In opinions issued in December 2012 (cit.uscourts.gov/SlipOpinions) and January 2013 (cit.uscourts.gov/SlipOpinions), the Court of International Trade issued important rulings in an action brought to enforce the 1996 Softwood Lumber Agreement. Even though the 1996 SLA expired in 2001, these decisions have continuing relevance for the current SLA, which entered into force in 2006.
First, some background on the case. Both the 1996 and 2006 SLAs cover “softwood lumber,” which includes both dimension lumber – ordinary 2x4s and such – and some further processed products such as siding and flooring. Trusses – such triangular frames used in roof construction – and truss kits are among the products that are outside the scope of the agreements. In the late 1990s, Customs issued two rulings finding that certain wood products from Canada were properly classified as “trusses and truss kits” and not covered by the 1996 SLA.
In 2000 and 2001, Millenium Lumber Distribution Co., a Canadian lumber remanufacturer and distributor located in Surrey, B.C., near the U.S. border south of Vancouver, exported a substantial volume of “angle-cut softwood lumber” to the United States. Millenium was one of several Canadian exporters who asserted that this “angle-cut” lumber was suitable for use in trusses and therefore was exempt from the SLA requirement to obtain an export permit. At the time, such an exemption would have meant the exports were not subject to an export quota and, potentially, over-quota export taxes administered by the Government of Canada.
In classifying Millenium’s entries, Customs concluded that while the merchandise could have been used as truss components, they were not processed so as to preclude other possible uses. Therefore, the entries were classified as regular softwood lumber in heading 4407 and subject to the SLA. Millenium protested this classification, but Customs was eventually upheld by the CIT and the Federal Circuit. Millenium Lumber Distribution Co. v. United States, 558 F.3d 1326 (Fed. Cir. 2009).
Both SLAs created a regime of export taxes and export quotas for Canadian lumber exported to the United States, to be administered by the Canadian government. However, U.S. Customs regulations then, as now, required an importer of merchandise subject to the SLA to provide information about the export permit in its Customs entry documentation. 19 C.F.R. § 12.140 (2012). Customs bonds, by regulation, include the condition that any required SLA export permit will be obtained within 10 days of entry. Id. § 113.62(l) (2012). Failure to meet this condition will result in CBP assessing the importer and/or its surety liquidated damages of $100/MBF. Id. § 113.62(m)(5). In this case, Millenium – acting as its own importer of record – and its surety were found jointly and severally liable for liquidated damages for failing to obtain the required SLA export permits on the 2000 and 2001 entries.
In the most recent CIT decision, the court rejected the arguments of Millenium and its surety derived from prior Customs rulings that certain truss components that could be shown to be part of truss kits were classifiable in heading 4418 and not subject to the 1996 SLA. They claimed that the “angle-cut” entries were properly entered because those rulings had not been revoked with the advance notice and comment opportunity required by statute. The court held that the issue of notice should have been raised in the classification protest litigation, but noted that such arguments would fail in any case, as the “angle-cut” lumber was demonstrably different from the truss components at issue in the prior Customs rulings. This holding clarifies that importers are only protected by rulings that cover the precise product at issue.
There was substantial litigation over the scope of the 1996 SLA, and more than one company was implicated in litigation over whether “angle-cut” lumber, in particular, had been fraudulently imported in circumvention of the SLA. The recent Millenium decisions will hopefully mark the final resolution of these cases. The 2006 SLA, however, has been remarkably free of such conflict, partly because its scope is more clearly defined than was the case in the 1996 SLA. But the demonstrated willingness of CBP to enforce compliance with both versions of the agreement – even though it is the revenue of the Government of Canada, not the U.S. Treasury, that is at stake – and the devotion of resources to that enforcement by CBP has played an important role as well.