Tag Archives: Customs

U.S. CBP New Regulations

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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.
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SOLAS  New Container Weighing Requirements

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Change is on the horizon in the shipping industry, and it is important to make sure you are staying informed. Effective July 1st, 2016, changes adopted by the International Maritime Organization (IMO) regarding verified container weights will become effective. These changes were first introduced at the 2014 Safety of Life at Sea (SOLAS) Convention, but it is now time for implementation. The full text of the applicable SOLAS regulations can be found here

These regulations initially came about as a result of safety issues within the shipping industry. There were problems regarding overweight/underweight containers, misreported freight, poor weight distribution within containers, and more: see “Safety and Shipping Review 2014“. Ideally these changes will help accomplish a reduction in loss of containers from vessels, increased assurance to all parties within the supply chain, and overall improved safety.  These new requirements will apply to all 171 IMO member countries, as well as the three associate members of this organization.

The responsibilities of the shipper (as designated by the bill of lading) under these new regulations are particularly important. The shipper will now be required to verify the gross mass of each container via a signed document; this document must be physically signed (stamps will be unacceptable), and the form must be submitted in time to be used by the master and terminal representatives in the ship’s stowage plan.  The shipper has the option of submitting the container weight via the shipping instructions to the line, or in a specific communication such as a weight certificate. Regardless of submission method, the weight included must be designated as the “verified gross mass” and authorized by the accompanying signature. The shipper is able to determine whether they would prefer to weigh the contents of the container prior to or after loading, but the critical designation is that estimated weights are not permitted. The equipment used to weigh contents must meet national certification requirements, and the party verifying container weight is not permitted to use weight provided by a previous party. Click here for the Implementing Guidelines issued by MSC

The execution of enforcement for this new requirement will be put on the shoulders of the carriers. Essentially, carriers are highly encouraged to refuse to load containers for which a signed weight verification is missing. Refusing to carry these containers will encourage shippers to abide by the new requirements set forth by SOLAS. As July is only a few months away, it is important for shippers to begin proactively planning how they will adjust their processes to abide by these new requirements.

 

If you are in need of additional resources or more information, please visit the following link: http://www.worldshipping.org/industry-issues/safety/faqs.

 

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Behind the Scenes: CBP Fines, Penalties, and Forfeitures Processes

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Yesterday, the American Bar Association’s Section of International Law hosted a program for its members to hear from and speak directly with CBP Office of Regulations and Rulings, represented by Chief of the Penalties Branch, John Connors.  Mr. Connors told the group in attendance (live and via phone conference) that while he is not authorized to discuss recent or pending cases, he would be discussing the general process within CBP when it is either contemplating or has issued a penalty or seizure notice.

Mr. Connors first explained that many people are confused as to which CBP offices have authority in different cases, and that there are also 3 headquarter branches that deal with penalties either after review by the Fines, Penalties, and Forfeiture Officers in the field at the 300+ ports or concurrent with such review in certain cases dealing with penalties over $100,000.00.  If a case is deemed referred to “Headquarters” it could be with 1)the Office of Field Operations, 2) the Office of International Trade (commercial enforcement), or 3) the Office of Regulations and Rulings.  Thus, there is a need to clarify exactly which office your case is being assessed.

Backing up to the beginning of the process:  First, when goods are being imported or exported, field officers at each port will make initial determinations of whether there are any issues with the goods in question or with the process of importing and exporting the goods.  For example, CBP Officers will look to see if there are any issues with the vessel’s manifest, trademark or copyright infringement, drawback penalties, misclassification of goods, etc.  If there are issues, the field officers will report it to a Fines, Penalties, and Forfeitures Officer (“FPFO”) at their respective ports.  There are currently 42 FPFOs that deal with penalty actions.  These officers then determine whether there is a need to issue a penalty or pre-penalty notice or to simply cancel the case without further inquiry.  Mr. Connors reported that cancellation at this stage is extremely rare.

