The Death of Intermediaries? Maersk’s Canary in the Coalmine.

This is an old blog we lost during our transfer of site hosting.

Maersk, the world’s leading container ship operator, and Alibaba, the owner of China’s biggest e-commerce platforms, have decided to join forces in what has traditionally been the domain of NVOCCs
and Freight Forwarders.  The two have established a portal to allow shippers/customers to use Alibaba to book space on Maersk vessels. This union illustrates the growing trend of e-commerce and logistics firms working together, and to me sounds very much like an early warning signal for the great diminishment, if not demise altogether, of NVOCCs and Freight Forwarders.

Effective December 22nd, 2016 Chinese shippers obtained the ability to reserve space through Alibaba’s OneTouch booking website. OneTouch is intended to cater to small and medium-sized Chinese exporters by providing online services including logistics and customs clearance. OneTouch also gives these exporters access to platforms where they can book air freight and parcel delivery services while still supporting the business-to-business marketplace that Alibaba is known for. Traditionally, shippers had gone through freight forwarders in order to book on container vessels.  However, vessel operators such as Maersk are beginning to streamline this process by allowing the beneficial owner of the cargo (the shipper, rather than the shipper’s intermediary) to book directly from the internet.

What does Alibaba gain from its involvement in this? In recent years, Alibaba has been making inroads into logistics services by buying warehouses and taking stakes in couriers.  E-commerce giants are increasingly venturing into logistics in order to enhance their control over the supply chain networks they work with.  Amazon, for example, has dedicated fleets of aircraft, drones, and stores (which are actually mini warehouses/distribution centers), and is rumored to be planning its own U.S. domestic delivery fleet.  Walmart will not remain far behind: its brick and mortar locations and existing truck fleet give it a strong start in the logistics arena.

When asked about the Alibaba partnership, Maersk said that this was part of the shipping line’s plan to provide digitized services to consumers and that it plans to initiate more pilot programs on third-party portals in the near future. Maersk stated that the launch of the service was not focused on bypassing the industry’s traditional middlemen (freight forwarders and NVOCCs), as the OneTouch platform still engages freight forwarders to offer some services, including haulage. Though it may not be the public goal of this joint venture, bypassing intermediaries will inevitably be an effect.

Many tech startups have launched services like this one, attempting to bypass third-party shipping services, but until now Amazon has been the only other high-profile company to venture into these waters. This new partnership between Alibaba and Maersk will add another big name to the list of e-commerce companies exploring a streamlined process, as well as giving carriers a chance to see how these online retail capabilities mesh with their shipping business.  Forwarders and NVOCCs are well-advised to watch this trend closely, and be careful about large investments in physical facilities. A look at today’s ghost towns which were formerly bustling shopping malls gives you a hint of what could be if intermediaries become very easily done without.

When the Broker Must be the Importer of Record

The Importer of Record, or “IOR” has a lot of liability for entry.  Any penalties resulting from discrepancies relating to classification of the goods or admissibility issues, and the duties to be paid, must be covered financially by the IOR.   Changed from when I got my Customs broker’s license in 1978 is the fact that today the IOR must have a financial interest in the merchandise. No longer can it just be a nominal consignee.  This is to guarantee Customs that the importer is not a straw man, but has sufficient knowledge of the import so as to identify its appropriate duty rate, etc.   The sole exception to the rule is that a licensed Customs broker an always serve as IOR, though most are justifiably loathe to do so.

We encountered a very unusual case in which a CHB was put in the position of being the only possible importer of a DDTC licensable product.  In this case, European aircraft parts were being imported by an American company. The American repair station requested that the basis for delivery be “DDP” which means that the seller would have sole responsibility for making sure that the product properly clears customs and was delivered, “duty paid”.  Because the agreement was that it would be DDP, the consignee repair station refused to be the IOR. However, the goods were DDTC licensable.  Because the a DDTC license is only given to U.S.-located companies, the European seller could not be the IOR either. This leaves only one individual who is able to accomplish both: the Customs Broker.

The customs broker was left in the unenviable position of having to serve as the IOR for their European client.  Given the broker’s understandable lack of knowledge of the intricacies of aviation spares, it runs the risk of being responsible for any penalties from a mistake on the entry it files. In order to avoid this, we recommended indemnification.  Indemnification ensures that if something goes wrong, the broker will be put in the same position they’d have been in had they not agreed to assist- meaning that the seller will cover any monetary penalties, legal fees, etc. in the event of any demand.

