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Government Counterclaim Blocked by Finality of Liquidation, Importer Argues at Trade Court

The Court of International Trade should dismiss a government counterclaim that its boronized steel tubes, originally classified by CBP as duty-free U.S. goods returned after repairs or alterations, are unfinished steel tubes subject to Section 301 tariffs, Maple Leaf Marketing argued in a Feb. 10 brief. The counterclaim runs against the principle of finality of liquidation, the importer said (Maple Leaf Marketing v. U.S., CIT # 20-03839).

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The boronized steel tubing is made in the U.S. and exported to Canada for alteration before being returned. Maple Leaf Marketing filed a complaint on Sept. 23 seeking duty-free treatment for its tubing, arguing that the imports qualify for classification under Harmonized Tariff Schedule subheading 9802.00.50 as "articles returned to the U.S. after having been exported ... for repairs or alterations" (see 2209260030).

The case involves two separate groups of entries. CBP liquidated entries of “group one” under subheading 9802.00.50. Maple Leaf didn't protest the application of the secondary classification, only that CBP had incorrectly calculated the cost or value of the alterations performed in Canada. The government filed a Jan. 20 counterclaim on the first group of entries, seeking $760,000 in allegedly unpaid duties, arguing that the items are actually unfinished oil country tubular goods (OCTG) that have been transformed in Canada into new articles of commerce. The government seeks to reclassify the items under either subheading 7306.29.60 or under 7304.29.50, as well as to apply Section 301 tariffs under subheading 9903.80.01 at a 25% duty rate (see 2301230038).

Maple Leaf argued that the counterclaim is barred by the finality of liquidation and that no exceptions were cited by the government. The only exceptions to the finality of liquidation are the filing of a protest or the filing of an action at CIT to challenge a protest denial, Maple Leaf said. "Neither of the ... exceptions provide the [government] here with a cause of action to recover duties in excess of those that it assessed against Plaintiff in liquidation," Maple Leaf argued.

The only party that can invoke the litigation protest exception "is the private party who protested CBP’s liquidation determination," Maple Leaf said. By pursuing a counterclaim here, "the Government is in effect asserting a counterclaim against itself and its own final liquidation decision," Maple Leaf argued. "The law does not empower CBP with a cause of action to counterclaim against its own final agency action." Maple Leaf cited Fletcher v. U.S., arguing that the courts have consistently ruled that a rate of duty may not be protested as being too low. The only available avenue for the government to recover additional duties past liquidation is when an importer has made false statements, which the government has not alleged here, Maple Leaf said. Therefore, the company said, the government has no standing to file a counterclaim that would result in additional duties.