Pre-penalty notices are required to be issued for the following:

Commercial fraud and negligence (19 USC 1592)

Drawback penalties (19 USC 1593a)

Customs Broker penalties (19 USC 1641)

Recordkeeping penalties (19 USC 1509)

Falsity of lack of manifest (19 USC 1584(a)(1))

Equipment and vessel repairs (19 USC 1466).[1]

Once the pre-penalty or penalty notice is issued (depending on the statute), the interested party to whom the notice is issued then has a specified number of days in which to submit a petition requesting relief or to simply pay whatever penalty is assessed.  The relief petition should be sent to the FPFO from whom it was originally issued.  A general rule is that if the penalty is issued for $100,000.00 or less, the initial review of the petition stays with the FPFO who would then respond based on a review of the newly presented facts and arguments within the petition.  If the penalty is issued for greater than $100,000.00 the FPFO would review it then send it directly on to the Chief, Penalties Branch, Office of Regulations and Rulings (ORR), that is, Mr. Cooper.

If the initial relief petition is denied and if there are any further facts or arguments that would potentially mitigate the issue that were not originally presented, then the interested party may submit a supplemental petition.  The FPFO (or ORR depending on the amount of penalty) will review again and decide whether to relieve the interested party or send the petition to either the Office of Field Operations or the Office of International Trade for further review.

If the penalty is already with ORR, Mr. Connors, will funnel the case out to one of the 18 attorneys working in his office for findings of fact and conclusions of law, which are then sent back to the FPFO for relay to the interested party.  Supplemental petitions are processed in the same manner as those with FPFO, i.e. they start with FPFO for initial review and further fact finding prior to being sent to ORR.  If a supplemental petition is denied, the case then proceeds to Border Security for final review and disposition.  Border Security takes into consideration the recommendations and comments of ORR, but ultimately makes the decision of whether to uphold the denial.

Mr. Connors also discussed the nature of timing when dealing with penalties and told attendees at the luncheon that when the process seems slow, it is because there are many parts that ultimately come together in making a final decision:  FPFO investigations at the outset and further investigations as necessary; hundreds of thousands of cases requiring processing; interested parties asking for extensions; etc.  Therefore, while the process can seem long and arduous, Mr. Connors assured his audience that CBP does what it can to speed things along even in light of the realities of running what amounts to a very, very large company.

The information in this article is meant as a review of Mr. Connors’s discussion of the penalty process and not as an exhaustive review of all that occurs or can occur with respect to CBP issued fines, penalties, and forfeitures.  If you find yourself in the situation of having received a detention notice, a pre-penalty or penalty notice, a seizure notice, or other type of CBP action, we can help you through the process and work towards release of your seized items or mitigation of your potential penalties.  With over 30 collective years of expertise in the field of international trade and customs, the attorneys at the Mooney Law Firm have seen hundreds of cases through this process and are well-equipped to present your best case to Customs in recovering your seized goods or in mitigating or removing your penalties.  Please do not hesitate to contact us (via email at nmooney@customscourt.com or smorrison@customscourt.com or by phone at 800-583-0250) with your issue or with questions regarding this and other processes dealing with international trade and customs.

For more information, either contact us or visit http://www.cbp.gov/xp/cgov/trade/priority_trade/penalties/.

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Customs and Border Protection Meets the 21st Century: Highlighting U.S. Initiatives to Modernize International Trade at Our Borders

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U.S. Customs and Border Protection has been in the process of transforming and modernizing its trade initiatives for the 21st century with stated goals of seeking “to improve cargo security while increasing trade competitiveness” by means of “fully aggregating risk management.”[1]  This goal seems vague, but essentially, CBP is making efforts to consolidate trade processing at our borders.  Some of its efforts include implementing the Automated Customs Environment, where master trade data for importer accounts will be stored and accessed across accounts; Customs-Trade Partnership Against Terrorism (C-TPAT); Centers of Excellence and Expertise; Importer Self-Assessment (“ISA”), among other programs.  CBP has provided a vast amount of information on its trade transformation initiatives on its website at http://www.cbp.gov/xp/cgov/trade/trade_transformation/, but the following will give some insight into some of the most recent developments currently underway at our borders:

Automated Customs Environment (“ACE”) and Simplified Entry

Almost eleven years ago, CBP established ACE as an on-line tool to modernize, automate, streamline, and consolidate commercial trade processes connected with border security.[2]  As ACE continues to expand, much like any government program tends to do, the trade community will hopefully see positive benefits from CBP’s consolidation efforts.

