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HQ 222493


October 15, 1990

LIQ-11-CO:R:C:E 222493 CB

CATEGORY: LIQUIDATION

Regional Commissioner
U.S. Customs Service
300 N. Los Angeles Street
Suite 7401
Los Angeles, CA 90012

RE: Application for further review of Protest No. 2704-90- 001288 under 19 U.S.C. 1504; 19 U.S.C. 1671b; 19 U.S.C. 1677g

Dear Sir:

The above-referenced protest was forwarded to this office for further review. We have considered the points raised and our decision follows.

FACTS:

Protestant-surety, Old Republic Insurance Co., claims that suspension of liquidation beyond four years was invalid and that the subject entries liquidated "As Entered" by operation of law on the fourth anniversary of the entry date.

In June of 1984 a "Suspension of Liquidation (Countervailing Duty) Instructions", C.I.E. 84/113, was issued. The instructional telex advised the Customs field offices that the Commerce Department had made a final determination that the Brazilian government was providing certain subsidies within the meaning of countervailing duty law to the manufacturers, producers, or exporters in Brazil of hot-rolled carbon steel plate in coil, hot-rolled carbon steel sheet, and cold-rolled carbon steel sheet. The Commerce Department also determined that critical circumstances existed with respect to these products and that, with respect to imports of these products from Brazil, a suspension of liquidation applied to unliquidated entries of merchandise entered, or withdrawn from warehouse, for consumption, on or after November 12, 1983.

Customs field offices were instructed to suspend liquidation on all unliquidated entries from Brazil that were entered, or withdrawn from warehouse, for consumption on or after November 12, 1983, and require importers to post a cash deposit or bond
equal to the net ad valorem subsidy shown. The schedule listed a general ad valorem rate for all manufacturers/producers/ exporters and specific rates for Companhia Siderurgica Paulista (COSIPA), Companhia Siderurgica Nacional (C.S.N.), and Usinas Siderurgicas de Minas Gerais (USIMINAS). The telex also provided that when the producer and the exporter were not the same, and the producer was known, the rate for that producer shall be used in determining the cash deposit.

The Suspension of Liquidation Instructions was modified by a Liquidation Order dated June 22, 1987, C.I.E. 87/199, which was supplemented (regarding the assessment of interest) on September 4, 1987. The Liquidation Order provided that the Suspension of Liquidation Instructions applied only to entries of certain carbon steel products exported by COSIPA and CSN. Customs field offices were instructed to liquidate all shipments of this merchandise from other exporters entered, or withdrawn from warehouse, for consumption on or after February 10, 1984 and on or before September 30, 1984. An ad valorem rate of 21.13 per cent was designated for all manufacturers/producers/exporters other than USIMINAS and MAXITRADE. The Suspension of Liquidation of all entries exported by COSIPA and CSN was not lifted until November of 1988. At that time, the Customs field offices were instructed to liquidate all entries at the designated rate. Entries made by CSN between February 10, 1984 and April 25, 1984, were to be liquidated at an ad valorem rate of 27.42 per cent. Entries between April 26, 1984 and September 30, 1984, were to be liquidated at an ad valorem rate of 39.98 per cent.

In the instant case, the seller and exporter of the merchandise covered by each of the subject entries was Duferco, a trading company in Brazil. The merchandise was manufactured by CSN which was subject to the Suspension of Liquidation Order. When the subject entries were liquidated, Customs assessed countervailing duties at the rate of 27.42 per cent ad valorem. It is the protestant-surety's contention that the assessed rate of 27.42 per cent is the preliminary rate applicable to merchandise exported by CSN. The merchandise covered by the subject entries were exported by Duferco and therefore, according to the protestant, were subject to immediate liquidation at the ad valorem rate of 21.13 per cent as set forth in the Liquidation Order of June 22, 1987.

It is the protestant-surety's position that Customs erred in failing to note that the subject merchandise was exported by Duferco and incorrectly re-initiated suspension of liquidation as if the merchandise had been exported by CSN. Therefore,
according to the protestant-surety, since the merchandise was incorrectly suspended the suspension was null and void, and each entry had to liquidate by operation of law on its fourth anniversary. Moreover, since no countervailing duties had been assessed in manual liquidation by the fourth anniversary of each entry, the entries liquidated by operation of law "as entered" without the assessment of countervailing duties.

