Customs Centers of Excellence and Expertise (CEEs): Program Directives and Evolution of Responsibilities

I.                INTRODUCTION 

Numerous importers have recently raised questions concerning Customs’ initiative regarding the establishment of Centers of Excellence and Expertise (CEEs) to handle transactions in discrete industry-defined areas of responsibilities. This memorandum provides background information on CEEs and their current operational status.

CEEs are an attempt by Customs to centralize decision-making, on an industry-specific basis, regardless of the ports of entry at which imports are made. The intent is to harmonize and centralize decisions concerning the admissibility, classification, appraisement and regulation of goods on an “industry-specific” basis, rather than on a “port-by-port” basis, as has historically been the case.

For now, the CEE program is supposedly voluntary and account-based, and is being implemented on a “test” basis. Assuming the test is successful, however, Customs intends to make the CEEs a model for future processing of commercial transactions by large accounts, and, possibly, all importers.

II.              BACKGROUND 

Historically, the Tariff Act of 1930 has distributed decisionmaking to local Customs officials at the port of entry where goods are imported. Entry documents must be filed at the port where the goods arrived, or are being entered for consumption. Port officials control decisions relating to release of the merchandise, as well as determining the classification, appraisement, and rate and amount of duty owing on individual entries of goods at the port of entry.

Similarly, protests against liquidation of merchandise are filed with, and typically decided by, Customs officials at the individual port(s) of entry.  Import Specialist teams at dozens of service ports divide responsibility for the classification and appraisement of various categories of goods (and often exhibit different levels of expertise in the commodities for which they are responsible).

Although the Constitution mandates that duties be assessed uniformly throughout the United States, the result of the “port-specific” processing system has been anything but. It is not uncommon for identical or similar goods, being imported through different ports of entry, to be classified or appraised differently, or for Import Specialists to make inconsistent decisions at the time entries are liquidated, or when protests are submitted.

The automation of Customs processes has provided an opportunity to for the agency to de-couple entry processing from geography.  Remote location filing has largely eliminated the need for importers to retain Customs brokers in each port where they make entry, and electronic platforms allow Customs to distribute work among officials in various locations.

The idea behind the Centers for Excellence and Expertise (CEEs) is to centralize post-entry, and ultimately entry, work, for industry groups, in a single team of specialists. At present, the teams are “headquartered” in various locations, but Customs officials at ports of entry are “detailed” to work with various CEEs.  The Existing CEEs are as follows:

Agriculture & Prepared Products, coordinated from Miami, specializes in agriculture, aquaculture, animal products, vegetable products, prepared foods, beverages, alcohol, tobacco or similar industries.

Apparel, Footwear & Textiles, coordinated from San Francisco, specializes in wearing apparel, footwear, textile mill, textile mill products, or similar industries.

Automotive & Aerospace, coordinated from Detroit, specializes in automotive, aerospace, or other transportation equipment and related parts industries.

Base Metals, coordinated from Chicago, specializes in steel, steel mill products, ferrous and nonferrous metal, or similar industries.

Consumer Products & Mass Merchandising, coordinated from Atlanta, specializes in household goods, consumer products, or similar industries and mass merchandisers of products typically sold for home use.

Electronics, coordinated from Los Angeles, specializes in information technology, integrated circuits, automated data processing equipment, and consumer electronics.

Industrial & Manufacturing Materials, coordinated from Buffalo, specializes in plastics, polymers, rubber, leather, wood, paper, stone, glass, precious stones and precious metals, or similar industries.

Machinery, coordinated from Laredo, specializes in tools, machine tools, production equipment, instruments, or similar industries.

Petroleum, Natural Gas & Minerals, coordinated from Houston, specializes in petroleum, natural gas, petroleum related products, minerals, and mining industries.

Pharmaceuticals, Health & Chemicals, coordinated from New York, specializes in pharmaceuticals, health-related equipment, and products of the chemical and allied industries.

For now, participation in the CEE program is voluntary, and is done on an account basis. Each importer can associate only with one CEE.  Thus, for example, if a petroleum importer were associated with the Petroleum, Gas and Minerals CEE in Houston, but imported t-shirts, the post-entry work associated with the t-shirts would be handled by the Petroleum, Gas & Minerals CEE.