The below paragraph was the language we suggested to our client’s customs broker, in order to make them feel comfortable that they are indemnified against all liabilities arising from the  agreement to serve as IOR. This absolves the broker from any responsibility if the duty is found to be incorrect or other problems arise, and it is among standard CHB terms and conditions.

Where a bond is required by U.S. Customs to be given for the production of any document or the performance of any act, the Customer shall be deemed bound by the terms of the bond notwithstanding the fact that the bond has been executed by the Company as principal, it being understood that the Company entered into such undertaking at the instance and on behalf of the Customer, and the Customer shall indemnify and hold the Company harmless for the consequences of any breach of the terms of the bond. (b) On an export at a reasonable time prior to the exportation of the shipment the Customer shall furnish to the Company the commercial invoice in proper form and number, a proper consular declaration, weights, measures, values and other information in the language of and as may be required by the laws and regulations of the U.S. and the country of destination of the goods. (c) On an export or import the Company shall not in any way be responsible or liable for increased duty, penalty, fine or expense unless caused by the negligence or other fault of the Company, in which event its liability to the Customer shall be governed by the provisions of paragraphs 8 – 10 below. The Customer shall be bound by and warrant the accuracy of all invoices, documents and information furnished to the Company by the Customer or its agent for export, entry or other purposes and the Customer agrees to indemnify and hold harmless the Company against any increased duty, penalty, fine or expense including attorneys’ fees, resulting from any inaccuracy, incomplete statement, omission or any failure to make timely presentation, even if not due to any negligence of the Customer.

Trade Expansion Act Investigations

This is an old blog we lost during our transfer of site hosting.

On April 20, 2017, President Trump directed the U.S. Department of Commerce (DOC) to conduct an investigation into the effects of steel imports on U.S. national security. (Presidential Memorandum Can Be Seen Here). On April 27, 2017, the President directed DOC to conduct an investigation into the effects of aluminum imports on U.S. national security. On these respective dates, DOC self-initiated investigations under section 232 of the Trade Expansion Act of 1962 to determine whether increasing imports of foreign-made steel and aluminum threaten the U.S. economic security and military preparedness.

Section 232 investigations include consideration of factors such as the amount of domestic production needed for projected national defense requirements and whether imports impair the domestic industry’s ability to meet those needs, the effect of foreign competition on the domestic industry, and any detrimental impacts from the displacement of domestic products by excessive imports. DOC last conducted an investigation under Section 232 of the Trade Expansion Act in 2001, when it examined whether U.S. imports of iron ore and semi finished steel threatened to impair national security. DOC found that they did not, and the President took no action to restraint imports. Past investigations under Section 232 have only rarely led to the imposition of import restraints. The most recent such occurrence was in the early 1990s, when an investigation regarding imports of certain machine tools culminated in voluntary restraint agreements (VRAs) with Japan and Taiwan.

Citing the more than 150 antidumping and countervailing orders currently in place on steel products imported from various countries, the Presidential Memorandum announced the investigation claims that U.S. steel producers continue to be harmed by continued unfair trade practices, such as subsidies provided by foreign governments and excess production capacity in producing countries. These systemic trade abuses, according to the Presidential Memorandum, jeopardize long-term investment in the U.S. industry and weaken the pool of qualified workers for this strategic industry.

Under Section 232, the Secretary of Commerce is required to report the findings and recommendations resulting from DOC’s investigation to the President within 270 days. In this case, however, the Trump administration is seeking to complete DOC’s report on an expedited schedule, well in advance of the maximum statutory time frame permitted by Section 232.

Within 90 days of receiving the Secretary’s report, the President must determine whether he agrees with the Secretary’s findings and recommendations, but he is free to take action to restrict the imports at issue regardless of those findings and recommendations. Within 30 days of the President’s decision, pursuant to Section 232, he is required to report his actions to Congress. In a Federal Register notice that will be published, the DOC announced that it will hold a hearing on May 24, 2017, and will consider written submissions received by May 31, 2017.

The Trump administration’s resort to Section 232 of the Trade Expansion Act now is controversial for various reasons, including because Section 232 predates the trading rules and obligations to which the United States and almost all of its major trading partners agreed to in joining the World Trade Organization (WTO). Thus, reliance by the United States on Section 232 to limit imports of steel could trigger challenges by steel-exporting countries in the WTO dispute settlement process. For example, Article XXI of the General Agreement on Tariffs and Trade (GATT) provides for a national security exception that a WTO member may lawfully rely upon to justify a restraint on trade that might otherwise violate WTO obligations. It is unclear whether the Trump administration could adequately justify any import restraints on steel resulting from the current Section 232 investigation under the Article XXI national security exception.