The most recent development in CBP’s rollout of the ACE system is its “Simplified Entry” program, which segregates filing of transportation information from that of entry information.  This program allows entry documents to be filed earlier, and the documents require much less data than the current requirements.[3]  Only 3 ports and 9 companies were chosen by CBP to participate in the pilot program; however, CBP announced last week that the pilot program has been a success.  CBP has stated it will continue to evaluate the current program in the next 60-90 days[4]; then it will inform the trade community of the program’s expansion via notice in the federal register[5].

Expanded Role of the Broker

 

Another discussion of change currently taking place in the trade community surrounds likely expansion of the role of Customs brokers. CBP is presenting webinars throughout this summer (June through September 2012) outlining some of the issues and suggested modifications to the broker regulations in an effort to inform as many members of the trade community as possible of the potential future of the role of Customs brokers.  CBP is also meeting with local and regional broker associations in hopes of learning more about the actual issues that should be addressed with regard to expanding the role of brokers.  The webinars cover topics such as the rewrite of the broker regulations (19 C.F.R. part 111); establishing “bona fides”; Broker continuing education, applications, licensing, apprenticeships, and permitting; Broker penalties, etc.[6]

CBP has highlighted five (5) major proposals regarding the Role of the Broker:

  1. Expanded Role
    1. Pre-certification of C-TPAT applicants
    2. Pre-application support for ISA applicants
    3. Broker Responsibilities
      1. Requirements for bona fides (Broker to obtain evidence)
      2. Importer POA must be sent directly to Broker
      3. Customs business conducted in U.S. territory
      4. Professionalism
        1. Apprenticeship experience for broker permitting
        2. Continuing education to maintain active license
        3. Modernization
          1. Automatic annual reporting (replacing the triennial)
          2. Employee data upload into ACE
          3. Continuing education reporting
          4. Penalty Regime
            1. Allow for immediate suspension of license pending review of the case with due process
            2. Focus on bad actor’s license rather than filer code remediation[7]

The trade transformation initiatives have been ongoing since 2001 and will continue to grow in the coming years.  As they do, we can only hope that these changes will result in CBP’s meeting the lofty goals it has set for itself and the trade community.

For more information on these and other trade initiatives visit www.cbp.gov.  You can also call our offices to discuss how your business might benefit from these changes and how to take advantage of the new programs.  We are available via phone at (800) 583-0250 or via email at nmooney@customscourt.com or smorrison@customscourt.com.

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CBP Recordkeeping Requirements: UPDATE!

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A long-overdue modification of CBP’s recordkeeping requirements has been announced this week, with an anticipated effective date of January 11, 2013.  Current regulations require that all records are to be kept “within the broker district that covers the Customs port to which they relate,” a requirement which severely complicates the recordkeeping process for many companies. The new regulations will eliminate this requirement, allowing any licensed customs broker “to store records relating to his or her customs transactions at any locations within the customs territory of the United States.” CBP has also included plans, effective on the same date, to provide exemptions from the 120-day requirement for customs brokers not serving as the importer of record to retain certain records in their original format. These exemptions will clear the way for companies to embrace the less burdensome and more environmentally friendly methods of electronic recordkeeping.

