Valuation. A Potentially Complex Question for Which Few Answers May be Found

Knowing what I know now about the complexities of valuation, it struck me as odd that the US Customs booklet regarding value is only 20 pages – cover to cover. Substantively, we're talking only 10 pages (p. 7 to 16). Hmm...

Having directed many an intern to the publication, entitled “Customs Value,” while I recognize that it provides an (extremely) brief overview of valuation, which makes it fitting for an intern, its intended purpose of “clearly and completely informing” the trade community is lacking.

Fortunately, though not updated in over 5 years, Customs does have another publication from 2004 entitled the "Customs Valuation Encyclopedia."

Importers want to comply with Customs regulations and operate in an importing environment that is compliant with the government's mandates. Without clear information however, it is hard to imagine how the mandates of “informed compliance” and “shared responsibility” - two concepts that were put forth in the “Customs Modernization Act” (Pub. L. 103-182, 107 Stat. 2057) and regularly touted by Customs when its alleging negligence or some form of wrongdoing against a party – can be fulfilled when the information to the trade community on complex subjects like valuation is so out of date.

So what is valuation? Generally speaking, as I explained in an earlier post, when goods are imported to the U.S., certain information must be provided to Customs regarding the type of import, its quantity, price, etc., in order to be “entered.” Goods are classified according to type and have a corresponding rate of duty, which is applied across the quantity of the import, rendering what is known as an “appraised value,” and payment is made in this amount to Customs.

All imports are subject to appraisement, the rules for which are codified at 19 USC §1401a, et seq.

The Act sets forth six different methods of appraisement, and their order of preference. Under the Act, the preferred method of appraisement is “transaction value.” Generally, the appraised value of all merchandise imported into the United States is the transaction value of the goods. In the event the merchandise cannot be appraised on the basis of transaction value, the secondary bases are considered in the following order :

- Transaction Value of Identical Merchandise
- Transaction Value of Similar Merchandise
- Deductive Value
- Computed Value
- Values if Other Values Cannot be Determined

Under 19 USC 1401a(b)(1), transaction value is “the price actually paid or payable for the merchandise when sold for exportation to the United States, plus amounts equal to:
A. The packing costs incurred by the buyer.
B. Any selling commission incurred by the buyer.
C. The value, apportioned as appropriate, of any assist.
D. Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale.
E. The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller.

Keep in mind that the factors listed in points A – D are only added when it is not already included in the price and where the amounts can be accurately established.

While the statute appears at first glance to be straightforward, there are applications of this objective definition arising from variations on business transactions which lead to subjective determinations by Customs, which applies its own interpretation of the statutes based on its own regulations found in Chapter 19 of the Code of Federal Regulations Part 152, entitled Classification and Appraisement of Merchandise, and specifically regarding valuation in Subpart E of Part 152 at 19 CFR Part 152.100 to 152.108.

Not only that, but where the parties are related, greater scrutiny (and subjectivity) on the part of Customs is applied in order to “ensure” that the transaction between the parties was an arm's length one, for which the price was unaffected. That is, transaction value may be used as the preferred method of appraisement for related party transactions where it can be shown that the relationship did not influence the price.

To determine this, an examination of whether the transaction between related parties meets either a “circumstances of the sale” or “test values” test must be undertaken. More information on related party pricing can be found in Customs informed compliance publication entitled, “Determining the Acceptability of Transaction Value for Related Party Transactions.”

Aside from being related, other complex questions come up where transaction value is not available for use as an appraisal method, and one of the subsequent bases is used.

What makes merchandise “identical?” Does it have to be exactly identical?

What is “similar” merchandise? How similar is "similar" anyway?

The answer to these questions is often times subjective for which an importer's determination differs from that of Customs. This can raise minor to significant problems for an importer.

Ever have a question raised about the declared value or method of appraisal of your imports? Unsure how to appraise your merchandise?

Questions/comments? Feel free to email me at clark.deanna@gmail.com

Retention of Export Information by a USPPI in a Routed Shipment

In a “routed shipment” the “authorized agent” is not required to give the U.S. Principal Party in Interest (USPPI) the export data. This data was formerly collected in a Shipper's Export Declaration (SED) and is now mandated to be filed through the Automated Export System (AES) or AESDirect. This raised the question of which records must be retained by a USPPI in a routed shipment.

A routed shipment occurs when there is a foreign buyer that makes a purchase from a domestic seller here in the U.S. Rather than have the domestic seller arrange for the transport of the goods to the foreign destination, the foreign buyer (aka, the "Foreign Principal Party in Interest" (FPPI)) finds its own U.S. agent to assist it with the export.

For this type of transaction, the FPPI authorizes a U.S. agent (Authorized Agent) to facilitate the export of items from the U.S. and prepare and file electronic export information (EEI). This electronic export data is filed in AES.