Additionally, Article XI of the GATT contains a strong presumption against quantitative restrictions on trade, which an import restraint under Section 232 may violate, depending on its terms. Other WTO rules may also be implicated by U.S. action under Section 232, including the national treatment requirement under GATT Article III, or the provisions of the WTO Anti-Dumping and Subsidies and Countervailing Measures Agreements that limit action against alleged dumping and subsidies to the measures specified in those agreements.

Finally, the Presidential Memorandum announcing the investigation identifies the aluminum, vehicle, aircraft, shipbuilding and semiconductor industries, along with steel, as other “core industries” that are vital to the U.S. manufacturing and defense industrial base and thus may warrant protection against alleged foreign trade abuses. The Presidential Memorandum thus signals that the Trump administration may be contemplating comparable action to potentially restrain imports in these other industrial sectors.

Trademark Now – or Turmoil Later

While running your business, you have a million things to think about.  Customers, employees, taxes, transactions – the list is endless.  But what about protecting the company’s very identity, goodwill, and brand?  A company’s name and logo are vital to success from a marketing standpoint, and as such you should be doing everything possible to protect them.  A great place to start is by making a promise to yourself and your business that this year all of your identifiers will be properly trademarked.

Trademarking is actually a fairly simple process, and we are here to help.  The first step to registering your trademark is making sure that no one else already owns it. Using the TESS (hyperlink site) page on the US Patent and Trademark Office you can search both words and designs and be sure no one has an identical or strikingly similar business mark for the same category of goods and services offered by your company.   If you don’t own your mark, then anyone can use it and ride on your goodwill, or even damage it.

After determining your brand’s legal standing, a registration must be submitted with all of the details of your mark and specific limits on how you will use it. Ideally, the USPTO should respond to you with approval within 6 months of filing your application.  But what if you find that your mark – or a similar one – is already being used?  Even if you have been using it for a longer period of time, your registration will likely be contested.  These are tough waters to navigate, but do not fret, we are quite familiar with them. If you find yourself in this situation, give us a call immediately and we will see how we can help you to move forward in getting your business protected.

Registering your mark is not really optional any longer.  Confusingly similar or counterfeit websites, email addresses, and other indicia are rampant.  Surely if you’ve owned “Great Shipping” for 20 years and gained a reputation in your industry, a new business called “Ship Great” can’t open its doors down the road from you in the same exact field? Though that may seem to be common sense, it is not the law. Unfortunately, unless copyrighted or trademarked, a name that is clearly playing off another brand cannot be challenged legally – no matter how similar.  State trademarking, by the way, is generally useless in our opinion.   Only a Federally recognized mark has substantial business protection value.

Be proactive and give us a call today to see how we can help you keep your business, its goodwill, and its identity, safe and uniquely tied to you alone.

Have A Billion Dollar Export Penalty? Let’s Not.

        
This is an old blog we lost during our transfer of site hosting.  

   A record-setting payment of $1,190,000,000.00 by ZTE Corporation of Richardson, Texas (“ZTE”) shows the enormous risks today of underestimating U.S. export enforcement. The International Emergency Economic Powers Act gives the President of the United States broad authority to regulate international transactions and exports.. Pursuant to two Executive Orders issued by President Clinton in the mid 1990’s, the Iranian Transactions and Sanctions Regulations (“ITSR”)  was created that prohibit, among other things, exportation or re-exportation of U.S. products to Iran without a license from the Office of Foreign Asset Control (“OFAC”).

Almost a year ago,  the Obama administration accused ZTE of violating ITSR and the Export Administration Regulations (“EAR”), restricting the export of products that could make a significant military contribution to Iran or other countries. Fast forward to today, and, ZTE has pleaded guilty to charges of unlawful conspiracy to export U.S. goods (to both North Korea and Iran), obstruction of justice and knowingly and willfully making a materially false statement during the investigation. ZTE settled the lawsuit for the largest sanctions penalty in history: $1.19 billion divided between the U.S. Department of Justice, OFAC and the Bureau of Industry and Service (“BIS”). Below are some ideas of how to avoid becoming the record holder for the largest trade sanctions penalty:

What ZTE did: Senior management was aware of, and even condoned, illegal activities and non-compliance with trade laws.

