Customs Law Pro

Customs Increasing Enforcement Action on Unregistered Exports

Fri, 18 May 2012 15:20:00 -0000

An export declaration (formerly called a "Shippers Export Dclaration" and now called an "IEE") is required by law and administrative regulation for âall exports of physical goodsâ with certain exceptions. The IEE must be filed electronically and one must be approved in order to file. (Most freight forwarders are approved for filing but an individual can also register. The registration process is not complicated or lengthy. The IEE must be filed before exportation. Much more severe penalties are provided for for misuse of the automated filing system or false or fraudulent statements on the declaration.

Until recently, the failure to fine the export declaration did not generally lead to any penalty. In 2009, however, Customs issued specific guidelines for the assessment of penalties for the failure to file or for the late filing of an IEE. Monetary penalties for an unintentional first time failure to file or a late filing are relatively mild under these guidelines.

However, the failure to file or the late filing brings other penal statutes into play, and those provide for seizure, forfeiture, and/or substantial monetary penalties, as well as additional criminal penalties if there was intent. Several are violated where there is an âexportation or attempted exportation in violation of lawâ and the failure to file an IEE is just that.

For example, 19 USC Section 1595a(d) imposes sanctions for the attempted export of goods not in violation of its specific prohibitions but in violation of some other law pertaining to exports--such as the failure or late filing of an IEE. 22 USC Section 401 entitled âIllegal Exportation of War Materials,â also generally prohibits exportation âin violation of law.â 15 CFR Section 30.24 sets forth general requirements for exporting carriers with regard to their filing of manifests and IEEs. Customs has cited all these and others when issuing a seizure notice after intercepting a shipment intended for export without the required filing.

Note that the above is a very general summary of certain laws relating to the requirement to file an IEE. It is intended as a general introduction and is not intended of itself to be legal guidance applicable to any specific situation. Note that there may be export prohibitions for shipments to particular countries or outlawing the export of specific articles, special licensing requirements for particular goods, or additional requirements not discussed here.

US-Korea and US-Columbia Free Trade Agreements Take Effect

Mon, 14 May 2012 10:00:00 -0000

On March 15, Korea joined the lengthening list of countries that have a free trade agreement with the United States. The various free trade agreements differ in many respects. On May 15, 2012, the FTA with Columbia took effect. Here are some highlights of FTAs:

KOREA: Approximately 80% of Korean-made goods will become duty free as of the effective date, certain products will have their duty rated reduce proportionally to zero over an up to ten year period.

The impact on wearing apparel, footwear and head wear is expected to be significant, given the relatively high duty rates on such items. Most apparel will have their duty rates reduced to zero on the implementation date. Other types of garments, such as man-made fiber (MMF) woven trousers, tops, T-shirts and knit shirts and blouses, cotton knit shirts and blouses, and certin other tyes of garments (this is not an all-inclusive listing), will have their rates come down to zero only after five or ten years.

All goods must be made with either US or Korean components. In the case of wearing apparel, this GENERALLY means that the goods--the shell fabric and in some cases the visible linings--must be manufactured from the yarn on up thorough the finished product in either the US or Korea.

COLUMBIA: This agreement covers the majority of goods traded between the two countries. Tariffs on the balance will be phased out over, at most, 15 years. it replaces two other free trade programs that many Columbian goods qualified for, the Generalized System of Preferences and the Andean Trade Preferences Act, both of which were in the main but most certainly not entirely, more limited in scope and eligibility requirements. If your were bringing in goods free of duty under the GSP or the ADPA (or were paying duty as the goods did not qualify under those programs) you might wish to closely review your imported or exported productss to determine eligibility and specific eligibility requirements.

The agreements are complex; our comments must be read as introductory and cannot be used for specific guidance or as legal advice or opinions. Further, your import program might include merchandise subject to product-specific special rule, not discussed here. You as importer have an obligation to assure both that your Korean and Columbian shipments qualify under the terms of the FTA. You must also recognize that it is your responsibility to submit, on request from US Customs, documentation that all FTA criteria have been met. It is too easy to forget especially the latter, given that such documentation is not required on entry, even where duty free treatment is claimed. A substantial program can be well underway before Customs requests documentary support,. If obtainable at that time or insufficient, your company will be liable for increased duty assessments which will not be limited to the specific shipment questioned. It will also be exposed to substantial penalties which could be a multiple of the duty assessment.