For a routed shipment, the USPPI must retain documentation to support the information provided to the Authoized Agent for preparing the EEI, and provide the agent with certain information to assist in preparing the EEI. This information includes:

(i) Name and address of the USPPI
(ii) USPPI's EIN or DUNS
(iii) State of origin (State)
(iv) FTZ if applicable
(v) Commercial description of commodities
(vi) Origin of goods indicator: Domestic (D) or Foreign (F)
(vii) Schedule B or HTSUSA, Classification Commodity Code
(viii) Quantities/units of measure
(ix) Value
(x) Export Control Classification Number (ECCN) or sufficient technical information to determine the ECCN
(xi) All licensing information necessary to file the EEI for commodities where the Department of State, the Department of Commerce, or other U.S. government agency issues a license for the commodities being exported, or the merchandise is being exported under a license exemption or license exception.
(xii) Any information that it knows will affect the determination of license authorization

The Authorized Agent in a Routed Transaction is responsible for filing the EEI accurately and timely and must retain the documentation to support the EEI reported through AES which includes the following data elements:

(i) Date of export.
(ii) Transportation Reference Number.
(iii) Ultimate consignee. (vii) Country of ultimate destination.
(viii) Method of transportation.
(ix) Carrier identification and conveyance name.
(x) Port of export.
(xi) Foreign port of unloading.
(xii) Shipping weight.
(xiii) ECCN.
(xiv) License or license exemption information.


These regulations provide that upon request, the Authorized Agent shall provide the USPPI with the data elements above.  The reality however, is that even upon repeated request, this information may never be received by the USPPI.

Therefore, under the regulations the USPPI may request a copy of the electronic record or submission from the U.S. Census Bureau. Keep in mind however, that the Census Bureau's retention and maintenance of AES records does not relieve filers from requirements.

Regarding records retention, a USPPI must retain documentation to support the information provided to the authorized agent for filing the EEI when it has authorized an agent to file the EEI on its behalf.

Questions or comments? Feel free to email me at clark.deanna@gmail.com

Made in Taiwan? Turns Out Taiwan is a Hub of Bicycle Manufacturing

The most fascinating conversation I've had regarding international trade so far was with my flight companion who landed himself two seats away from me (literally). As there was no escaping me, we chatted throughout our long haul flight during which time he explained why he was en route to Taiwan. It turns out that Taiwan is a major player in bicycle manufacturing and he's a big wig at a high end bike company (prices range from the $400s to nearly $14K – yowzers!)

As he's done for a number of years, each Fall he travels to a town about an hour away from Taipei for two weeks – every two weeks – in order to sort out the logistics in terms of bicycle production planning. These meetings occur in the Fall because bicycles are a “recreation business” and therefore, planning needs to be finalized this time of year so that the new model can hit the stores right before the peak sales period which is during the summer months.

I wanted to know more about how decisions were made with respect to sales forecasts and price determinations. He explained to me the following.

The forecast is largely based on:

1)The sales history of a comparable prior product
2)The results from a poll of the sales force (via questionnaire), and
3)New features in relation to a proposed price, which is likewise analyzed with the sales force for their input on what can be sold (quantity-wise) and at what price point.

In determining a price, fact based costs are considered, such as raw materials, quotes from assemblers, and the rate of duty (which, though unverified by me, is apparently determined by characteristics of the wheels/tires interestingly enough.) Also considered is the profit margin in relation to the competition.

His tasks in Taiwan therefore, some of them anyway, are to identify material vendors, negotiate component prices with suppliers, and negotiate figures on the labor costs for assembling these parts.

Based on all of the above, the company will place 60 to 70% of its forecasted sales in its first purchase order. Thereafter, based on sales and "sales run" numbers, a decision will be made as to whether or not more will be ordered.

It is not often that I hear about production planning or sourcing though I would enjoy hearing more stories about it. Got a story for me? Post a comment below or email me at clark.deanna@gmail.com.

Business or Pleasure? The Combination Found in Asia

Traveling to Asia has definitely not been my run of the mill journey to say, a European country. Rather than more vacationers or students, the Americans I've run into are here for business like myself.

Take the gentlemen I met yesterday upon returning from a day trip to Macau (pleasure). They're here to find sources to manufacture a “tape gun” in China (business) and will be visiting factories over the next few days which have been found by their agent, Patrick.

I had the opportunity to pick Patrick's brain about buying agents and sourcing, as he took me on the Hong Kong subway back to the vicinity of my hotel (I sort of got lost). His company sources a range of products from hangers to machine components to well, tape gun parts. Whatever the client is seeking, he attempts to connect them with a supplier.

As an aside, having told them what I did for a living, one of the guys asked me about the use of the word "gun" in the name with respect to border issues. I suggested he consider using a different word and talk it over with his marketing department to determine other salesworthy names for the product. I explained that US Customs has been hiring new people (translation: inexperienced) and that anything that can be done to avoid having their shipment flagged would make their importations enter more smoothly.

Coming back to my discussion with Patrick, though short, I found it to be a pretty interesting conversation. Connecting foreign vendors of goods with manufacturing sources in China is a much bigger business than I'd imagined. It's huge! I also was under the impression that sourcing companies focused on a particular industry, such as apparel, so it was interesting to hear from someone in the business that it isn't necessarily limited to a narrow scope.

So how do we got the point where a company that creates a product is actually looking for suppliers to build it? Check out my next post that discusses production planning.

Questions/comments? Post below or email me at clark.deanna@gmail.com

OWIT-NY 2009 Holiday Party

As Vice-President of the NY Chapter of the Organization of Women in International Trade, I'm pleased to announce our upcoming holiday party.

Members of the New York Chapter are part of a worldwide network of more than 3,000 professionals whose involvements in OWIT enhance their knowledge of current global trade issues.

Hope you can make it!