Best Practices: Create a company culture of honesty and compliance, starting with top level management. It is up to senior management to establish clear company policies regarding compliance with all export policies because they, better than anybody else, understand the high risks associated with non-compliance. Senior management behavior is an example for the rest of the company so it should clearly show what are acceptable export practices.

What ZTE did: ZTE sought out and used “isolation companies” to re-export U.S. products to embargoed countries in order to hide ZTE’s involvement.

Best Practices: Take a look at the process third parties which you may employ use to complete their business.  Request written verification that they comply with trade laws and memorialize this via a contract in which the third party commits to complying with U.S. trade laws. The main point is to create and maintain transparency – with teeth –  regarding interactions between your company and any third party involved in your business transactions.

What ZTE did:  Incredibly, once the investigation had begun, ZTE asked its employees to sign nondisclosure agreements to conceal the illegal trade with Iran.

Best Practices:  Concealment is almost always worse than the initial crime! Create a company plan that empowers employees to report compliance issues. Even if it turns out there is no compliance issue at the moment, you are given the chance to address a minor problem before it turns into a major (record setting) compliance issue.  See our January 20, 2016 post regarding Voluntary Disclosures, which can greatly lessen or even eliminate penalties  (“New BIS Export Enforcement Guidelines”.)

What ZTE did: After learning of the impending charges, ZTE instituted a “contract data induction team” whose purpose was to identify and remove data related to the Iran transactions.

Best Practices:  Again, the concealment activity failed and brought on a Billion Dollar (!) penalty. When establishing an effective compliance plan for your company, it should include a method of safe and reliable record keeping. The plan should include the types of records to keep and when they can be destroyed as well as steps to be taken should the company face an accusation of violating laws.

            Ultimately, your goal should be to establish company policies that respect and enforce compliance best practices.  If an issue should arise, the company is then prepared to assist with and minimize the effect of any violation and/or investigation, rather than hinder and thereby compound it.

Enhanced Enforcement of Antidumping and Countervailing Duties, New Petitions

This is an old blog we lost during our transfer of site hosting. Update on this topic is forthcoming in a future blog.

  1. Executive Orders

President Trump issued two Executive Orders on March 31, 2017, signaling the new administration’s opposition to unfair trade practices. The first Executive Order (See Original Document Here) directs the Department of Commerce (“DOC”) and the United States Trade Representative (“USTR”) to conduct a broad review of differential tariffs, non-tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, forced technology transfer, denial of worker rights, and labor standards, etc. The second Executive Order (See Original Document Here) aims at the collection of antidumping and countervailing duties. Both address enforcement of violations of U.S. trade laws.

The U.S. estimates that uncollected AD/CVD duties for 2015 reached $2.3 billion. CBP is directed to develop a plan requiring “covered importers” of subject merchandise who pose a risk to the revenue of the United States to provide security through a bond or other legal measure. “Covered importers” are defined as new importers or importers for which the agency has a record of incomplete or late payment of antidumping or countervailing duties. Those benefiting from low bonds should be careful now to ensure timely and sufficient payment of the AD/CVD duties or otherwise be subject to the increased bond requirements.

CBP must “develop and implement a strategy and plan for combating violations of United States trade and customs laws for goods and for enabling interdiction and disposal, including through methods other than seizure, of inadmissible merchandise entering through any mode of transportation.” What “methods of interdiction and disposal other than seizure” means is unknown.

Regarding the protection of intellectual property rights at the border, now the government will share with right holders, to the extent permitted by law, information necessary to determine whether there has been an IPR infringement and information regarding merchandise that has been abandoned before a seizure. Previously that “commercial proprietary information” was withheld. The change may allow right holders to sue infringers in U.S. courts or to seek exclusion orders from the International Trade Commission.

The Department of Justice (“DOJ”) must “allocate appropriate resources to ensure that Federal prosecutors accord a high priority to prosecuting significant offenses related to violations of trade laws.”  Normally, U.S. trade enforcement attorneys who deal with penalty cases are in the Civil Division at DOJ and are not called “prosecutors.” It seems that the Executive Order refers to a prosecution of criminal violations.  As we know, federal laws impose criminal sanctions on a wide spectrum of illegal activities, such as fraudulent and/or knowing importation (or facilitation of such importation) of counterfeit merchandise or merchandise whose importation is “contrary to law,” false claims for refund of duties, false classification, false statements, smuggling, etc. We may see more prosecutions of individuals for trade-related cases.