Nothing is free, including duty-free treatment. You must do your homework on this.

C-TPAT Update

Wed, 09 May 2012 20:40:00 -0000

Customs recently initiated a drive to increase membership in the C-TPAT (the "Customs-Trade Partnership against Terrorism") from the current 10,000 + importer/members to 40,000. If Customs' aims are even partially met, the pool of importers who are not in the program will shrink. As a direct result, cargo imported by non-member companies will be subject to more frequent delays in Customs clearance as it will be increasingly targeted for "intensive" examination. Customs will not need to spend as much time examining cargo imported by companies who have demonstrated that their supply chains meet C-TPAT minimum security criteria and will increasingly focus on the "others."

Several other countries have similar programs, and governmental mutual recognition agreements allow companies admitted in one countries' program to enjoy the same benefits as if fully admitted into the others'. Importers, brokers and forwarders admitted into one countries' supply chain security program will be accorded the same benefits when shipping to two or several countries who "mutually recognize" each other. As a major side benefit they can avoid the costs of joining more than one.

The US and the EU have recently agreed to mutually recognize the other's supply chain security program, effective July 1, 2012. In the EU, the progarm is called the "Authorized Economic Operator" program.)
There are similar agreements between the US and Japan, Korea, Canada and New Zealand.

The C-TPAT has become more stringent as time passes. If you are in or want to be in the program, you must have your supply chain mapped out--an up-to-date listing of all merchandise and service providers, from the manufacturer (and subcontractors) through the foreign truckers, consolidators, forwarders, carriers, US customs brokers, through delivery and unpacking. If any take physical custody cargo, you must now for approximately for how long. Customs is also requiring importers to do a country and regional risk-based security assessment and to require enhanced security measures where increased risk so warrants.

Certain major US retailers are now requiring that their importer/suppliers join the program as a condition of doing business with them. They believe that membership in the program on the part of their suppliers will make them more reliable as it will decrease unexpected delays in clearing Customs. They also believe that this is necessary for them to strengthen their own supply chain security, as required by the C-TPAT

US Customs routinely, and no less than every four years, conducts on-site reviews of C-TPATmembers' factories' to determine if their security practices meet at least minimal security standards set by Customs. While the factories (except those in Canada and Mexico) cannot be C-TPAT members, importers that purchase from factories that get failing grades from Customs will be suspended or expelled from the program. The whole idea is to use the importers to pressure the factories to meet the security standards.

Until two years ago, Customs has not been allowed by the Chinese government to conduct C-TPAT factory validations in China. The situation has changed. US and Chinese Customs officials have begun conducting joint validations of factories located in in Guangdong Province and beginning this Fall will be doing so in Shanghai, Jiangsu and Zhejaing Provinces. If this works out to the satisfaction of the customs authorities of the US and China, the program will be expanded to factories in other provinces. Your Chinese sources should be aware of and meet the C-TPAT minimum security criteria and document their compliance to establish this during a Customs review,whether or not they are inspected. This is because a C-TPAT importer is required to document that all merchandise and upstream service suppliers meet minimum security criteria.

Coyright & Trademark: It Is Getting Dangerous Out There

Wed, 02 May 2012 18:20:00 -0000

If you import an article that has a counterfeit trademark or or in violation of another's copyright, you risk not only civil suit. If US Customs discovers it, the shipment--and that includes any non-infringing goods imported along with the offensive items--will be seized and forfeited. You will not be entitled to obliterate the mark or export it back to the seller, regardless of your good faith belief that the goods were genuine. In certain copyright cases and in most involving counterfeit trademarks, the government may assess a penalty equal to the retail value of the goods in addition to forfeiture. As to trademarks, the only exception is for "grey market" goods--goods that have trademark applied with authority of the trademark owner but only for sale overseas. Such goods may be shipped to the US despite the trademark owner's restriction.

There is an exception to this exception. The foreign goods must be of substantially the same quality as those sold by the US-licensee. That could be difficult to prove. Also, it can be difficult to show that the goods were purchased from an authorized foreign vendor. We recently had cases wehre new model "Nile" shoes where imported from the Far East, having been purchased from retail "Nike" outlets. We had to show that those outlets were selling legitimate goods. We also have a case regarding refurbished cell phones--we have to show the replacement parts were not knock-offs.