Date: Tuesday, December 8, 2009
Time: 6:00 pm – 8:00 pm
Place: Investment & Trade Office of the Taipei Economic and Cultural Representative Office in the United States
1 East 42nd Street
New York, NY 10017

Cost:
$20.00 OWIT-NY members
$25.00 non-members

Price includes catered food from Evergreen Restaurant, wine, beer and soft drinks.

All participants will be entered into a drawing for a set of Tiffany goblets.

In the spirit of the holiday, the evening will include a brief introduction to the international charity work of Handcrafting Justice which is a Fair Trade, economic justice project that partners with women in developing countries. They market women’s handcrafts and raise awareness about the root causes of poverty, gender inequality and social issues. A representation of these goods will be available for sale throughout the evening.

Register online or send a check to:
OWIT-NY
P.O. Box 68
Grand Central Station
New York, NY 10163

Chemistry Lands the Job

At last week’s lecture at Queensborough Community College, many students expressed a lack of knowledge as to actual jobs within the International Trade arena and wanted to learn more about how to get one.

Keep in mind that irrespective of your experience, it will be your personality and ability to convey the message that you have a good attitude, are flexible/work well with others, and want to contribute to meeting the goals of the organization that will ultimately get you that job offer. That is, do you have chemistry with the interviewer and potentially with the company (or the department, anyway) as a whole?

Whether dealing with imports or exports, and irrespective of the industry be it apparel, pharmaceuticals, or otherwise, professionals under the international trade umbrella largely seek opportunities in the areas of

Planning and forecasting
Supply chain management
Logistics and transportation
Trade compliance
Sales
Marketing
Accounting

So where do you look for these jobs?

If you know of companies you are interested in, or come across a job listing on www.monster.com that peaks your interest, go directly to its website to read its listings.

Where you do not know the names of companies but have a particular sector in mind that you want to find work in, websites like www.hoovers.com, have listings by industry of companies. For example, going from the “Industry Overviews” tab (listed on the left hand side under “Hoover’s Directories”), clicking on the “Beverages” industry tab, and then clicking on “winemakers” specifically, will lead you to a listing of the most viewed winemaker companies, and from there you can search those individual wine websites for job listings.

Hoovers also has a link to news and press releases by these companies. Learning more about a company will help you in both tailoring your resume and cover letter (and you always want to send both), as well as performing during an interview.

These news pieces can also provide you with the name of the author, and if you like what they have written about, you can likely find them on websites like www.LinkedIn.com and make direct contact with them, perhaps even complementing them on their ideas in the article.

Different online newspapers offer an ability to search by keyword, such as the New York Times, and others, like the Washington Post, allow you to search by sector.

Dues paying membership organizations with a particular focus, such as the Organization of Women in International Trade (OWIT-NY), have job listings around the globe (student membership is $25).

Ethnic based organizations such as Asian Women in Business, also have resources for job seekers as well as other benefits such as their scholarship program for current undergraduate students.

Attending events put on by these groups can also lead to making contacts and ultimately landing a job. Recently, a connection I personally made at an OWIT-NY event led to employment for a new member.

Some cities have assistance for jobseekers, helping them with career counseling, technical and educational services, and workshops. These services and more for example, are offered by the New York City Small Business Services Dept.

For more experienced workers, placement agencies like Tyler Search Consultants, which caters specifically to trade professionals, can be a great resource. Their website has many useful articles and tips on how to find employment for both the experienced and novice jobseeker. It is well worth checking out.

As for your resume, it is not uncommon for human resources to simply perform a word search in order to sort through the multitude of resumes that are electronically received (via email) for a particular job, and to find appropriate candidates flagged through a narrow search like this.

This means it is critical that important key words like “import” or “export” are specifically included. If you worked in a particular country, state it. If you have experience say, with the Maquiladoras, state it. If you managed people, state it and say how many you managed.

Be clear in your language and be dynamic. If you have experience covering the sales floor on your own, don’t merely write in your resume that you “managed the floor by cleaning or just watching the floor when I’m alone.” Rather, express your sole oversight of the sales floor and how you effectively managed the sales and maintenance functions required.

Questions you will want to ask on your interview include:

1. What makes this a great job and opportunity?
2. Why is your company a great one to be a part of?
3. What makes you a great manager/mentor to work for?
4. What are your expectations of a new hire? What are they in 6 months? 1 year? 2 years?

If you’re a student with little experience, take what salary the company offers you. You have little to no bargaining power if you are not currently drawing a salary. If you have a certain requirement you want met, put it in your cover letter or the accompanying email and state it up front. Don’t bother making up an artificial number, as the company will already know what the average salaries are.

Hope this helps!

Questions/comments? Feel free to email me at clark.deanna@gmail.com

Introducing Students to International Trade at Queensborough Community College

This week I had the pleasure of giving a lecture to Business students at Queensborough Community College (QCC) on International Trade. “The conversation about how the things are shipped to stores,” was the best part about the presentation to QCC student, Prince Oparaji. The first activity we did was a collective diagramming of an importation, from the overseas factory to the store, an idea I might add, was given to me by the Senior Partner in my office, William Shayne, Esq.

"I really love the fact that she explained the supply chain management in a clear and easy way. It was a great presentation."