Additionally, protestant-surety claims that no interest is due, if any is contemplated or assessed by Customs, on any calculation of countervailing duties as each entry was made between the February 10, 1984 preliminary determination, and the June 10, 1984 countervailing duty order. Protestant-surety also contends that no countervailing duty bond was ever filed to cover the subject entry. Therefore, protestant-surety cannot be held liable for duties and that it did not undertake any obligation for duties on a General Term Bond after publication of the countervailing duty order.

ISSUES:

1) Whether there was a legal basis to continue the suspension of liquidation against the importer?

2) Whether the subject entries were deemed liquidated by operation of law?

3) Whether interest is owed on the countervailing duties imposed?

4) Whether a claim can be made against a general term bond for countervailing duties owed and not covered by a single entry bond?

LAW AND ANALYSIS:

Liquidation of an entry of merchandise constitutes the final computation by Customs of all duties accruing on that entry. As provided in section 504, Tariff Act of 1930, as amended (19 U.S.C. 1504 (1988)) if Customs fails to liquidate an entry within one year from the date of entry or final withdrawal from warehouse, that entry is deemed liquidated at the rate of duty, value, quantity and amount of duties asserted at the time of entry by the importer, his consignee, or agent. Customs is permitted to extend the one year period, under 19 U.S.C. 1504(b) in certain circumstances: (1) if additional information is needed to classify the goods, (2) liquidation is suspended
by statute or court order, or (3) the importer, consignee, or his agent requests an extension. Customs must provide the importer with notice of the extension. Any entry not liquidated at the expiration of four years from the date of entry or withdrawal from warehouse is deemed liquidated at the rate of duty, value, quantity, and amount of duty asserted at the time of entry by the importer, unless liquidation continues to be suspended.

Issue 1

Protestant-surety claims that the subject entries of merchandise exported by Duferco were subject to the Liquidation Order dated June 22, 1987, and that the district incorrectly re- initiated suspension as if the merchandise had been exported by CSN.

In order to address this issue, we must look at a chronological order of events:

Nov. 12, 1983- 90 days before Commerce's Preliminary Mar. 16, 1984 Determination of February 24, 1984, one entry of hot-rolled steel sheet produced by CSN and exported by Duferco was made. SAE 1008

Apr. 19, 1984 Two entries are made of hot-rolled steel sheet produced by CSN and exported by
Duferco. SAE 1008

Apr. 26, 1984 ITA issues its Final Determination stating it had initiated a subsidy investigation on November 22, 1983 and determined a net subsidy of 62.18 per cent was provided to CSN for certain carbon steel products. 49 Fed. Reg.
17,988

ITA continues to suspend liquidation of all other entries. C-351-021, 49 Fed.
Reg. 17,988

June 22, 1984 ITA publishes its countervailing duty (CVD) order. 49 Fed. Reg. 25,655

Sept. 6, 1985 ITA revoked its CVD order retroactive to October 1, 1984, as to entries made after that date. The notice does not cover entries made before October 1, 1984.
50 Fed. Reg. 36,460

ITA agrees to conduct an administrative review, if requested to do so, of mer- chandise entered between February 10,
1984, and October 1, 1984. 50 Fed. Reg.
36,460

Sept. 30, 1985 The Brazilian government and three importers request such an administrative review.

The ITA published its preliminary deter- mination in the administrative review.
ITA found that equity investments in CSN and COSIPA made by the government were countervailable subsidies. 51 Fed. Reg.
39,776

Jan. 9, 1987 ITA reaffirmed its preliminary findings on all issues, including the subsidy to
CSN and determined the value of overall net subsidy to be 39.98 per cent ad valorem. 52 Fed. Reg. 829

Nov. 9, 1988 Court of International Trade affirms the equity determination made by the ITA and the method of calculating benefits.
Allowed parties to file statements on subsidy rates for trading companies.