More: the government is not just satisfied with seizure: It considers deterring intellectual property theft a very high priority. The law gives it the right to assess a monetary penalty equal to the retail value of the goods--a multiple of its FOB. while it rarely has issued such claims in the past, it is increasingly doing so

This draconian penalty can be mitigated on a proper showing and we have been successful in, if not invariably having the penalty cancelled, reducing it to 10% of the original amount. That can still be a big number, so do you "due diligence" before purchasing a item that may be copyrighted or contain a trademark.

OTHER: The âInnovative Design Protection and Piracy Prevention Act,â was re-introduced to Congress, after not having been enacted during the past year. If it becomes law, this bill will significantly extend copyright protection to designs for clothing, handbags, duffles, tote bags, belts, and eyeglass frames. Unlike traditional copyright requirements, formal registration with the US Copyright office would not be required. All that would be required would be making the design public, as by offering it for sale on a web site . Protection would last for three years.

The bill would allow a defense that any article embodying the design was created without knowledge. However, knowledge can be inferred if the âtotality of the circumstancesâ reasonably indicate that a design was protected and was copied from the protected design. It is also a defense to establish that the design (1) is not substantially identical in overall visual appearance to, as to the original elements of, a protected design or that (2) was independently created. The bill also excludes from protection designs embodied in a useful article if they were made public by the designer more than three years before the date upon which protection of the design is asserted

The burden to establish defenses this would appear to be on the defendant, not the one asserting an infringement. The owner of a design may start a lawsuit as the design is made public. A garment design, for example, could probably be considered to having been made âpublicâ when unveiled at a fashion show or posted on the web.

The information herein is for general information and is intended only to sensitize you to the possibility that your may have an issue for which consultation may be required. You may feel fee to consult with us or with such other counsel as you choose for spadvice specific to your situation.

Free Trade Agreements (FTAs)--Recognize the Exposure

Tue, 21 Feb 2012 18:10:00 -0000

The United States has Free Trade Agreements (FTAs) with many countries--Australia, Singapore, Israel, Morroco, to nave a few.

Where a claim for free entry under an FTA is made, the importer is responsible for submitting, but only on on request by Customs, cost and production documentation to establish eligibility. Often there will be a long series of unquestioned duty-free imports before Customs asks for documentation on a recent one. If the the documentation is them found to b unacceptable, this results in the loss of the duty exemption and could threaten the viability of a major import program. It is always prudent to have your suppliers, where an FTA exemption is claimed, to provide you with cost and production documentation for goods covered by at least one representative entry should you intend to claim this duty preference.

On February 21, 2012, the US Trade Representative announced onthat the US-Korea Free Trade Agreement will take effect on March 15. Approximately 80% of goods made in Korea will become duty free on that date, with the balance being phased in over one to ten year periods, depending on the commodity. Most textiles, apparel and all shoes will become duty-free immediately on that date.
(Nowhere does the announcement or any other information about the FTA indicate that the March 15 date refers to date of entry or date of export. We expect clarification on this.)

FTAs with each beneficiary country are identical in some ways and significantly different in others.

One commonality among the FTAs is that the imported product must be fully produced in the FTA country or, if made in whole or substantial part from foreign materials, that the foreign materials had been "substantially transformed" there. Documenting this can be difficult. A recent Customs survey found that 28% of the claims for free entry under the FTAs were not properly documented. This resulted in the retroactive loss of the duty exemption and in some cases penalties. It also threatened the viability of otherwise highly successful import programs.

Please regard this as a general informational message. It is not advice that will insure that you qualify under an FTA or anything near an exhaustive listing of measures you should take to protect your company.

Additional Deductions from FOB allowed; Duties Reduced

Wed, 01 Feb 2012 19:28:52 -0000

A recent Customs Headquarters ruling may present an opportunity for significant duty savings. The ruling held that certain charges paid by the foreign seller to a foreign logistics provider were not dutiable even though the seller had paid for them and included them in its FOB unit prices without itemizing them as separate line items.