  1. Recent AD/CVD Development

AD/CVD cases had already increased under the Obama Administration. In Fiscal Year (FY) 2016, $14 billion in imports were subject to AD/CVD, and CBP collected $1.5 billion in AD/CVD cash deposits.  CBP’s collection of AD/CVD cash deposits increased over 25 percent since FY 2015 and by almost 200 percent since FY 2014.  As of the end of FY 2016, $2.8 billion of AD/CVD duties were owed to the U.S. government for imports going back to 2001. With the new emphasis on combating unfair trade practices, we can expect to see continued AD/CVD cases during the Trump Administration.

Below are highlights of recent new AD/CVD petitions:

  • April 19, alleging that cold-drawn mechanical tubing from China, Germany, India, Italy, Korea, and Switzerland is sold at less than fair value in the U.S. market and that such goods from China and India are benefitting from countervailable subsidies. The petition alleges dumping margins of 88.82 percent to 188.88 percent for China, 70.53 percent to 148.32 percent for Germany, 25.48 percent for India, 37.23 percent to 69.13 percent for Italy, 12.14 percent to 48.61 percent for Korea, and 40.53 percent to 115.21 percent for Switzerland. (Scope of Investigation Can Be Seen Here).
  • April 11 alleging that metal tool chests and cabinets with drawers from China and Vietnam are sold at less than fair value in the U.S. market and that such goods from China are benefitting from countervailable subsidies. The petition alleges dumping margins of 167.5 percent for China and 58.2 percent for Vietnam. (Scope of Investigation Can Be Seen Here).
  • March 31 alleging that carton-closing staples from China are sold at less than fair value in the U.S. market. The petition alleges dumping margins ranging from 15.8 percent to 148.8 percent. (Scope of Investigation Can Be Seen Here).
  • March 28 alleging that carbon and alloy steel wire rod from Belarus, Italy, Korea, Russia, South Africa, Spain, Turkey, Ukraine, the United Arab Emirates, and the United Kingdom is sold at less than fair value in the U.S. market and that CASWR from Italy and Turkey is benefitting from countervailable subsidies. The petition alleges dumping margins of 179.07 percent to 304.94 percent for Belarus, 26.36 percent for Italy, 41.72 percent to 53.09 percent for Korea, 216.50 percent to 821.40 percent for Russia, 159.35 percent to 164.08 percent for South Africa, 32.64 percent for Spain, 45.1 percent for Turkey, 21.64 percent to 61.64 percent for Ukraine, 69.57 percent for the UAE, and 88.25 percent for the UK. (Scope of Investigation Can Be Seen Here).
  • March 23 alleging that biodiesel from Argentina and Indonesia is sold at less than fair value in the U.S. market and/or benefitting from countervailable subsidies. The petition alleges numerous subsidy programs in each country as well as dumping margins of 23.3 percent for Argentina and 34.0 percent for Indonesia. (Scope of Investigation Can Be Seen Here).
  • Aluminum Trade Enforcement Working Group filed a petition on March 9, alleging that aluminum foil from China is being sold at less than fair value in the U.S. market and/or benefitting from countervailable subsidies. The alleged dumping margins range from 37.57 percent to 134.33 percent. (Scope of Investigation Can Be Seen Here).
  • March 7 alleging that silicon metal from Australia, Brazil, Kazakhstan, and Norway is sold at less than fair value in the U.S. market and/or benefiting from countervailable subsidies. The alleged dumping margins are as high as 52.81 percent for Australia, 134.92 percent for Brazil, and 45.66 percent for Norway. The petitioners have also identified several programs in Australia, Brazil, and Kazakhstan as providing unfair subsidies. (Scope of Investigation Can Be Seen Here).

Some other trade remedy cases:

  • A Section 201 Petition was filed with USITC for global safeguard relief from imports of crystalline silicon photovoltaic (“CSPV”) cells and modules. Under Section 201 of the Trade Act, domestic industries seriously injured or threatened with serious injury by increased imports may petition the USITC for import relief. The USITC determines whether an article is being imported in such increased quantities that it is a substantial cause of serious injury, or threat thereof, to the U.S. industry producing an article like or directly competitive with the imported article. If the Commission makes an affirmative determination, it recommends to the President relief that would prevent or remedy the injury and facilitate industry adjustment to import competition. The President makes the final decision whether to provide relief and the amount of relief. Section 201 investigations do not require a finding of an unfair trade practice such as under the antidumping and countervailing duty laws. In this case the petitioner is seeking the following.
    • an additional tariff starting at $0.40/watt per CSPV cell and falling incrementally to $0.33/watt in year four
    • a minimum price starting at $0.78/watt per module and falling incrementally to $0.68/watt in year four
    • a new economic investment development program funded with the safeguard tariffs
    • an equitable distribution of AD and CV duties collected in two existing AD/CV cases
    • bilateral and multilateral negotiations to reduce global excess capacity

Some of these measures would likely be in violation of U.S. obligations as a member of the World Trade Organization.