My goal for the presentation was to illustrate to students the relatively complex movement of cargo from overseas to the U.S. I wanted to introduce the students to the players involved in shipping, such as:

Ocean Freight forwarder (1 of 2 “Ocean Transportation Intermediaries”) – in the United States, dispatches shipments from the United States via a common carrier and books or otherwise arranges space for those shipments on behalf of shippers; and processes the documentation or performs related activities incident to those shipments

Non-Vessel Operating Common Carrier (2 of 2 “Ocean Transportation Intermediaries”) – a common carrier that does not operate the vessels by which the ocean transportation is provided, and is a shipper in its relationship with an ocean common carrier

Vessel Operating Common Carrier – An ocean common carrier

[the above are defined in The Shipping Act of 1984, 46 USC §1701 et. seq.]

Customs Broker - Customs brokers are private individuals, partnerships, associations or corporations licensed, regulated and empowered by U.S. Customs to assist importers and exporters in meeting Federal requirements governing imports and exports. Brokers submit necessary information and appropriate payments to CBP on behalf of their clients and charge them a fee for this service. [defined by US Customs and Border Protection]

and to get them thinking about the pre-entry requirements, border issues and other liabilities involved with importing certain goods.

"I think it was very well presented, very detailed."

In order to do this, I had a number of items on display that I passed around to students to demonstrate which issues may be raised. A few examples of this included:

1) bracelets - permanently stamped with the word “Mexico” on the inner band (country of origin issue),

2) ceramic cup and banana – believe it or not, a container load of either of these may have enough radiation in them to set off the radiation detection devices set up at the terminal exit of all piers (security of US/weapons of mass destruction issue) - don't worry, in smaller quantities they are not harmful. If they were, they would not be admitted into the US for consumption!

3) legos® – pre-importation certificate of conformity requirements with the Consumer Safety Product Commission (children’s safety and small parts issue)

Following the lecture, I asked students what more they would have liked to have learned about. Each of the topics raised could easily be a multi-day course in and of itself. In future posts however, I will try to address them as it is good review for me as well.

- Rules for importing a product
- Where to get more information
- Career steps to take in direction of working in international trade/how I obtained my job
- Specifics on the tariff (HTSUS)

Questions/comments? Feel free to email me at clark.deanna@gmail.com

Export Control Classification Numbers

When exporting a commercial article, software or technology abroad that is of “dual use,” i.e., that has both civilian and military or proliferation applications, the Bureau of Industry and Security (BIS) within the US Dept. of Commerce, has control over these exports through the Export Administration Regulations (EAR).  BIS actually has control over most commercial articles exported, however, other agencies such as the Dept. of State, control certain specific exports and their requisite licenses, such as defense articles and defense services.

A relatively small percentage of total U.S. exports and reexports require a license from BIS. License requirements are dependent upon an item's technical characteristics, the destination, the end-user, and the end-use. You, as the exporter, must determine whether your export requires a license. When making that determination consider:

• What are you exporting?
• Where are you exporting?
• Who will receive your item?
• What will your item be used for?

-- BIS Introduction to Commerce Dept. Export Controls

The Commerce Control List (CCL) lists Export Control Classification Numbers (EECN), which categorizes articles based on the nature of the product type and its respective technical parameters. An EECN is an alphanumeric designation, e.g., 5A004, used to identify items for export control purposes.

There are 3 approaches to figuring out an ECCN:

1.    Ask the manufacturer, producer or developer if they have a current ECCN for the item.

2.    Self-classify the item, which would require a familiarity with the format and structure of the CCL, not to mention a technical understanding of the item.
3.    Make an official request to BIS for a classification.  This is done using the BIS electronic licensing system known as “SNAP-R.”

   In order to use this, both a Personal Identification Number and a Company Identification Number must be obtained from the BIS website.

Once the ECCN has been determined, you can identify which transactions may require an export license based on reasons such as the country of destination, any exceptions to obtaining a license which may apply, and why control is exercised over the item.

While BIS is unable to provide a definitive commodity classification over the phone through its Office of Exporter Services, BIS counselors are available to advise exporters on making ECCN determinations using online resources. Call the BIS Help Desk at (202) 482-4811.

For formal requests made through SNAP-R, technical staff at BIS will review submissions and provide an official classification within 4 to 6 weeks.

Questions or comments? Feel free to contact me at clark.deanna@gmail.com

Avoid Getting Stuck at the Border with Violative Imports – The Importance of Pre-Importation Planning

I’ve mentioned before that US Customs enforces other agency’s mandates with respect to goods entering the country. Ensuring you’re compliant with the rules and regulations applicable to your import is critical in order to avoid hold ups at the border and delays in delivering goods to your customers.

This past week I revisited the issue of advising clients on how to meet some of the Consumer Safety Product Commission’s (CPSC) product safety measures that must be complied with following the enactment of the 2008 Consumer Product Safety Improvement Act (CPSIA). Looking at a production of children’s apparel, we were analyzing the best way to meet the recently implemented “tracking label” requirement, which is detailed in Section 103 of CPSIA.

This rule mandates for children’s products manufactured on or after August 14, 2009 that the tracking label provide “to the extent practicable,” permanent marks that will enable the ultimate purchaser to ascertain the manufacturer or private labeler, the location and date of production of the product and cohort information.

The intention of the Tracking Label Rule is to create the ability to trace back to the production run of an article in the event of a product recall. Given the level of guidance offered by the CPSC however, which has been minimal at best, we found ourselves contemplating the effectiveness of methods for meeting the mandate.

Should the article be stamped with permanent ink?

Sew a permanent label with all of the relevant information on it?