Normally, dutiable value is based on the FOB price paid or payable to the seller. Certain deductions are allowed, including the costs of international transport after the FOB point and costs incident to international shipment. Generally, these deductions are claimed for ocean or air freight and insurance in CIF and not FOB sales.

The subject of the ruling was an FOB sale. The full FOB charge was paid by the importer to the seller.

The FOB price included the following fees, paid to a third party by the seller and not the importer, for the following services and these were held to be deductible from the FOB price in determining dutiable value.

--Documentation fee for issuing a freight cargo receipt or house bill of lading;

--Container yard monitoring fee for handling the cargo;

--Supply chain security fee;

--10+2 US Customs advance notice requirement management fee( the 10+ 2 notice applies to sea and not air shipments);

--Documentation fee for issuing the freight cargo receipt;

--Fee charged by the carrier for "equipment management;"

--Foreign customs clearance fee;

--Port security charge;

--Terminal handling fee;

--Advanced management surcharge ("AMS") fee charged by the carrier for electronically transmitting cargo information to US Customs;

--Carrier agent booking fee;

--Container freight station fee for receiving and packing cargo at the foreign port;

--Port construction fee; and

--Wharfage fee.

Key to obtaining the deduction was the fact that the logistics provider itemized these charges (based on quantities or other units of measure) on its invoices, and all documentation were consistent (e.g., way bills corresponded to invoices and packing lists; the logistics provider's invoices referenced the same FOB point as listed on the commercial invoices and the same port of lading as was listed on the waybills.)

In sum, while normally the full FOB amount is the basis for duty assessment, the above charges were essentially regarded to have been be incurred after the FOB point of sale and because they were sufficiently documents, were deductible.

The Customs ruling made a point of stating that the ruling was specific to the transaction and documentation reviewed, and that if claimed, the importer is fully responsible for documenting them. Should you believe that in your situation your company could benefit from this ruling, it is is strongly recommended that you obtain a binding ruling from Customs.

California Anti-Human Trafficking/Anti-Slavery Law

Wed, 31 Aug 2011 13:46:13 -0000

Beginning January 1, 2012, manufacturers and retailers that have annual worldwide gross receipts of $100 million and who "do business" in California will have to provide consumers with information about their efforts to combat human trafficking and slavery in their supply chain. This law (SB 657, now section 1714.43 of the California Civil Code) was signed by former Governor Schwarznegger exactly one year ago. Implementation was postponed until the coming year.

California cannot legislate for the nation. To be subject to the law, in addition to having at least $100 million in gross annual receipts, a company must be "doing business" in California. "Doing business" is expansively interpreted. While of course companies incorporated or domiciled in California are covered, so are businesses that, among other things, have sales in California (including those made by agents or independent contractors) equaling or exceeding $500,000.

Companies who do not come under the letter of law will undoubtibly face pressure to comply from national retailers who purchase from them and who themselves are covered.

The law itself does not carry with it monetary penalties but does empower the California attorney to seek an injunction, a court order requiring a company to implement specific procedures to fulfill the intent of the law.

The law does not require a company to take particular actions but does set forth certain "best practices." These include:
--use of rd parties to map the company's supply chains and identify patent and latent risks of slavery and human trafficking they present;
--conducting of independent, unannounced audits of suppliers;
--determining the existence and scope of anti-slavery and anti-human trafficking in the country in which the suppliers are located and where they exist, oblige the suppliers to be able to demonstrate compliance;
--holding employees and suppliers accountable for transgressions; and
--training of employees, especially those engaged in supply chain management and selection of sources of supply.

Manners of informing the public appear to include posting such information in the company's web page.

Membership in the C-TPAT may well assist in demonstrating compliance. In the course of confirming that those in its supply chain meet C-PAT criteria, questions regarding measures taken by them to insure that they have safeguards against involvement in slavery or human trafficking. In addition, requiring supplier to sign off on a code of conduct which covers such matters is advisable.

Congresswoman Carolyn Maloney of New York plans to introduce a bill this year, entitled the "Slavery Protection Supply Chains Act," which she says is modeled after the California law. If enacted, such law would apply nationwide.

This area merges well with our involvement with the C-TPAT and in drafting codes of conduct. We are always ready to consult with you and to assist in such efforts as you may have to undertake because of this law.

