that the delay in government action to liquidate imports may injure importers and threaten U.S. multi-lateral trade relations.  (Denver University Law Review Vol 83:2, Lundberg).  Does deemed liquidation occur because of the Commerce Department and Customs’s failure to take action, or mistakes made in taking action?  Should Customs be allowed to take an extra 90 days after learning of deemed liquidation to re-liquidate, or should the laws be amended to impose stricter deadlines within which these government agencies should act?  These are all questions that have been raised by Customs’ recent interpretation of re-liquidation authority.

Kelley Reslewic