Attach an informative adhesive label? What about with super glue?

The answer to this last idea is NO by the way, as it is not considered permanent. Hang tags are not permitted either.

One of the challenges in choosing a viable method is that the label must remain on the article throughout the “useful life” of the product, which can go up to an indefinite number of years as any reseller of children’s products will tell you.

A children's product is defined as a "consumer product designed or intended primarily for children 12 years of age or younger." -- Section 235(a) CPSIA

The main challenge however, is simply that CPSC has not provided enough guidance to the importing community about how to comply with its new rule, despite its Statement of Policy regarding tracking labels.

What if the article is really small? How do you permanently mark say, an infant’s shoe, with all of the requisite information?

Any thoughts? I’d love to hear them.

Have questions about how to comply with CPSC’s new requirements? You’re not alone. Feel free to email me with your comments or questions at clark.deanna@gmail.com

Planes, Trains and Automobiles... well...Trucks Anyway - Relaying Cargo Data Electronically to US Customs

Having been holed up at home for days with a terrible flu, I have found many interesting, if not amusing, topics have run through my head (not to mention random dreams, which, not to worry, I will not be discussing in the blog).

One trade related topic that crossed my mind had to do with notifications to US Customs regarding cargo arriving to the U.S. It turns out that specific federal regulations exist mandating the transmission of data on incoming cargo not only when transported by vessel or airplane, but also by railroad and truck.

As I found the data transmission rules a bit curious, I've decided to share them with you below.

1) Commercial vessels (ships): US Customs must receive a declaration of a vessel's cargo 24 hours before the cargo is laden (loaded) aboard the ship at the foreign port. [19 CFR 4.7]

This rule actually seems a bit extreme to me but I recognize the idea is to catch suspect cargo before it ever gets near the coast of the U.S. Given the nature of how container ships are a series of stacked container boxes, it would be difficult to search a container while out at sea. Interestingly however, if that needed to be done, US Customs works with the US Coast Guard and together, they conduct cargo inspections out in the “territorial waters” of the U.S., which, in everyday language means, out up to 12 miles from the actual coast of the U.S.

2) Commercial air carriers (planes): Incoming airborne commercial cargo is subject to 2 different rules under 19 CFR 122.48a:

If arriving from a foreign port, then data must be received no later than 4 hours prior to the aircraft's arrival in the U.S.

If arriving from a port or place in North America, information must be received by US Customs no later than the aircraft's departure.

3) Railroad: US Customs must receive cargo data no later than 2 hours prior to the cargo's arrival at the first port of arrival in the US [19 CFR 123.91]

4) Truck: Depending on the electronic data relaying system used by the carrier, U.S. bound trucks with commercial cargo must notify US Customs no later than 30 min., or one hour, or a lesser authorized period, prior to the cargo's arrival at the first port of arrival in the U.S. [19 CFR 123.92]

Outgoing cargo is likewise subject to rules governing notification to US Customs. Under 19 CFR 192.14, irrespective of its mode of transport, transmission to US Customs of export cargo information must be made through the Automated Export System as follows:

Vessels: 24 hours prior to departure
Air Carriers: 2 hours prior to departure
Truck: 1 hour before arrival at the border
Train: 2 hours before arrival at the border

As with so many of US Customs regulations, all of its general rules have specific ones when dealing with particular types of cargo. For example, in dealing with exports of defense articles, which require certain US Dept. of State licenses, the time frames for reporting export information are stricter for all modes of transit except vessel, which remains the same. [22 CFR 123.22]

For air or truck shipments, export information must be transmitted to US Customs at least 8 hours prior to departure (as compared to 2 hours prior to departure, and 1 hour before arrival at the border, respectively).

For rail shipments, export information must be electronically filed at least 24 hours prior to departure (as compared to 2 hours before arrival at the border).


Questions or comments about notifications to US Customs for inbound or outbound cargo? Feel free to email me at clark.deanna@gmail.com

CPSC and Children's Lead Content Update

Certain types of imported children's merchandise are subject to the regulations of the Consumer Safety Product Commission (CPSC). Through its rules, it attempts to reduce risks such as choking hazards, textile flammability risks, and lead paint risks. In the case of lead paint, for example, CPSC mandates an importer certify that certain maximum allowable levels of lead are not exceeded in children's products on what is commonly known as a General Certificate of Conformity.

Another area it overseas deals with lead content in children's articles.

CPSC will soon make available its “Statement of Policy: Testing and Certification of Lead in Children’s Products.” Last week, a draft of this policy statement was circulated around the Commission for a vote to approve the current draft for publication, or to approve the draft subject to certain changes.

The Statement will provide guidance on the testing and certification of children’s products for compliance with the lead content (not paint) limits under section 101(a) of the Consumer Safety Product Improvement Act (CPSIA), Public Law 110-314. This section provides that a maximum lead limit by weight for any part of a children’s product, i.e., intended for children 12 and under, will not exceed 600 parts per million (ppm) as of February 10, 2009, 300 ppm by August 14, 2009, and 100 ppm as of August 14, 2011, if technologically feasible.

Given that the 300 ppm maximum is the current mandate, any children’s product found to exceed this limit will be considered a banned hazardous substance under the Federal Hazardous Substances Act. This means that imports in violation of this limit will be banned from entering the U.S., and domestic retailers found seeling violative merchandise will be subject to civil penalties.