These policy changes were proposed by CBP as early as March of 2010, prompting discussion and commentary on the issue. After assessing that the response to the proposed changes was largely positive, and correcting a few minor errors noticed by the commentators, Customs has finally set a date by when the changes will be implemented. The altered language of 19 CFR parts 111 and 163 will read as follows:

PART 111 – CUSTOMS BROKERS
* * * * *
§ 111.23  Retention of records.
(a) Place of retention.  A licensed customs broker may retain records relating to its customs transactions at any location within the customs territory of the United States  in accordance with the provisions of this part and part 163 of this chapter.  Upon request by CBP to examine records, the designated recordkeeping contact identified in the broker’s applicable permit application, in accordance with § 111.19(b)(6) of this chapter, must make all records available to CBP within 30 calendar days, or such longer time as specified by CBP, at the broker district that covers the CBP port to which the records relate.
(b)  Period of retention.  The records described in this section, other than powers of attorney, must be retained for at least 5 years after the date of entry.  Powers of attorney must be retained until revoked, and revoked powers of attorney and letters of revocation must be retained for 5 years after the date of revocation or for 5 years after the date the client ceases to be an “active client” as defined in § 111.29(b)(2)(ii), whichever period is later.  When merchandise is withdrawn from a bonded warehouse, records relating to the withdrawal must be retained for 5 years from the date of withdrawal of the last merchandise withdrawn under the entry.
PART 163 — RECORDKEEPING   
The revisions read as follows:
§ 163.5  Methods for storage of records.
* * * * *
(b) * * *
(2) * * *
(iii)  Except in the case of packing lists (see § 163.4(b)(2)), entry records must be maintained by the importer in their original formats for a period of 120 calendar days from the end of the release or conditional release period, whichever is later, or, if a demand for return to CBP custody has been issued, for a period of 120 calendar days either from the date the goods are redelivered or from the date specified in the demand as the latest redelivery date if redelivery has not taken place.  Customs brokers who are not serving as the importer of record and who maintain separate electronic records are exempted from this requirement.  This exemption does not apply to any document that is required by law to be maintained as a paper record.
* * * * *
(5)  Failure to comply with alternative storage requirements.  If a person listed in § 163.2 uses an alternative storage method for records that is not in compliance with the conditions and requirements of this section, CBP may issue a written notice informing the person of the facts giving rise to the notice and directing that the alternative storage method must be discontinued in 30 calendar days unless the person provides written notice to the issuing CBP office within that time period that explains, to CBP’s satisfaction, how compliance has been achieved.  Failure to timely respond to CBP will result in CBP requiring discontinuance of the alternative storage method until a written statement explaining how compliance has been achieved has been received and accepted by CBP.
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Importer Tips to Avoid Misclassification of Goods

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            When importing goods into the United States the importer of record (the owner, purchaser, or a licensed Customs broker) must file entry documents with Customs at the port of entry.  Among the information contained in the entry documents are the merchandise descriptions and tariff classification information. Many importers rely on their suppliers or Customs brokers to accurately classify their goods, but sometimes the importers don’t supply enough information for Customs brokers to accurately classify.  What’s more, importers are often not aware that it is they, not the Customs broker, who are responsible for any errors or omissions in entry documents.

           When mistakes occur on entry documents, for example, misclassified goods, Customs will require importers to pay any difference in duty and will likely assess fines and penalties. Here are a few measures you can take to help you avoid any errors in misclassifying goods on your entry documents and avoid supplemental duty payments as well as fines and penalties:

