U.S. v. Golden Ship

Trading Company

The Court of International Trade litigation concerning a U.S. Customs Service penalty has resulted in a decision of significance for maquiladora operators. While the parties are currently contemplating appeal, the rationale behind the trial court decision is important to review, notwithstanding the eventual resolution of the issues in the appellate court.

Background

In U.S. v. Golden Ship Trading Company, et al, the U.S. Customs Service sued to collect a penalty against an importer for making false statements on entry documentation and fraudulently entering merchandise with incorrect country of origin markings. The imported merchandise in question consisted of t-shirts imported into the United States and marked as made in the Dominican Republic instead of the accurate country of origin, the People’s Republic of China.

In an assembly process similar to processes employed in the maquiladora context, the body of the t-shirts had been made in China and the sleeves were attached in the Dominican Republic. Given that the attachment of sleeves alone did not constitute a transformation sufficient to create a product of Dominican Republic origin, the Customs Service penalized the importer for the false assertion of origin. The U.S. Customs Service claimed that the importer was responsible for penalties and lost marking duties as a result of their false statements and their failure to exercise reasonable care.

The importer’s position was that the Dominican Republic exporter informed them that the product was made in the Dominican Republic and that the information provided on the entry documentation was accurate to the best of their knowledge. The importer did not dispute the correct country of origin but claimed that they were not responsible for the failure of the exporter to inform them because they were defrauded by the exporter and exercised reasonable care with respect to these entries. The Court of International Trade concluded that the importer was responsible for the Customs penalties because they did not do more than they did to confirm the origin represented to them.

Reasonable care in the context of origin determinations

There are numerous contexts in which the importer of record must evaluate the origin of either the imported product or the components or materials that are used in the production of the imported product. Sometimes that origin is simply repeated on the subsequent entry given that there is no interim change in origin due to an insubstantial manufacturing or even handling process. Product imported into Mexico from China remains Chinese product if insubstantial changes such as repackaging are all that is accomplished. Origin issues are also important in evaluating the applicability of trade agreements such as NAFTA or any of the myriad of trade agreements to which the United States is a party.

In all such agreements, there is the central question of whether the processing of product in the exporting country is substantial enough to warrant inclusion within the respective trade agreement.

Given the importance of correctly reporting origin of either imported product or the component or materials from which imported product is made, U.S. Customs law requires the importer to exercise reasonable care in evaluating and documenting those origin determinations. For the most part, the law will require an importer or any other party relying upon a stated origin determination to make an appropriate inquiry as to what that origin determination is and then be able to provide appropriate documentation as necessary or appropriate.

For example, a certificate of origin duly executed would be one indication of the country of origin for that product. While the law does not require independent verification of the truthfulness of the determination that is asserted in such a certificate of origin, it is equally true that a person relying upon that determination that is known to be or is obviously false cannot hide behind an assertion that is unreasonable or obviously without basis. The critical question, therefore, is when can you rely upon documentation of origin determination and when must you do more than simply rely upon the assertions of others.

The Golden Ship Trading case stands for the proposition that importers or others relying on origin determinations of suppliers must somehow do more than merely accept the written confirmation of that supplier. In few other areas is this assumption more serious than in the context of the maquiladora industry.

Lessons for the maquiladora industry

The ramifications of the Golden Ship Trading case for the maquiladora industry are significant. Importations of maquiladora product depend greatly upon representations made concerning the true country of origin of the product that is either imported into the maquiladora or subsequently exported from the maquiladora into the United States. Incorrect or false statements of origin will wreak obvious havoc with any subtle NAFTA analysis, which must begin with the base of understanding of the true country of origin. Similarly, any entry pursuant to HTSUS Chapter 98 or American Goods Returned will similarly be disrupted if the true American origin asserted to the U.S. Customs Service relies upon representations to the importer, which are later determined to be inaccurate.

What is particularly disconcerting for the maquiladora manufacturer or the importer of maquiladora product is the now even more unsettled question of what information can be relied upon to determine the country of origin either reported to the U.S. Customs Service or included in a NAFTA analysis, the results of which are then reported to the U.S. Customs Service. In Golden Ship Trading, the declared country of origin was the Dominican Republic but, like maquiladora importers everywhere, the importer of the allegedly Dominican Republic garments relied upon representations made by the supplier who produced appropriate affirmations of that origin in writing.

In short, if the Golden Ship Trading case is not overturned, there will be increasing uncertainty as to what responsibility maquiladora operators or importers of maquiladora product have to verify information. Similarly, if the expanded duty of reasonable care found in Golden Ship Trading decision becomes the law of the land, we could anticipate that the U.S. Customs Service will be emboldened by the judicial affirmation of the broadening responsibility of importers to not only determine the country of origin but verify that country of origin. This will result in a significantly increased burden upon importers to verify country of origin if not other information and this will increase the cost of compliance appreciably. Finally, if a misrepresentation of origin to an importer can result in a penalty of the type assessed against Golden Ship Trading, then we can anticipate an increase in the number of U.S. Customs Service penalties against maquiladora operators or importers of maquiladora product.

Conclusion

The Golden Ship Trading case is of significance to any importer of maquiladora product or any maquiladora operator called upon to assert the origin of the importer or manufactured product. Given the apparently heightened duty of those evaluating country of origin issues to not only determine but to verify representations made as to origin, the burden on those in the maquiladora industry has increased appreciably and should be discussed with your Customs counsel with knowledge of your specific operations.

Lawrence Hanson is a partner with the law firm of Sandler, Travis and Rosenberg, P.A in its Houston, Texas office. Hanson is also adjunct professor of law at the University of Houston Law Center in the areas of U.S. Import Regulation and U.S. Export Regulation. He can be reached at Sandler, Travis and Rosenberg, 440 Louisiana, Ste. 900, Houston, Texas 77002; (713) 236 7715 and lhanson@strtrade.com.