To follow developments on CPSIA, go to CPSCs website.

For questions about CPSC or any importation issues, feel free to email me at clark.deanna@gmail.com

Radioactive Wooden Tables?

Yes, the attempted importation of radioactive tables made out of contaminated wood cut from a forest near the Chernobyl Nuclear Power Plant in the Ukraine was but one of the anecdotal stories shared during my recent visit to the Port of Newark. It is the second largest port in the country (if you combine the Long Beach and Los Angeles ports which come in at #1) and the largest port on the east coast of both North and South America.

Typically, 1.5 million containers (those stackable boxes on cargo ships) come through the port each year, although with the economic downturn, container traffic is down 30% this year. I went with a group of OWIT-NY members and we agreed that with all of the multiple activities occurring, many of us felt like kids out on a field trip!

Arriving at the port’s container terminals, you can’t help but notice all of the activities and in particular, all of the trucks. Hundreds of trucks come in and out of the port dropping off “stuffed” (loaded) containers, returning empty ones, and departing with those that have been “unladen” from (taken off of) a vessel.

At first glance, it seems to be a bustling city of funky looking objects including piles of chassis (the two-wheeled physical frame that a container connects to for transportation on a truck), stacks of empty containers, including refrigerated ones, also known as “reefers,” and most notably, “straddle carriers” (these giant, ridiculously tall, fast moving, wheeled contraptions that were as tall as the height of 4 containers, and which reminded me of one of the Imperial Stormtrooper “vehicles” out of the Star Wars Episode IV movie) which, among other things, takes a container and drops it onto the chassis of a truck.

Of particular interest were the risk detection devices, including the radiation detection machines in the form of an archway that all of the exiting trucks drove under as they departed the terminal. We got a personal inside look at a mobile detection unit, known as a VACIS (Vehicle and Cargo Inspection System) exam machine, and the imaging retrieved from it. It showed what was essentially an x-ray image of a container of “personal effects” which in everyday language simply means, household goods.

Once the image zoomed in to see the cargo in greater detail, we could see that there were numerous rifles inside! As US Customs put it, it was a “good call” to pull the container for scanning, and we certainly thought it was exciting that weapons had been found (as silly as that may sound!).

On a more serious note, we did learn about US Customs Cargo Security Strategy having had the Chief of Seaport Enforcement, Kevin McCabe, sharing compliance and other priority trade issues, inc. ISF/10+2 (see 9/29 blog post) and counter terrorism initiatives.

If you’re curious to learn more about those initiatives or would like to send me your comments, feel free to do so at clark.deanna@gmail.com.

Want to Protest? What to do When You Disagree With a US Customs Decision

Protesting a US Customs decision is nothing like the protesting I did in my college days. Though similar in that it is against a government entity, it typically involves the single effort of the importer making a “Protest,” as opposed to a collective effort of many.

A “Protest” is a document that is filed with US Customs (CBP Form 19) to contest a final decision made by it concerning issues like tariff classification and duty rate, country of origin marking duties, or the appraised value of an article, among others. It is made with the Port Director at the port where the goods were entered and must be done within 180 days after the final decision.

[Note: While the regulation 19 CFR §174.12 (i.e., US Customs' interpretation of a statute) still says that a Protest must be made within 90 days, the deadline has been extended to 180 days by statute (the law) in section 2103 of the Miscellaneous Trade and Technical Corrections Act of 2004, as reflected in 19 USC §1514].

Using CBP Form 19 is recommended to ensure that all applicable information, i.e., that which is required by the government regulations set out in 19 CFR Part 174, is transmitted to US Customs. Importantly, make sure the reason for your disagreement is clearly stated together with an explanation of the nature of the claim.

On the form in Section V is an area to request that further review be taken by US Customs in the event you want to appeal the Port Director’s decision on the Protest. While most appeals are filed after an unfavorable decision, in the case of a Customs Protest, this request is made prior to a final decision on the Protest. It is also done on the Protest form itself. You therefore, may want to apply for further review so that you have preserved your ability to appeal an unfavorable decision. You can always withdraw your request for further review at a later time.

While directions are included on the form, they can be confusing, and information such as that all of the boxes in Section V must be checked “no” or further review will not be granted, is not stated in the instructions (and of course, the “no” answer must be true and correct!).

4 copies of the Protest must be filed and a fifth should be sent along if you would like Customs to return a copy to you with the protest number and date of filing noted.

Questions or comments? Feel free to email me at clark.deanna@gmail.com

Risky Business? FTC Enforcement of its Identity Theft Program Starts Nov. 1, 2009

Prior to practicing International Trade Law, had I been asked about international trade and which government agency is responsible for oversight of imports, I probably would have identified US Customs and no others. It turns out multiple agencies have jurisdiction over varying types of imports, just as various rules imposed on business' by agencies other than US Customs can impact a businesses operations. The Federal Trade Commission's (FTC) Red Flags Rule (Rule) is one such rule.

Thanks to today’s technologically saavy commercial environment, information exchanges and business transactions - whether domestic or international - now take only a fraction of time that they once did.  These modern conveniences have not come without consequence however, and just as the ease of conducting business has increased, so has the threat of identity theft.  So much so, that the Internal Revenue Service (IRS), FTC, and now even the U.S. federal courts have all implemented protocols in an effort to reduce these risks.