  • KNOW YOUR PRODUCT!
    • This is probably one of the most common oversights of importers. If the importer does not know all the details pertaining to their product then those acting on their behalf cannot be expected to know them either.  Importers should obtain photographs of the product where possible, specific details such as whether (for example) an auto part is a bearing or a wheel hub assembly that includes a bearing, the manufacturer (not just the seller), etc.  We have found certain trading companies involved in heavily regulated articles without being aware of mulitple agency jurisdiction at the time of entry, to the importer later dismay.
  • Retain an expert
    • Seek out the help of a licensed Customs’ broker with experience in entering your particular product or an attorney knowledgeable in Custom’s regulations.  This does not mean rely on the expert to tell you about your product. #1 is always to know your product thoroughly yourself.  This way you can provide the expert with a full, complete, and accurate description of it so he or she can then help you with compliance.  An expert can provide you with the correct questions to ask your seller or manufacturer so you ensure either that the product is correctly classified or with proof that you have taken reasonable care in performing due diligence to correctly classify your product.
  • Due Diligence and Reasonable Care
    • Clients often come to us saying they have never been asked for certain information. The fact is that transactions and merchandise may be handled differently at different ports, and Customs may not ask the exact same questions in every situation.  The general information will likely be the same, i.e. documents to prove origin of your product, production documents, transport/sale documents, etc.; however, your particular product may present a unique situation for Customs that may require it to seek alternate or differing information.  Even within the same port, an officer may request information that another officer doesn’t. Always discuss your importations with an expert or a Customs’ import specialist in advance so you know what to expect. 
  •  Informed Compliance
    • This responsibility is shared between CBP and the importer where CBP provides effective communication of its requirements to the trade community and importers are required to conduct their business in compliance with U.S. laws and regulations.   The Tariff schedules are available to the public, as well as many other publications discussing specific products and topics. You can also request an opinion on classification or a binding ruling on classification from Customs.  An import specialist in the port of entry can provide you with more information, as can your retained expert.
    • The following are questions (verbatim) posed by Customs’ in its informed compliance guide “Importing into the United States:  A Guide for Commercial Importers” to assist importers in using reasonable care[1]  to ensure proper merchandise classification:

Questions by Topic:

Merchandise Description & Tariff Classification[2]

Basic Question: Do you know what you ordered, where it was made, and what it is made of?

  1. Have you provided a complete, accurate description of your merchandise to CBP in accordance with 19 U.S.C. 1481? (Also, see 19 CFR 141.87 and 19 CFR 141.89 for special merchandise description requirements.)
  2. Have you provided CBP with the correct tariff classification of your merchandise in accordance with 19 U.S.C. 1484?
  3. Have you obtained a CBP ruling regarding the description of your merchandise or its tariff classification (see 19 CFR Part 177)? If so, have you followed the ruling and apprised appropriate CBP officials of those facts (i.e., of the ruling and your 28 compliance with it)?
  4. Where merchandise description or tariff classification information is not immediately available, have you established a reliable procedure for obtaining it and providing it to CBP?
  5. Have you participated in a CBP classification of your merchandise in order to get it properly described and classified?
  6. Have you consulted the tariff schedules, CBP informed compliance publications, court cases or CBP rulings to help you properly describe and classify the merchandise?
  7. Have you consulted with an expert (e.g., lawyer, customs broker, accountant, customs consultant) to assist in the description and/or classification of the merchandise?
  8. If you are claiming a conditionally free or special tariff classification or provision for your merchandise (e.g., GSP, HTS Item 9802, NAFTA), how have you verified that the merchandise qualifies for such status? Do you have the documentation necessary to support the claim? If making a NAFTA preference claim, do you have a NAFTA certificate of origin in your possession?
  9. Is the nature of your merchandise such that a laboratory analysis or other specialized procedure is advised for proper description and classification?
  10. Have you developed reliable procedures to maintain and produce the required entry documentation and supporting information?

 For more information on correct classification or if you are currently facing an issue with CBP regarding misclassified goods, you can reach us via email at smorrison@customscourt.com or nmooney@customscourt.com or by phone at (850) 893-0670 or toll free at (800) 583-0250.

[1] Reasonable Care is not easily definable since each import transaction has different facts and circumstances.  Visit CBP’s Importing Guide for more in depth information as to how you can ensure you are meeting your responsibility to import using “reasonable care.”

[2] U.S. Customs and Border Protection, “Importing into the United States:  A guide for Commercial Importers”, CBP Publication No. 0000-0504, revised November 2006, http://www.cbp.gov/linkhandler/cgov/newsroom/publications/trade/iius.ctt/iius.pdf, last accessed May 30, 2012.

