This decision involves a shipment of clothing moving from China to Mexico that “went missing” along the way. (U.S. v. C.H. Robinson. Federal Circuit Court of Appeals. No. 13-1168. July 28.)
A Mexican company, Intercambio Comercial Ekim, imported the wearing apparel from China via the Port of Los Angeles.
C.H. Robinson (CHR), as the bonded carrier, was to transport the merchandise from Los Angeles to L.E. Forwarding & Freight Broker in Laredo, Texas, for export to Mexico and hired Mario’s Transports Inc. to move the cargo.
There was no dispute that the shipment left Los Angeles, but what’s not clear was what happened after that.
Transportation in-bond allows imports to be moved from one U.S. port to another without being appraised or customs duties being paid, provided a transportation entry document is filed and a bond is paid. On arrival at the destination port, the merchandise may be officially entered into U.S. commerce and duties and charges are paid, or the merchandise may be exported without the duties and charges being paid.
A transportation and exportation (T&E) entry is the type of in-bond movement typically used when merchandise is to be exported at a port other than the port of entry and the bonded carrier must comply with certain regulations governing the receipt, safekeeping, and disposition of bonded merchandise.
In this instance, the U.S. licensed customs broker Mario Peña, Inc. stamped the T&E entry documents at an unmonitored stamp machine in the lobby of the export lot of U.S. Customs and Border Protection at the Port of Laredo.
The court said Peña did not transport the merchandise to the export lot, nor see, inspect, or take possession of it. Peña’s official log book showed receipt of the T&E entry forms, but not a corresponding date of exportation for each entry.
At the time, Customs used a self-regulating process in Laredo in which it did not supervise exportation or require carriers to report their arrival at the port of destination or the exportation of the merchandise. Instead, it did selective audits in which it required carriers to demonstrate disposition of merchandise.
When Customs audited this move, CHR submitted the stamped T&E entry forms as proof of exportation, along with three stamped Mexican importation forms, or pedimentos, that were provided by Intercambio.
Mexican Customs told U.S. Customs the pedimentos were false, and U.S. Customs issued three notices of liquidated damages claims against CHR’s custodial bond, each for $25,000, charging CHR with misdelivery of the subject merchandise. CHR petitioned for a reduction, and damages were cut from $75,000 to $57,212.
CHR paid the $57,212 in 2004 and filed a complaint in the U.S. Court of Federal Claims seeking a full refund.
The Court of Federal Claims stayed the action to permit the government to pursue collection of $106,407.86 for duties, taxes, and fees.
U.S. Customs said CHR failed to ensure that the subject merchandise was exported to Mexico and, consequently, “goods subject to quota/visa restrictions were diverted into the United States resulting in a loss of lawful duties.”
When the government went to the Court of International Trade in New York seeking to recover the $106,407.86, CHR moved to dismiss the complaint, alleging 19 U.S.C. § 1553 did not allow collection of duties. The court denied the motion, saying section 1553 contemplated that U.S. Customs would promulgate regulations governing T&E entries and 19 C.F.R. § 18.8(c) imposes an obligation on the bonded carrier to pay duties on any “missing” merchandise.
The government could meet its burden of showing the merchandise was “missing” by casting enough suspicion for the court to conclude it was not exported.
Following a bench trial, the Court of International Trade found CHR liable for the duties, taxes, and fees demanded by the government.
CHR conceded at trial the pedimentos were not genuine and could not be verified by Mexican authorities, and the court said none of the evidence submitted showed the merchandise was exported to Mexico. At most, the evidence demonstrated proof of delivery of the subject merchandise to the Port of Laredo.
CHR “not only had a responsibility to deliver the merchandise at the destination port, but also to ensure that the subject merchandise was either exported or lawfully entered into the United States.”
On appeal, the Federal Circuit agreed “the bonded carrier may be required to provide evidence of delivery, even where the bonded carrier otherwise submits a properly receipted Customs Form.”
“There is no statute or regulation that imposes a burden on Customs to search for or locate merchandise to establish that it was not properly delivered,” the court said.
Larry Friedman, an attorney based at the Chicago office of Barnes, Richardson & Colburn, said the case presented “a fairly unusual situation in that it starts with missing merchandise and apparently fraudulent Mexican Customs documents. In most cases, the bonded carrier will be able to find someone to say ‘I have the goods.’ Without that, CBP made the assumption that the goods were not properly exported.”
He did not think the decision was surprising.
“Customs and the Federal Circuit applied the meaning of the regulation pretty literally. CHR was the bond holder and, therefore, is responsible if the goods go missing,” he said.
He added “despite the regulation being pretty clear, I think this is a bad result. CHR is left holding the liquidated damages penalty for actions it did not take. It turned the merchandise over to the export carrier, so CHR did its job and can prove it. This decision will likely result in brokers, forwarders, and carriers reconsidering these multi-tiered transactions. Companies will either not want to involve other parties or will need the other companies to agree to indemnify the bond holder against losses.”
This column was published in the September 2014 issue of American Shipper.