With enforcement of the Rule beginning on November 1, 2009, the FTC has mandated that certain businesses and organizations implement a written identity theft program in order to catch “red flags” of this risk in a company’s day-to-day operations.

US Customs has long required certain vetting and identity confirming procedures of freight forwarders, customs brokers, and other related trade partners, and through the implementation of Customs-Trade Partnership Against Terrorism, commonly known as “C-TPAT,” it has taken its identity confirmation efforts to an even greater level.  The benefit to having met US Customs' compliance mandates is that much of what is required under the Rule has already been largely addressed by many of you in the trade community.

The Rule mandates that each “financial institution” and “creditor” that has a “covered account” implement, or incorporate into its already existing compliance program, an identity theft program that would enable businesses to catch “red flags” of potential risks of identify theft.

While freight forwarders and customs brokers do not typically fall within the definition of a “financial institution,” many will qualify under the FTC’s definition of a “creditor.” A creditor is defined as a business or organization that “regularly defer[s] payment for goods or services or provides goods or services and bill customers later." [16 CFR Part 681.2(b)(1)]

Therefore, if you provide services for which you later bill and receive payment for after the services have been performed, you are subject to the Rule.  This is because you will be considered to have extended credit for having done the work without receiving payment upfront.  While the FTC is considering making certain exemptions from this rule, e.g. with law firms, none have yet been made with respect to freight forwarders or customs brokers, nor is it likely that it will occur.

A “covered account” is defined as an account that a creditor “offers or maintains for which there is a reasonably foreseeable risk to customers or to the safety and soundness of the financial institution or creditor from identity theft, including financial, operational, compliance, reputation, or litigation risks.” [16 CFR Part 681.2(b)(3)(ii)]

Examples the FTC gives of covered accounts include that of a sole proprietorship, a small business account, or a single transaction consumer account, as they may be vulnerable to identity theft as a result of actions such as the ability to remotely access an account via the internet or telephone.

Implementation of an Identity Theft Prevention Program

Any prevention program must be meaningful and explicitly state what targeted measures will be taken to make it more difficult to steal an identity. Training your staff to sight red flags and identify new threats, along with mechanisms for dealing with these risks, should be specified.  Periodic review of the prevention program must be clear, and the audit or review of procedures by an identity theft expert may be considered on a incremental basis.

The Rule gives a four part framework for designing an identity theft prevention program.  It requires the creation of, or updates to an existing, identity theft prevention program to

1.Identify Red Flags in Your Business: Include realistic ways to spot “red flags” in your business’ day-to-day operations through the implementation of reasonable policies and procedures, whether it comes in the form of a warning from a credit company, a suspicious document, or suspicious personal identifying information;

2.Detect Red Flags in Day-to-Day Operations: Program should actually detect “red flags” as identified by your business, be it for new or existing accounts;

3.Prevent and Mitigate Identity Theft: Describe appropriate actions to be undertaken upon discovery or detection of a “red flag”; and,

4.Update Your Program: Describe how a re-evaluation of the identity theft program will be periodically undertaken to account for potential new risks.

The program must be designed to prevent, detect, and mitigate identity theft in connection with the opening of new accounts and the operation of existing ones. Your program must be appropriate to the size and complexity of your business or organization and the nature and scope of its activities.

--Fighting Fraud with the Red Flags Rule – A How to Guide for Business (2009)

Once the prevention program is in place, additional requirements, include:

1. Approval of the program and a description of its incorporation into the daily operations of your business, by the Board of Directors of your business, or alternatively, an appropriate senior level employee;

2. A statement regarding the responsible party for the implementation and administration of the identify theft prevention program;

3. Staff training, as appropriate; and,

4. Contractor’s compliance monitoring, as appropriate.

Many of you may be unaware of how to implement this Rule into your existing operational practices. Feel free to email me with your questions or comments if you require any assistance at clark.deanna@gmail.com.

For more information on the Red Flags Rule, go to the FTC's website.

You can also find a useful article on this Rule here.

Importer Security Filing and "10+2"

I recently noticed that I have a “follower” on this blog from a company called TRG Direct which assists importers with various customs entry issues, including the filing of mandatory information with US Customs such as ISF filings.

Nearly one year ago US Customs began requiring advance notice of incoming cargo arriving within the limits of a U.S. port by vessel prior to its arrival. This notice, known as the Importer Security Filing or “ISF” must be filed no later than 24 hours before the cargo is laden on board a vessel at the foreign port. In everyday language, this means that US Customs must receive this information at least 24 hours before the cargo is loaded onto the ship.

There are 10 pieces of information, aka “data elements” that must be identified to US Customs for shipments that will be entered in to the U.S. or a foreign trade zone (FTZ), which is a location within the U.S. that, for customs purposes, is treated as if it were foreign territory in that goods may arrive there from a foreign port but not be considered to have “entered” yet. These 10 identifying data elements (supplied by the importer) along with 2 additional data elements (provided by the carrier) are:

1. Seller
2. Buyer
3. Importer of record number/FTZ application i.d. number
4. Consignee number(s)
5. Manufacturer (or supplier)
6. “Ship to” party
7. Country of origin
8. Commodity HTSUS number (tariff no.)
9. Container stuffing location (i.e., where container was loaded)
10. Consolidator (stuffer) (i.e., entity that packed the container)
11. Vessel stow plan
12. Container status messages relating to certain containers destined for the U.S.