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When Is C-TPAT Right For You?

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The Customs-Trade Partnership Against Terrorism (C-TPAT) was established to ensure the safety and security of cargo arriving in the United States. Although being C-TPAT certified is not required by any governmental agency, many private companies only partner with C-TPAT compliant businesses. Thus, Third Party Logistics Providers (3PLs) are strongly motivated to obtain certification.

However, in order for a 3PL to be eligible for C-TPAT certification it must meet some minimum requirements. For example, it MUST do all of the following:

1. Be directly involved in the handling and management of the cargo from point of stuffing overseas up to the first U.S. port of arrival. (Entities which only provide domestic services and are not engaged in cross border activities are not eligible.)

2. Manage and execute these particular logistics functions using its own transportation, consolidation and/or warehousing assets and resources.

3. Be licensed and/or bonded by one of the following: the Federal Maritime Commission, the Transportation Security Administration, U.S. Customs and Border Protection, or the Department of Transportation, and

4. Maintain a staffed office within the United States.

And in order to participate in the C-TPAT program a 3PL may NOT:

1. Subcontract any service beyond a second party other than to other CTPAT members (This means that CBP does not allow the practice of “double brokering”, the 3PL may contract with a service provider, but it may not allow that contractor to further subcontract the actual provision of this service to an unknown third party).

2. Be a non asset-based 3PL which only performs duties such as quoting, booking, routing, and auditing (these type of 3PL may possess only desks, computers, and freight industry expertise) without its own warehousing facilities, vehicles, aircraft, or any other transportation assets. These non-asset based entities are excluded from C-TPAT as they are unable to enhance supply chain security throughout the international supply chain.

If your business is not otherwise eligible for C-TPAT certification but desires to obtain it, it might consider obtaining one of the necessary agency licenses. If you have questions on doing so, we are able to help.

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Free Trade Agreement Series: Part 5- Peru and Colombia FTAs

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As the US seeks to reap the benefits of free trade throughout the world, it is imperative that agreements are reached with our regional trading partners. The past two administrations have secured Free Trade Agreements with multiple Central and South American countries. Agreements with both Peru and Colombia were signed in 2006; however, the ratification process was not the same for both agreements. The US-Peru Trade Promotion Act (US-Peru TPA) was ratified on December 14, 2007 and entered into force on February 1, 2009[1]. On the other hand, the US-Colombia Trade Promotion Agreement (US-Colombia TPA) was ratified by Congress on October 12, 2011 and has not yet entered into force.[2]

Both nations previously benefited from the Andean Trade Promotion and Drug Eradication Act (ATPDEA), but in a very unusual twist, even after the US-Peru TPA entered into force, ATPDEA benefits for Peru continued to apply for some time (see our earlier Free Trade Agreement Series Part 3 for details).

As of this writing, Colombia still enjoys preferential treatment from ATPDEA, pending implementation of the US-Colombia agreement.  Like all other Free Trade Agreements other than that with Peru, once the Colombian agreement enters into force, ATPDEA benefits for Colombia will immediately end.  As an example of the effect of this, imagine an importer of suits and garments from Colombia now using Peruvian woolen cloth.   Prior to these FTAs being implemented, cumulation rules allowed them to claim ATPDEA benefits and full duty free treatment when importing to the US, since all of the labor and material was ATPDEA regional. However, a year after the Peruvian FTA entered into force, this importer could no longer use Peruvian wools and still claim ATPDEA preferential treatment since Peruvian fabrics were stripped from all their ATPDEA benefits.  The garments would now have to be duty-paid, even though all of the labor and components come from duty-free origins.

While it is true that the US-Colombia TPA has not yet entered into force, the agreement is expected to do so once the Colombian government meets certain requirements later in 2012.  This could happen very quickly, so those who import from Colombia, especially textiles that will all become duty-free once the agreement is implemented, be forewarned that ATPDEA benefits will end for Colombia when the US-Colombia TPA enters into force.  This means that any other ATPDEA content (Ecuadorian) would be excluded from duty free treatment if imported via Colombia.  Be prepared to claim for preferential treatment under the US-Colombia TPA, which will require different filing procedures than you are now accustomed to.

