Export Compliance Daily is a Warren News publication.

Trade Court Sends Customs Spat Over Reimported Swimsuits to Second Phase of Bench Trial

The Court of International Trade ruled in a March 21 opinion that a customs spat over reimported swimsuits will head to phase two of trial. After sorting through whether a Warehousing Agreement between two related companies sufficed as a lease or similar use agreement during the first phase, Judge Jennifer Choe-Groves ruled that this condition was satisfied for classification under a duty-free tariff provision for U.S. goods returned. The court will now see if the remaining conditions are satisfied in order to grant SGS Sports duty-free treatment of the reimported swimwear.

Sign up for a free preview to unlock the rest of this article

Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.

SGS said it entered swimsuits under the duty-free Harmonized Tariff Schedule subheading 9801.00.20 after first exporting them to Canada for warehousing at related company Canada 147483's warehouse. CBP rejected that classification, issuing a ruling in 2018 that said SGS and the warehouse operator were actually the same entity under the same ownership, and could not have executed any “agreement” as required for classification in 9801.00.20 (see 1802220037).

The HTS subheading comes with four conditions: the reimported merchandise must have duties paid on it when it was first imported, have not been advanced in value while abroad, have been exported under a lease or similar use agreement and reimported by or for the person who imported the goods into, and exported them from, the U.S. In the case, Choe-Groves set a bench trial to see whether this third condition was met.

After hearing from three witnesses in the trial -- Anna Murdaca, vice president of finance and chief financial officer of SGS since 1997 and part owner of SGS since 2007; Michael Couchman, warehouse manger of Canada 147483 for around 10 years; and Steven Gellis, president of SGS since 1988 and president of Canada 147483 since 1985 -- Choe-Groves found that the condition was satisfied. The court said that SGS and Canada 147483 expressed a mutual understanding for Canada 147483 to warehouse the goods that satisfies the meaning of "similar use agreement" under the HTS subheading.

DOJ argued that since the reimported goods were not used in Canada according to their intended uses, this agreement should not be found to satisfy the similar use agreement condition. "The Court does not agree with Defendant that the 'use' must be for the specific purpose for which the subject merchandise was designed (for example, Canada 147483 employees do not need to wear the bathing suits for swimming under the 'use' requirement), but it is sufficient if some purpose or action, such as performing warehousing services or 'pick and pack' services, or testing as in Werner, is the purpose or action under the agreement," the opinion said.

John Peterson, counsel for SGS, told us he was "pleased" with the decision and that it was "obviously supported by evidence at trial." He further noted that the decision will likely be the last of its kind. While "HTS subheading 9801.00.20 is still on the books ... [the] HTS 9801.00.10 'goods returned' statute was expanded in 2016 to cover imported goods, most companies will use that statute instead," he said. SGS is no exception.

(SGS Sports Inc. v. United States, Slip Op. 22-26, CIT #18-00128, dated 03/21/22, Judge Jennifer Choe-Groves. Attorneys: John Peterson of Neville Peterson for plaintiff SGS Sports; Monica Triana for defendant U.S. government)