At the time the suspension of liquidation instructions were issued, Customs was instructed that where the producer was not the exporter, and the producer was known, the rate for that producer should be used in determining the cash deposit. The subject merchandise was produced by CSN and exported by Duferco. When the June 22, 1987, Liquidation Order was issued Customs was instructed to liquidate all entries made by all other exporters. However, entries of merchandise exported by CSN were under a preliminary injunction issued by the Court of International Trade. See Companhia Siderurgica Paulista, S.A., et al, v. United States, 12 CIT ___, Slip Op. 88-158 (November 9, 1988). CSN had brought an action contesting the results of the administrative review of the countervailing duty order issued by Commerce. In the instant case, although the exporter was Duferco, the merchandise was manufactured by CSN. If Customs had liquidated these entries, it would have defeated the intent of the countervailing duty laws. It is well established that any merchandise subject to a countervailing duty order or
investigation is deemed to have benefited if such bounty or grant has been paid upon the manufacturer, producer, or exporter of such merchandise. Consequently, Customs could not proceed to liquidate the subject entries until such time as the court lifted the injunction and the Commission established the ad valorem rate required for merchandise produced by CSN.

Customs correctly continued the suspension of the subject entries and the importer was notified accordingly. It has already been held, under similar circumstances, that such suspension could be based on 19 U.S.C. 1504(b)(1). In American Permac, Inc. and Boewe Maschinenfabrik, GmbH v. United States, 10 CIT 535, 642 F. Supp. 1187 (1986), the Court of International Trade concluded that suspension of liquidation could be based on 1504(b)(1) if Customs has to wait for the ITA to furnish information regarding countervailing duties liability. The court found that so long as suspension of liquidation continues to be required by statute, or court order, it may continue indefinitely.

The Federal Circuit Court reached the same conclusion in Pagoda Trading Corp. v. United States, 804 F.2d 665 (Fed. Cir. 1986), where it held that liquidation cannot be extended when there is no basis, such as a lack of information available to Customs, to extend liquidation. In the instant case, Customs lacked the information necessary to liquidate the subject entries, i.e. the ad valorem rate for merchandise manufactured by CSN. Moreover, litigation which affected these entries was still pending before the Court of International Trade.

The issue of whether there is statutory authority for a suspension beyond the four year limit, provided for in 19 U.S.C. 1504, was addressed in the American Permac case. The court held that as long as a suspension continues to be required by statute, it may continue indefinitely. In the instant case, suspension of liquidation is required by 19 U.S.C. 1671b. The court also noted that statutory time limits on administrative acts are directory, rather than mandatory, if the statute does not specify adverse consequences if the time limit is not met. See also Phillip Brothers, Inc. v. United States, 10 CIT 76, 630 F. Supp. 1317 (1986). A similar conclusion was reached in Canadian Fur Trappers Corp. v. United States, 884 F.2d 563 (Fed. Cir. 1989). The Federal Circuit Court concluded that the lack of consequential language in the latter part of 1504(d) means that this part of the section is to be only directory. Therefore, it is Customs conclusion that there was a valid basis for suspension of liquidation.

Issue 2

Protestant-surety's primary contention is related to Issue 1. The protestant contends that since the merchandise was incorrectly suspended, the suspension was null and void, and each entry had to liquidate by operation of law on its fourth anniversary pursuant to 19 U.S.C. 1504. We do not agree. Customs authority to suspend liquidation of all entries of merchandise subject to a countervailing duty investigation is derived from 19 U.S.C. 1671b(d)(1). That section provides that if the administering authority makes an affirmative preliminary determination, the administering authority shall order the suspension of liquidation of all entries of merchandise subject to the determination.

The Suspension of Liquidation Instructions issued by the Customs Service implemented a suspension of liquidation determination published by the Department of Commerce. At the time the countervailing duty determinations were published by Commerce, all manufacturers, producers and exporters of the subject merchandise were subject to the suspension of liquidation order. Customs original suspension is not invalidated by the fact that the ITA later modified its original instructions to suspend liquidation. Customs properly suspended liquidation of the subject merchandise exported by Duferco as provided for in 19 U.S.C. 1671b. Therefore, as previously discussed, the continuation of the suspension of liquidation was valid and the subject entries are not deemed liquidated by operation of law.