  1. Concerns for Your Business

Expanded AD/CVD enforcement can have widespread and varied effects depending on your company’s position in the market.  If you are a domestic manufacturer who suffers from unfair trade competition, going forward you may find it easier to file AD/CVD petitions with increased likelihood of success.  If you are a U.S. importer, you should scrutinize your supply chain, making sure the products you import are not subject to the AD/CVD orders or if they are, paying adequate cash deposits. If you are a foreign manufacturer and/or producer exporting subject products to the United States, you may want to participate in the investigation or reviews, so you may be qualified for a lower rate.  We can help in each case, should you so desire.

U.S. CBP New Regulations

This is an old blog we lost during our transfer of site hosting. Update on this topic is forthcoming in a future blog.

When foreign manufacturers sell below the cost of production or “fair market value”, it is known as “dumping.”  Dumping is a worldwide issue and phenomenon.  Every country and trade block, and virtually every major multinational and/or trade union is claiming “foul” with regard to some competitor.   The U.S. attempts to offset any gap in pricing by applying a duty specifically calculated, case by case, to increase the selling price to our evaluated fair market value. Countervailing duties involve a similar issue, arising when a foreign government provides benefits such as tax incentives to exporting companies.  Countervailing duties are adjusted to fit each country’s specific policies, while dumping is calculated per shipment. Because of the need for clarity with ever-changing cost, incentive, rates and duties, U.S. Customs and Border Protection has published new procedures for claim investigations dealing with the evasion of antidumping (“AD”) and countervailing (“CV”) duties as follows.  The purpose is to create additional avenues for spurring investigations of the preceding potential issues.   These are double-edged swords: opportunities for U.S. companies and additional risks for overseas entities.   We are always glad to advise from either perspective.

The Changes

  • Scope and purpose of the interim regulations: These regulations intend to clarify deadlines and procedures that Customs and Border Protection (“CBP”) must follow during the investigation of an alleged “evasion” of payment by an importer of product subject to AD or CV duties. Evasion is defined as the act by which “any amount of applicable antidumping or countervailing duties [is either] reduced or not being applied with respect to the covered merchandise.” Before the new standards were published, CBP was already authorized to handle AD and CV duty evasion through administering penalties for fraud or negligence. However, prior to the new procedures, if a private party submitted evasion allegations then they themselves did not have the benefit of formal investigative procedures.
  • Process for triggering an investigation: In order to trigger an investigation, the interim regulations give “interested parties” and federal agencies the ability to formally ask that CBP look into an alleged evasion. The regulations specify that an “interested party” refers to manufacturers, producers, exporters, or importers of the merchandise at issue based in the U.S. and overseas. Trade associations and unions comprised of these groups are also able to issue an investigation suggestion.
  • Initiation and notification of investigations ? and possible use of “interim measures”: Once the CPB receives a formal request from either a federal agency or “interested party,” they must evaluate the claim. If they find that the request “reasonably suggests” that the accused importer’s merchandise came into the U.S. through evasion, the CBP will open an investigation. The interim regulations allow CBP to take interim measures where it has a “reasonable suspicion” that the accused importer is evading an AD or CV order. These measures include the suspension of liquidation of the importer’s entries, requiring them to secure a single transaction bond, and ordering that they post a deposit in cash.
  • Creation of administrative record and possible use of adverse facts: Thanks to the interim regulations, CBP is now required to maintain an administrative record with all information it relied upon during the course of its investigation. When CBP is gathering information on an investigation, questionnaires and written correspondence with the parties will be the general methods used. The only material CBP is allowed to use during their assessment of fault is that which has been properly filed with respect to the new regulations. If a party does not cooperate with a CBP information request, then they may be subject to adverse inferences based off of the facts available. The regulations still stand in this situation, as only the information on file may be used pertaining to a non-cooperative party.
  • Treatment of confidential information and alternatives to filing allegation: the interim regulations do not provide for an administrative protective order (“APO”) mechanism. However, interested parties may request that CBP treat submitted information as business confidential information (“BCI”). According to the guidelines, BCI treatment is a right to privacy which will be granted in order to protect trade secrets and confidential commercial or financial information. Identification of the parties involved, description of the merchandise at issue, and specification of the basis upon which the alleging party is interested are all specified as ineligible for BCI treatment because they are so central to the investigation. Because their identity will likely be denied BDI treatment, interested parties may be deterred from lodging an allegation directly. In order to remain anonymous but still trigger an investigation, such parties should consider lobbying a separate federal agency to submit a referral to CBP instead of doing it themselves.
  • Determinations and Reviews: CBP has 300 calendar days, with the possibility of a 60 day extension for unique or especially complicated investigations, to issue a determination of evasion. If it finds that evasion has occurred, measures will be taken against entries of the merchandise at issue in union with the U.S. Department of Commerce (“DOC”). Additionally, the CBP will assess the appropriate duty rates in conjunction with the DOC, requiring the appropriate cash deposits to be made. Any party involved in the investigation has 30 days to request a de novo administrative review of the CBP’s determination as to evasion. At the close of administrative proceedings, CBP must issue a final administrative determination to the parties. The only possible review at this point would require judicial review by the U.S. Court of International Trade.