Here is a link for claiming preferential treatment under US-Peru TPA: http://export.gov/FTA/peru/eg_main_017979.asp

There is currently no similar link to the US-Colombian TPA since the agreement is not yet in force.

Finally, for those of you currently seeking a “short supply” finding for fibers, yarns, and fabrics not available in commercial quantities in a timely manner, note that the review and approval process of Committee for the Implementation of Textile Agreements (CITA) takes several months to complete. The US-Colombia TPA may already be implemented by the time CITA determines whether or not any newly requested fabrics could be added to the ATPDEA short supply list.  If this becomes the case, these fabrics would not qualify for preferential treatment anymore.  A new and different Commercial Availability request process will be required. Since there are yet to be published any CITA procedures for the US-Colombia TPA here is a link to the US-Peru TPA CITA procedures:

http://otexa.ita.doc.gov/fr2008/comavperuip(08-09).htm

We are assuming that the Colombian FTA procedures will be similar to those immediately above applicable to Peru.  We are already prepared to immediately file short supply requests for some clients upon implementation of the agreement.

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Free Trade Agreement Series: Part 4- The New Korean Market and Rules of Origin

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A free trade agreement approximately six years in the making is now a reality for Korea and the United States.  Just as with other FTAs, this new market access allows for reduced and sometimes eliminated tariff rates and quotas as well as duty-free treatment of goods and services with an emphasis on leveling the playing field for U.S. auto manufacturers and workers.  The agreement entered into force on March 15, 2012 making approximately 80% of U.S. exports to Korea duty-free.  For decades most Korean exports to the United States have already enjoyed duty free treatment here under the Generalized System of Preferences. In the next five years, approximately 95% of bilateral trade in consumer goods will become duty free and remaining tariffs eliminated with ten years.  Also in line with other FTAs, UKFTA has certain exclusions to the general duty-free rules including safeguards on motor vehicles and textiles.

 

Similar to NAFTA, there are certificate of origin and record-keeping requirements (see FTA series parts 1 and 2 and 19 U.S.C. §3805 note Publ. Law 112-41 Secs. 206, 508 http://www.gpo.gov/fdsys/pkg/PLAW-112publ41/pdf/PLAW-112publ41.pdf).  And like all other FTAs, UKFTA has stringent rules of origin (“ROOs”) importers and exporters must follow in order to claim duty-free treatment.  As with any other ROOs, the ones found in Section 202 of the UKFTA implementation act, can be very confusing and require a certain amount of saavy when it comes to deciphering what goods may be included and what goods may not.

 

There are three situations in which a good may be eligible for duty-free treatment under UKFTA.  First, and most logically, a good is originating if it is “wholly obtained or produced entirely in the territory of Korea, the United States, or both…” 19 U.S.C. §3805 note, Publ. Law 112-41 Sec. 202. However, if a good is produced in one of these countries but also contains materials from a different country, “nonoriginating materials”, then the nonoriginating materials must undergo a change applicable to the requirements of Annex 4-A or 6-A of the UKFTA before the finished product may be duty-free.  Finally, a good may also be originating even with nonoriginating materials if it satisfies the requirements for “regional value-content” or “RVC”.  The deminimis requirement for nonoriginating material in most goods is 10%.

 

While it is certainly easy to determine whether a good is wholly obtained or produced in the U.S., Korea, or both, it is not always easy to ensure duty-free treatment on goods falling in the second two categories of potentially duty-free treatment.  For example, in order to determine the RVC, an importer, exporter, or producer must use either the “build-up method” (RVC = Value of Originating Material/Adjusted Value of good x 100) or the “build-down method” (RVC = AV- Value of Nonoriginating Material/AV x 100).  Even these methods are not general for every product covered by the FTA; rather, there are special rules for particular goods, such as automotives.