There are no laws or regulations governing the operation of CEEs. For the time being, the work of the CEEs is probably exempt from rulemaking, since it involves Customs’ internal allocation of work among its employees. However, if CEEs become the principal mode for Customs operations, changes to the Tariff Act and implementing regulations are likely to be required.

III.            PROGRESSION OF WORK TO CEES

Customs is phasing in the operation of CEEs over time. At present, CEE participants continue to file entries at individual ports of entry, and release decisions are made by local Customs officials at the ports. Post-entry work, such as the liquidation of entries, and issuance of Form 28 requests for information and Form 29 Notices of Action, is being handled by the industry-specific CEEs.

Over time, entry and post-entry work will likely be migrated to CEEs. If the project is successful, it will likely become the principal model for Customs’ handling of commercial transactions.

In this regard, two recent developments affect CEEs, particularly three of them --  Electronics in Los Angeles, Pharmaceuticals and Chemicals in New York, and Petroleum and Minerals in Houston.

On September 11, 2014, CBP Commissioner Kerlikowske issued a Delegation Order [Exhibit A] which gave the directors of the CEEs the same powers as Port Directors of Customs, with certain exceptions. The CEE Directors and Port Directors will exercise this authority concurrently. While decisions relating to the control, movement, examination and release of merchandise will remain with the Port Director at the port where goods were imported, authority for post-entry functions – such as issuing demands for redelivery, handling post-entry processing, decisions regarding country of origin marking, stamping, packing, classification and appraisement of merchandise, and the processing of petitions, protests, post-entry amendments, recordkeeping matters, financial matters and the like.

On January 28, 2015, Customs announced its “Phase I accelerated rollout” under which the CEE Directors of the Electronics, Pharmaceuticals and Petroleum CEEs were given the trade authority over subject entries previously handled by port directors at various ports listed in Exhibit B.

IV.             CEEs: WHO’S DOING WHAT?

The transition of port activities to CEEs is confusing. Customs prepared a March 2014 Centers of Excellence and Expertise Trade Process Document, which summarizes the tasks currently being conducted by CEEs, as opposed to ports.  The document can be summarized as follows:

Activity	Port Responsibilities	CEE Responsibilities
Entry and Release Processes	Receives and processes CF 3461 entry, makes release decisions	None
Entry Summary Processes		Handled by CEEs for participating accounts. Entry summaries filed by ACS or ACE; will issue “docs required” message and process electronically (email)
Duty Payment	Receives duty payment, together with cashier copy of CF 7501	Processes entry summaries with no duty due
Quota entries	Processed by ports
Census warnings		Processed by CEE
CF 28 Request for Information		Issued by CEE, response to CEEs
CF 29 Notice of Action		Issued by CEE
AD/CVD Entries		Entry summaries processed by CEE, along with non-reimbursement statements
FTZ Entries	Responsible for physical supervision of zones	Process all FTZ entry summaries after account is accepted into CEE
TIB Entries		Processed by CEE. If entry filed before CEE account accepted, CEE will still handle post-entry work
Trade Fair Entry Summaries		Processed by CEE
Liquidation of Entries	Performed by port. Bulletin notice of liquidation at port
Post-Summary Corrections	If payment being made, copy of amended 7501 and payment to port of entry	Processes the PSC
Internal Advice Requests		Transmitted electronically to the CEE
Protests and Petitions	If filed in paper, file with the port, scanned copy to the CEE	If filed electronically, note port of entry and CEE, and will be processed by CEE
Reconciliation Entries	Continue to file with reconciliation port
Enforcement processes (seizures, penalties, etc.)	Handled by the ports, who will coordinate with the CEEs
Prior disclosures	May be filed with port	May be filed with CEE
Drawback	File with one of the 4 drawback processing centers

Bear in mind that these processes apply for now, only to companies which have started CEE accounts and are participating voluntarily in the program.

That being said, we have noted cases where post-entry work for companies not enrolled in the CEE program is being handled by CEE teams. Decisions are rendered through the ports, so that there is no visibility of this to the importer.