Issue 3

Protestant-surety claims that no interest is due on any countervailing duties imposed because the subject entries were made between the time the preliminary determination and the final countervailing duty order were issued. Section 778 of the Trade Agreements Act of 1979 (19 U.S.C. 1677g (1979)) (the 1979 Act) provided that interest was payable on amounts deposited on merchandise entered, or withdrawn from warehouse, for consumption on and after the date on which notice of an affirmative determination by the Commission was published. The 1979 Act was amended by section 621 of the Trade and Tariff Act of 1984 (the 1984 amendment) to provide that interest shall be payable on amounts deposited on merchandise entered, or withdrawn from warehouse, for consumption on and after the date of publication of a countervailing or antidumping duty order. The interest was generally payable at the rate in effect under section 6621 of title 26. Section 6622 of title 26, provides that interest calculated under section 6621 must be compounded. Thus, this amendment provided that interest be compounded and payable at the

IRS rate for any period of time during which the entries were suspended. Therefore, the interest payable would vary in accordance with the interest set forth under section 6621 for the periods of suspension. The 1984 amendment did not take effect until October 30, 1984.

In 1986, Congress clarified the effective date of the 1984 amendment by indicating that the 1984 amendment should apply to all entries unliquidated on or after November 4, 1984. Note (b)(4) to 19 U.S.C. 1671 (Supp. 1988). Thus, pursuant to this amendment, the entries involved here, since they were unliquidated on November 4, 1984, and still unliquidated at the time the 1986 amendment was enacted should be liquidated in accordance with the 1986 amendment. This conclusion is in harmony with the Court of International Trade decision in Canadian Fur Trappers. In that case, the court held that "the 1984 amendment cannot be applied for interest accruing before the effective date of that amendment." In the subject case, the entries were unliquidated as of the date of the 1986 amendment. Therefore, it is Customs position that the entries are subject to interest in accordance with the 1984 amendment, i.e. compound interest at the varying IRS rate.

Issue 4

Protestant-surety alleges that no countervailing duty bond was ever filed to cover one of the three subject entries and therefore it cannot be held liable for duties attached to said entry. Additionally, that protestant did not undertake any obligation for duties under a general term bond after publication of the countervailing duty order. Protestant relies on TD 82-56 which authorizes the Customs Service to accept single consumption entry bonds in the amount of the estimated net subsidy. We agree with the protestant with respect to liability on the single entry bond. However, protestant remains liable for countervailing duties under the general term bond.

An entry bond is required as part of the entry documentation. The bond protects the government from losses as a result of non-compliance with Customs regulations. Antidumping and countervailing duties are treated in many respects as normal duties. Therefore, Customs can charge a general term bond which guarantees the payment of duties. When countervailing duties are imposed and the district director believes the current bond is in an amount insufficient to cover potential liability, a single entry bond can be required. However, the posting of the single entry bond does not relieve the surety of liability for duties under the general term bond. The basic importation bond is broad enough in scope to cover countervailing duties when imposed by Commerce.

Customs interpretation of a surety contract was set forth in C.S.D. 87-20. In said ruling, it was determined that a Customs bond given to secure the payment of duties also secures the payment of interest on those duties. As stated, "the contract of a surety is interpreted according to the standards that govern the interpretation of contracts in general.... Contracts are construed most strictly against a compensated surety and in favor of the indemnity." A surety's obligation under the contract is construed by reading together all of the instruments, statutes and regulations underlying the transaction. St. Paul Fire and Marine Insurance Co. v. Commodity Credit Corporation, 474 F.2d 192 (5th Cir. 1973). In the instant case, the statutes and regulations require that countervailing duties be paid on the subject entry. Surety undertook to pay all duties owed by importer for entries made between February 12, 1984, and February 11, 1985. The subject entries were made during the stated time period. Therefore, countervailing duties can be charged against the general term bond.

HOLDING:

1) There was a valid basis for extension of the liquidation suspension. The subject entries were properly liquidated at the 27.42 per cent ad valorem rate.

2) There was a proper suspension of liquidation of the subject entries as provided for in 19 U.S.C. 1671b.

3) The entries are subject to interest in accordance with section 621 of the Trade and Tariff Act of 1984.

4) Countervailing duties can be charged against the general term bond.

You should DENY this protest.

Sincerely,

John Durant, Director

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