 

Furthermore, in determining the value of the nonoriginating material for purposes of calculating the RVC, the importer, exporter, or producer may deduct some costs such as freight, insurance, packing, cost of waste and spoilage, originating materials, etc.  Understanding the rules of origin takes time and patience, but by doing so or consulting with a Customs Broker or Attorney well versed in these areas, you can save a lot of money and possible setbacks with U.S. or Korean Customs.

 

For more information on Rules of Origin please contact us at nmooney@customscourt.com or smorrison@customscourt.com.  You can also find information on Rules of Origin and other issues surrounding the new KORUS FTA by visiting the following websites:

 

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Free Trade Agreement Series: Part 3- Andean Free Trade on a Roller Coaster

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The Andean Trade Promotion and Drug Eradication Act (ATPDEA) was enacted in 2002 by the second Bush administration. This trade preference agreement sought to grant four South American nations preferential treatment when exporting goods into the United States. With the purpose to promote economic development and eradicate drug trafficking, the agreement targeted four Andean countries, Bolivia, Colombia, Ecuador, and Peru. However, by the beginning of this year only two of these nations remained eligible for duty free exemptions. ATPDEA has been revised, eradicated, and reinstated continually since creation, today leaving Colombia and Ecuador as the only two beneficiaries. The several revisions made to ATPDEA have become a source of problems, creating confusion and uncertainty for importers and exporters, and even as we try to explain it Colombia is set to exit once its own separate FTA (Free Trade Agreement) is in place, most likely Dec. 1 2013 if there are no other changes.

ATPDEA expired for all beneficiary on December 21, 2009. The only country that maintained duty-free benefits was Peru, which was covered by the Free Trade Agreement it signed with the United States. One week later, on Dec. 28, 2009, an amendment to 123 Stat. 3484; Pub. L.  111-344, title II, Sec. 201(a), was enacted restoring Colombia until February 2011 and Peru through the end of 2010. Then it changed again!  On January 7, 2011 the termination section of ATPDEA was amended to remove all benefits of ATPDEA from Colombia and Peru. Finally, a retroactive provision allowing Colombia, but not Peru, duty free access was enacted by H.R. 3078, 112th Cong. (2011) which further extended the expiration of the ATPDEA to July 31, 2013, and especially for preferential tariff treatment under the regional fabric provision for imports of qualifying apparel articles from Colombia and Ecuador only through September 30, 2012.

All of this back-and-forth has created reams of unnecessary work for Customs at the ports of entry, for customhouse brokers, and for importers.  It has also created a bonanza for U.S. Customs and Border Protection’s (CBP) CBP’s penalty workers, as brokers and importers struggle to pay the correct duties on time and avoid tripping penalty wires.   Manufacturers are caught both in the penalty world and an uncertain universe of where to produce.  Long-term planning is impaired, if not impossible.   Thanks again, Congress!

With the latest renewal of the ATPDEA, which took place on October 21, 2011, CBP issued a memorandum stating that it will refund duties paid on ATDEAP-eligible merchandise imported or exported between February 14, 2011 and November 4, 2011, the period in which the program last lapsed. The memo also stated that ATPDEA benefits would commence again on November 5, 2011, but only for two countries. Those who are seeking refunds have 180 days to send the required documentation to CBP.   Again, the confusion created by the constant change in the ATPDEA ‘s status has effected exporters and importers tremendously. For example, those companies that enjoyed ATPDEA benefits and used raw materials from Peru will no longer receive these benefits although it was a regular ATPDEA member and has an FTA.

The problem with altering these agreements is that many manufacturers are not aware of the changes made to these programs, causing the manufacturers costs to increase due to the extra duties, causing some companies major losses.  In addition, the tariff itself has an error whereby it tells users, primarily customhouse brokers, to continue entering Peruvian goods duty free when in fact they are dutiable.  We have pointed this out to their association (the NCBFAA) so that the defense is available to any penalized importers or brokers.

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