Issue 252, March 14, 2000
The Customs Service has scored a large victory in a recent decision of the Court of International Trade in Tikal Distribution Corp. v. United States, Court Number 96-11-02580, which was decided on February 28, 2000. In that decision, the Customs Service claimed that payments made by a footwear importer and distributor for the exclusive rights to distribute certain footwear in the United States and Canada were dutiable as part of the appraised value of the imported footwear.

Tikal had a written distribution agreement granting it exclusive distribution rights to sell Coban shoes in the United States and Canada. In addition to the invoice prices for the footwear, Tikal paid Coban 5 percent of its retail sales for its exclusive rights based on a written formula. These payments were made pursuant to certain credit notes that Coban sent to Tikal, which referenced commercial invoices by number in the entries.

The Court of International Trade concluded that the Customs Service?s treatment of these payments as part of dutiable value was ?reasonable? under the deference standard enunciated by the Supreme Court in Chevron, as well as the Court of Appeals for the Federal Circuit?s decision in Genera Sportwear Co. v. United States, which had, in a similar vein, ruled that all payments to the seller by the buyer should be presumed to be dutiable. The reasonableness standard adopted by the Court in Tikal further advances the Customs Service?s effort to limit judicial review of its actions.

Following this decision, it is to be expected that the Customs Service will increase its scrutiny of exclusive distributorship payments, as well as royalty, licensing and trademark payments by importers. The failure to properly report such payments to Customs can result in the assessment of significant penalties against the importer.

Our contributing writer, Sandra Liss Friedman, is a Partner in the Customs and international trade firm of Barnes, Richardson & Colburn in New York and can be reached at via email or at(212) 725-0200.

Please note that due to the complex nature of the subject matter, AEI cannot be responsible for actions taken by the reader in reliance on the information contained herein without prior consultation with AEI.