Transactions for industries which do not have CEEs, and for non-participating companies, will continue to be handled by the ports where the entries are filed.

Please do not hesitate to contact us if there are any questions concerning CEEs or their operation.

NEW CIT Decision Eliminates "Liberal Reading" of Protests

Liberal treatment of communications with Customs as constituting a “protest” may be a thing of the past, for in Ovan International Limited v. United States, Slip. Op. 15-17 (February 23, 2015), the CIT held that, in order to be considered a valid protest, a document must be labeled as such, and must contain all the information required by the Customs laws and regulations.

At a Georgetown Law School conference last week, Customs Headquarters officials  gleefully embraced the new decision and indicated that they will begin applying it aggressively.

Historically, the courts have ruled that protests do not require detailed precision, but merely need to advise Customs of the nature of the importer’s objection, such that the Customs officer can undertake an inquiry and correct any errors made in liquidation of an entry.

Importers wishing to protest a Customs decision will need to pay special attention to ensure that protests are complete and valid, and should consider using only the Customs and Border Protection (CBP) Form 19 Protest, or its electronic equivalent.

One Entry, One Article, One Claim – What Wasn’t Clear?

Carriage House Motor Cars, the owner of a 1958 Rolls Royce Silver Sea Cloud automobile, exported the vehicle to Europe for sale at an auction.  When the vehicle failed to sell, the company re-imported the vehicle, claiming duty-free entry under Harmonized Tariff Schedule (HTS) subheading 9801.00.25.  After seeking information from the vehicle importer and its broker, Customs on February 22, 2013 liquidated the entry, classifying the car under HTS Subheading 8703.23.00, and assessing duties at the rate of 2.5% ad valorem.  

On April 9, 2013—46 days after liquidation –  Carriage House submitted to Customs an Affidavit of its owner, together with a number of exhibits, clearly contesting the assessment of duty.  When Customs did not respond to this filing (surprise!), the importer filed a protest on CBP form 19, albeit 189 days after liquidation.  This protest was denied as untimely.

Before the CIT, the importer alleged that its April 9, 2013 Affidavit and exhibits should be treated as a “protest”.  In this regard, the importer noted that the Courts have long employed a rule of liberally construing filings as protests, requiring “only that the protest be distinct and specific enough to show that the objection was taken… was at the time of filing the protest in the mind of the importer and sufficient to notify the collector of its true nature and character to the end that he might then ascertain the precise facts and have adequate opportunity to correct mistakes and cure defects”.  [citing United States v. M. Rice & Co., 257 U.S. 536, 539-40 (1922)]. There was one car, one Customs entry, one issue – how could Customs not understand that the duty assessment was being protested?

But the CIT had other ideas. 

Protesting Parties Will be Held to the Rules

The CIT, per Senior Judge R. Kenton Musgrave, held that compliance with the Customs laws and regulations regarding protests was mandatory for a written submission to be treated as a valid protest.

The Court first noted that the governing statute, §514(c)(1)(2006) of the Tariff Act,  requires that a protest must set forth, distinctly and specifically:

(A).  Each decision described in subsection A of this section as to which protest is made;

(B).  Each category of merchandise effected by each decision set forth under paragraph (1);

(C).  The nature of each objection and the reasons therefore; and

(D).  Any other matter required by the secretary by regulation. [emphasis added]

The Court then went on to note the detailed requirements for protests established by Section 174.13(a) of the Customs Regulations, which require among other things, that a protest be captioned as such, provide the name and address of the protesting party, the importer number, the date of entry and liquidation of the entry, the existence of prior protests, and a declaration as to whether the merchandise has been the subject of a drawback claim [regulation reproduced below].

Holding that the requirements of the regulation are mandatory and binding, the Court noted the various failings of the protestant’s “Affidavit and exhibits” when compared to the requirements of the regulations.  It did not matter, the Court said, that the importer’s various discussions and interactions with Customs made it clear that the Customs officials knew what entry was involved, and the nature of the claim.  Setting out a strict new rule, the CIT concluded:

“In the past, the Court could have readily concluded that the . . . Affidavit constituted a valid protest, but at present, in order for it to be a valid protest the . . . Affidavit must have met all of the “straightforward” and “not difficult to satisfy” mandatory and regulatory requirements governing the validity of a protest, which it did not.”