Finding Your Company’s Worth

Business Valuation is the process of determining the economic value of a business or company. Although this may seem pretty straightforward, accurately valuing each business takes a great amount of preparation and thought. Establishing what a business is worth is not an exact science, largely due to the way different people view each aspect of a company. An investor will likely base their assessment of the Startup Stock Photosbusiness value solely on how much money the company brings in, while the owner may heavily value its connection to the community it serves. Beyond the possible differences in opinion, economic conditions affect what people believe a business is worth. As job scarcity increases, the number of business buyers in the market follows and that increased competition results in higher selling prices.  Also, low interest rates spur investors to put their money into businesses rather than banks, because returns are so much higher.

When it comes to business valuation, there are three umbrella terms for methods used. Each of the following represents a choice of several methods all grouped into the same approach.

Asset approach: The asset approach views the business as a set of assets and liabilities that are weighed against one another to determine business value. The asset approach is based on substitution by answering this question: What would it cost to create an identical business that will produce equal economic benefit for its owners?   Although this may seem like a fairly simple equation, there are many important details than cannot be overlooked, including which assets and liabilities should be considered, what standard to use to measure their value, and how to set each individual item’s worth.

Market approach:  As one could assume from its name, the market approach relies on signals from the market place to determine what a business is worth.  The market approach applies the principle of competition, asking “What are businesses worth that are comparable to my business?” In assessing the value of a company using the market approach, the fair market value-a value which buyers are willing to pay and sellers are willing to accept-is found by searching the market for the current business price equilibrium. The market approach is commonly used as a way to substantiate one’s offer or asking price. If you determine the “going rate” is a certain amount, why offer any more or accept any less?

Income Approach:  This approach focuses in on a company’s core motivation for existing: profit. It attempts to answer the question “If I invest time, money, and effort into owning this business, what economic benefits will it provide me, and when?”  The income valuation approach centers around a future expectation of economic benefit while also factoring in the risk of the money not being brought in on time – or at all.   This is probably the most common in the Customs brokerage and/or freight forwarding fields, as the companies tend not to be asset based, and market valuations are difficult among closely held businesses which don’t publicly report sales, income, or private sale prices.

With three different approaches, business valuation methods often produce different results.  When deciding which assessment style best fits your needs, it is important to consider the size and age of the business in question, as well as whether what you’re valuing is a start-up or already a cash cow. Although you may find a particular method best geared towards your company (i.e. the income approach with a brand new company that has yet to bring in much profit) it is important to keep in mind that all of the approaches listed above are reliable methods which can be successfully applied to a business of any kind.

Contact us anytime if you have any questions about this topic or would like to speak with a member of our experienced legal team.  In the past year we have performed valuations of roughly a half-dozen logistics firms.  Contact Us

 

Reducing Your Duty Rate, an Easier Way

On May 20, 2016, Congress enacted the American Manufacturing Competitiveness Act, a new law to restructure the  process companies go through to obtain temporary duty reductions and suspensions.  Previously, companies would have to petition members of Congress to submit individual bills requesting  tariff reductions, which were then accumulated and piled into one large omnibus bill known as  a Miscellaneous Tariff Bill (MTB). Under the new law, businesses will instead be able to submit their petitions directly to the U.S International Trade Commission, which in turn, shall advise Congress of the merits.