The above is for general informational purposes only and is not of itself to be relied upon for legal guidance.

Liquidation of Customs Entries: Change made in Importer Notification

Fri, 19 Aug 2011 13:42:24 -0000

When Customs âliquidatesâ an entry, it signifies that, based on the information submitted to it, it has finally calculated duties owing on a shipment. Usually, it accepts the calculation set forth on the entry by the importerâs broker but it can also adjust upwards or downwards. This often happens due to reclassification of the goods under a tariff provision that has a different duty rate or a re-valuation of the merchandise.

After an entry has been liquidated, duties can only be recalculated within a limited amount of time by Customs but the period can be for as long as five years where material misdeclarations or omissions had been made on entry. An importer can challenge an assessment after liquidation and such âprotestsâ are not uncommon. A protest must be filed within 180 days of liquidation or, regardless of the merits, it will be denied as untimely. If untimely, the decision cannot usually be challenged in the courts.

In other words, it is important to keep an ongoing record of liquidation dates.

Customs and Border Protection has for years sending importers by mail âcourtesyâ notices of liquidation. It recently published notice that effective September 30, 2011, paper âcourtesy notices of liquidationâ will no longer be mailed to importers whose entries are filed electronically under the âAutomated Broker Interfaceâ (ABI). Most importers or their brokers file under ABI. Electronic notices, which are currently issued to ABI filers, will continue to be issued but generally it is the broker and not the importer who can access this data base.

We suggest you instruct your broker(s) to provide you with liquidation information on a regular basis, both to keep your records up-to-date and because any protest claim for claim for refunds must be filed with 180 days of liquidation.

Importers who do not use ABI will continue to receive paper notices.

This action was taken purely as a cost-savings measure.

California Prop. 65

Tue, 09 Aug 2011 18:00:00 -0000

Every company selling product in California, or to companies that do so, must be aware of California' Proposition 65. The following is a very general summary of only some of its requirements. As the law is complex, this must not be relied on for specific guidance but rather as a general introduction.

California's Proposition 65 is now 10 years old. Originally envisioned as a measure to keep carcinogens out of the aquifers and hence out of drinking water, and allow those pregnant to avoid dangerous chemicals, it now covers a hundreds of chemicals where one would think there is little danger of water contamination or danger to a developing fetus, such as lead small quantities (often used in tanning leather and in handbag fittings) and formaldehyde (often used in the processing of textiles).

Prop. 65 limits the amount of such chemicals that may be present unless a label warning of the presence of the carcinogen is present at the point of sale. The required wording of the label is sure to deter most consumers from buying the product. The amount of the chemical present that will trigger the requirement for the label is not clear for it is often stated in terms of daily absorbtion rate due to contact rather than a more readily quantifiable amount, such as parts per million. This is is often a disputed point---meaning litigation due to different opinions of experts.

Penalties for violation are severe. Further, private law firms are motivated to litigate as they are authorize to receive heafty fees.

The law only applies to companies "doing business" in California but this term has been broadly interpreted. Simply knowing that the goods could be retailed can make a non-California company subject to lawsuit.

On June 1, 2010, settlement was reached in California with a number of larger and smaller retailers, including Macy's, Bloomingdales, T.J. Maxx, and Target, regarding acceptable levels of lead in handbags, purses, clutches, wallets, belts and footwear. If a company is not part of that settlement, the fact that the levels of the chemical i its product is below that prescribed in the settlement will not be asufficient defense to avoid suit.

This informational statement and is not to be used as legal guidance as there are many significant details that are not encompassed in this alert.

Fur Products

Thu, 04 Aug 2011 15:20:00 -0000

The Fur Products Labeling Act requires articles of apparel containing fur to be labeled with the name of the species used, the manufacturer, the country of origin and other information on a label, which must be of a minimum specified size, with lettering in a font of at least a minimum size. Uniil this year, products containing less than $150 worth of fur were exempt. Now any amount of fur in the product will trigger the labeling requirements.

Delaware, Massachusetts, New Jersey, New York, and Wisconsin all now have fur labeling laws that are stronger than the federal law. In some cases, and unlike the federal law, they have additional labeling requirements for covering apparel and certain other articles that contain artificial fur.