Thus, despite the fact that only one entry, one article of commerce, one importer and one claim was at stake, and the fact that the Affidavit undoubtedly communicated to Customs the nature of the importer’s contention, the Court held that because this filing did not meet all regulatory requirements for protests, it could not be entertained as such.  The Court dismissed the lawsuit for lack of jurisdiction.

The Bottom Line: Use CBP Form 19

The lesson for importers is that the age of raising protests by means of letters, memos, and other submissions that do not meet the formal requirements of the Customs laws and regulations is over.  To have a submission treated as a valid protest, all of the numerous regulatory requirements must be satisfied.  

Customs Form 19, whether in paper form or electronic, contains fields for all of the required information.  If this form is used,  the only possible issues could be the clarity with which the claim is stated.  Trade practitioners should counsel their clients to set creativity aside when challenging decisions and just “use the form”. 

The Regulatory Requirements

The requirements for filing a valid protest are set out in Section 174.13(a) of the Customs Regulations, which provides:

§ 174.13   Contents of protest.

      (a) Contents, in general. A protest shall contain the following information:

(1) The name and address of the protestant, i.e. , the importer of record or consignee, and the name and address of his agent or attorney if signed by one of these;

(2) The importer number of the protestant. If the protestant is represented by an agent having power of attorney, the importer number of the agent shall also be shown;

(3) The number and date of the entry;

(4) The date of liquidation of the entry, or the date of a decision not involving a liquidation or reliquidation;

(5) A specific description of the merchandise affected by the decision as to which protest is made;

(6) The nature of, and justification for the objection set forth distinctly and specifically with respect to each category, payment, claim, decision, or refusal;

(7) The date of receipt and protest number of any protest previously filed that is the subject of a pending application for further review pursuant to subpart C of this part and that is alleged to involve the same merchandise and the same issues, if the protesting party requests disposition in accordance with the action taken on such previously filed protest;

(8) If another party has not filed a timely protest, the surety's protest shall certify that the protest is not being filed collusively to extend another authorized person's time to protest; and

(9) A declaration, to the best of the protestant's knowledge, as to whether the entry is the subject of drawback, or whether the entry has been referenced on a certificate of delivery or certificate of manufacture and delivery so as to enable a party to make such entry the subject of drawback (see §§181.50(b) and 191.81(b) of this chapter).

Best Key Textiles Co. v. United States

In Best Key Textiles Co. v. United States, No. 2014-1327 (February 3, 2015), the recipient of a ruling concerning the tariff classification of metalized yarn challenged Customs decision to revoke the ruling as being Arbitrary, capricious, an abuse of discretion, and not otherwise in accordance with law, in violation of the Administrative Procedure Act. The plaintiff contended that it had lost $200 million in customer orders as a result of the revocation, and asked the court to review both the substance of the ruling and the process by which it was revoked. The ruling recipient could not file a protest on the classification of its yarn, since the revocation ruling assigned it a lower rate of duty than applied to metalized yarn. The plaintiff=s damage was not in the payment of Customs duties, but in the loss of business, it contended.

After initially dismissing the case for lack of subject matter jurisdiction, the CIT reconsidered and reinstated the case, and upheld the revocation ruling. Best Key appealed to the Federal Circuit.

In its decision, the Federal Circuit ignored the merits of the plaintiffs claim altogether, and told the CIT to reinstate its earlier ruling dismissing the action for lack of subject matter jurisdiction. The plaintiff was not trying to vindicate its own rights, the appellate court said, but the rights of its customers who would be assessed with higher duties on garments made with the yarn. The plaintiff's remedy, the Court held, would be to go into the garment business, import garments and pay the higher duty, and then slog through the traditional protest procedure B a years-long undertaking which, in any event, would not lead to review of the contested ruling. The plaintiff did not have a case which could be heard under the CIT's 28 U.S.C. '1581(I) residual jurisdiction which, the Court indicated, must be strictly construed.The decision should be alarming to the trade community, since it suggests that Customs rulings, and their revocation or modification, are not judicially reviewable or perhaps reviewable only in the Federal District Courts.