Tariff reductions are a great relief for US companies which import products.  The imported articles are often ingredients or components used to manufacture a finished American product. To qualify for duty relief,

  • The item at issue must be exclusively produced outside of the US (If there is any domestic production, there must be no objections by competing US companies);
  • The reduction must cost the US Treasury no more than $500,000 in lost tariff revenue per year; and
  • The relief must be uncontested by any member of Congress.

New the Process for MTB

Under the new law The International Trade Commission will open the floor for petitions and you will have 60 days to file your petition beginning this fall on October 15, 2016. When this window closes, it will not reopen for another three years in October of 2019.

The following must be included when filing a petition as stated by the  American Manufacturing Competitiveness Act :

  1. Name and address of the petitioner.
  2. Statement of whether the petition is for an extension of an existing duty suspension or reduction, or for a new one.
  3. A certification that the petitioner is a likely beneficiary of such a duty suspension or reduction
  4. Descriptions of the article covered by the duty suspension or reduction.
  5. Classification ruling and location of the article under the Harmonized Tariff Schedule of the United States (HTSUS) and relevant documentation.
  6. Description of the U.S. industry that uses the item.
  7. An estimate of the total value (in US dollars) of imports of the item for each of the five calendar years after the petition is filed.
  8. If available, The name of each person that imports the item.
  9. If available, a description of any domestic production of the item.

 

Following the submission period, the ITC will publish what was received and there will be a 45 day window for public commentary on the submitted petitions.  After taking public comments, the Commission will submit a preliminary and then final report(s) to Congress on each individual petition for tariff suspension or reduction.  Congress will prepare the MTB legislation based on the recommendations provided by the ITC.  At no point can Congress insert new items on the list given to them by the ITC, but they do have the authority to reject or amend a proposal.  Congress has no deadline for the enactment or introduction of MTB legislation, but given the timeline, it is possible to see it in the latter half of 2017, given the October petition date.

We are very interested in helping you, our friends and clients, apply for relief this year!

Understanding General Average

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Import and export traffic in our globalized world generally runs quite smoothly, but occasionally, the very real risks associated with the natural elements at sea or simple human error impact transportation adversely. Severe weather including wind, rain, swells  and lightning storms can create a recipe for disaster for traveling ships. Less violent, but still serious issues can arise when technology fails or a mistake is made by a crewman which puts the ship and cargo in peril.  General Average (GA) is the legal principle in maritime law that permits the ship-owner to voluntarily sacrifice part of the ship or cargo to save the rest or majority of the vessel  and cargo. The term “average” in this case should be understood to mean “loss”. When an event is declared as a General Average, the ocean carrier is fully relieved of the liability of loss; that burden is instead, distributed collectively  to each cargo owner who’s goods were on that ship.

The most common instance of GA is when crews jettison cargo to lighten a threatened ship; other bases for GA claims include stranding, fires and collisions that may occur either in international waters or on the high seas. These partial losses may be small or reflect millions of dollars in damage. An insurance policy with a General Average protection can, in these instances, protect cargo owners from thousands in out of pocket costs for these claims. It is important to note that there is a difference between General Average protection and Particular Average protection which is covered under a marine insurance policy.

To have a valid General Average claim, the sacrifice must be a voluntary, rather than inevitable decision, necessary for common interests, not merely a part of the property involved, and successful. When a GA claim is made, landed cargo will be detained until a cash bond or security deposit is provided prior to release. Until such bond or security is made, ship-owners hold a lien on the cargo (see our recent post about liens by clicking here). If the General Average claim is small, and the cargo is insured, ship-owners may release the cargo under a General Average Guarantee. This guarantee is a simple form that states the insurers agree to pay the ship owner the owed contribution for the General Average, salvage and any other incurred charges. This guarantee form should include the:

  • Ship/ vessel name
  • Date
  • Brief description of goods insured

Note that you may be required to also place an Average Bond along with the Guarantee if the insured amount of the cargo is less than its contributory value. Please click here for more detail

The General Average claim will be assessed by a general average surveyor who is responsible for determining and reporting the official loss amount. This process can take years and the fee for the adjuster is also billed across the cargo owners. Once all the fees have been applied and totaled with the damages, billing is typically split by percentage according to the amount and value you had on the vessel. The ultimate goal of the General Average Principle is to place the carrier who incurred the loss in as close to a financial position as the carriers for whom the sacrifice was made.

For a full breakdown of General Average as well as a look at the York-Antwerp Rules which govern this principle please click here.

If you are facing legal action with regard to a General Average claim or have any further questions, please contact us.

 

Other useful links:

http://www.shapiro.com/resource-center/resources/cargo-insurance-what-is-general-average/