DOJ Says It Can Seek Reclassification in Court Even If CBP Didn't Pursue

The government can seek reclassification of an importer's merchandise in court at a higher duty rate, even when CBP didn't previously pursue the rate increase against the importer, DOJ said in March 15 brief in support of its counterclaim in a tariff classification suit brought by Cyber Power -- which says the counterclaim sets a dangerous precedent (Cyber Power Systems (USA) Inc. v. United States, CIT #21-00200).

"All importers should be aware that by protesting and bringing an action, they face the potential of a counterclaim from the Government," DOJ said in its brief. "Whether to protest and commence a court action is simply a decision based on weighing the costs and benefits of doing so."

The counterclaim is part of an ongoing classification suit at CIT on imported cables from China. CBP had classified 10 entries under the duty-free subheading 8544.42.20, but then assessed Section 301 tariffs applicable to the subheading. Cyber Power filed a protest claiming the goods qualify for a subsequently granted Section 301 tariff exclusion.

CBP denied the protest because Cyber Power "did not substantiate that the cables are used for transmitting data, voice, or video and failed to show that the subject cables meet the definition of telecommunications." In its denials of the protest, CBP said that the correct classification for the cables was under 8544.42.9090, which is dutiable at 2.6%. But CBP did not reliquidate the goods under the new subheading.

Only after Cyber Power filed suit at CIT challenging CBP’s protest denial did DOJ seek to do so. In December, DOJ filed a counterclaim seeking reclassification under subheading 8544.42.9090 with the additional 2.6% duty rate. DOJ argued that the law on counterclaims at CIT permits a counterclaim for additional duties on the imported merchandise that is the subject of the complaint.

"Cyber Power seems to believe that the Government’s ability to recover additional duties resulting from the Court’s determination that the imported merchandise is subject to a classification with a higher duty rate is cut off if CBP has not applied the higher rate during the 90-day reliquidation period. ... [S]uch a theory would undermine the uniform and consistent application of the customs laws by allowing an importer to avoid paying increased duties that this Court determined to be due."

DOJ said that Cyber Power's suit at CIT extended the timeline on the finality of classification and that the government is not limited to seeking duties through penalty actions. DOJ also argued that on of the reasons for allowing a counterclaim is to promote judicial efficiency: "Requiring the Government to burden the Court with a section 1592(d) action involving the same merchandise when the vehicle of a counterclaim is available is contrary to congressional intent."

Reached for comment, Cyber Power's lawyer, John Peterson of Neville Peterson, said the government has failed to show a cause of action for its counterclaim, which would increase duties on items already classified in 2019 in violation of the doctrine of finality. Peterson said that the counterclaim is a "dangerous tactic by the government" and opens up possible constitutional issues, in particular under the equal protection clause. He said that DOJ's counterclaim, if upheld, would mean the government can use lawsuits against it to open up causes of action not otherwise available to it. DOJ didn't comment.