Together these data elements are commonly known as "10+2."

US Customs claims in its published FAQs (see link on the right side) that updates to the ISF for known changes must be made prior to the goods entry into the first U.S. port and that amendments to the ISF will also be accepted at any time after their arrival. Be careful though, Customs likewise said in its FAQs that it will issue liquidated damages of $5,000 for each ISF transmission that is not timely, complete or accurate.

To help with better understanding the ISF requirements, US Customs is hosting a number of outreach events, including one tomorrow in New York City. For a list of their outreach schedule, click here.

More information on ISF and 10+2 can be found at 73 FR 71730, dated 11/25/08 and US Customs ISF Correcting Amendments (go to page 4 of this pdf file).

Additional instruction on this and other compliance measures workshops or webinars can be found through private companies such as TRG Direct. Thanks TRG Direct for your support!

Questions or comments? Feel free to email me at clark.deanna@gmail.com

Regulation Overload? Stringing Together the (Compliance) Beads of a Jewelry Import Business

I recently met a woman who is considering starting up an import business of jewelry and other locally made crafts from Central America. The products she described sounded fantastic and it sparked my former interest in a jewelry and crafts import business I too once had. As we went through some of the product ideas however, it was clear within minutes that there was much more to consider than what color bracelets to import!

Different U.S. agencies have their specific requirements when it comes to imports and US Customs assists them with enforcing their regulations. Let me shed some light on the import issues that came up by going through a few product ideas.

Beaded wooden necklace – Lacey Act Declaration
Painted bracelet for girls – Lead Paint and CPSC* General Certificate of Conformity
Cooking oils – FDA** Advance Notice Declaration

Product declarations and certifications aside, there are other import issues to consider. For example, depending on which country the goods are ultimately imported from, there may be a free trade, or other preferential trade program that she could take advantage of, such as when importing from a country eligible for tariff reductions under the Generalized System of Preferences, of which many Central American countries are.

In everyday language, this means that the amount she would have been responsible for paying in duties is now reduced thanks to the lower duty rate resulting from the preferential program.

Being aware of compliance issues and duty consequences, or benefits, are important to know about prior to your first importation. In fact, consulting of this kind would be beneficial at any time beginning even, believe it or not, during the creation of a business plan. After all, these costs will need to be factored in when determining break even amounts, profit targets and other financial projections.

Consulting of this kind is further important, so that you are not hit with penalties on your first importation as a result of non-compliance which can wipe away any start up capital you once had. Or even worse - it can leave you in serious debt.

I know of a case where an importer's first shipment of goods had been seized, i.e. taken (and in this case, for good), due to an allegation of the products being counterfeit. Though mitigation (reduction) of the penalty imposed by US Customs decreased the penalty to 10% of the original claim, the mitigated amount was still over half a million dollars! And that was on their first importation. Needless to say, that kind of penalty can take its toll!

Starting up an import business can be a lot of fun but there is also a complex maze of government compliance issues to consider and successfully navigate through.

Thinking about starting up an import business? Feel free to contact me with any questions at clark.deanna@gmail.com.

*Consumer Safety Product Commission
** Food and Drug Administration

OWIT-NY Membership Appreciation Night

As Vice President to the Board of the NY Chapter of the Organization of Women in International Trade (OWIT-NY), I definitely felt a desire and responsibility to go around and meet as many of the dozens of women who came out to our event last night at Bryant Park Grill.

The breadth of professionals at these events never ceases to amaze me, with attendees ranging from those in the customs fields, to college professors, to trade policy consultants. It was a wonderful surprise, although it shouldn’t have been surprising, that those I met were as easy going as I am.
I further found some potential authors of articles for the upcoming OWIT-NY newsletter, for which I am the Editor.

As described on the website, OWIT-NY is a non-profit organization that provides support, inspiration, information and networking opportunities to women and men who are active members of the international trade community. I hope you will check out the website and get more involved with one of our national chapters, if not the New York one. Information about OWIT national can be found if you click here.

Questions or comments? Feel free to email me at clark.deanna@gmail.com.

Classification. Tricky? Or Tricks of the Trade?

Depending on certain factors, such as the complexity of an article or the place from which it is being imported from, the classification of an import can be tricky at times. There are however, no “tricks” to be played when making a declaration on an entry summary as importers have a responsibility to use reasonable care in making classification determinations under the Customs Modernization Act. A failure to do so could lead to delays in entering the goods, not to mention steep penalties. For this reason there are general rules of interpretation, specific heading and subheading provisions and explanatory notes to all guide you in figuring out the correct tariff number.

“Classification,” i.e., the assignment of a tariff number to a product being imported, is one part of making entry, which is the declaration to US Customs I began writing about it an earlier post. One way in which many of us have had some exposure to making an entry declaration, albeit to a another country, is that with sending a present or personal package to someone in a foreign destination. The US Postal Service has a green customs form that must be filled out and this informs (or, in “trade-ease,” “declares” to) the receiving country what the contents are inside the package.

Making an entry for a commercial quantity of imports into the US entails a bit more of a declaration, and classification is one part of the process. A tariff number is made up of 10 digits and is found in the Harmonized Tariff Schedule of the United States (HTSUS). Assigned to each tariff number is a corresponding rate of duty. It is this rate from which a calculation may be done to determine how much in duties US Customs is entitled to receive on an importation. Think of a duty as a tax, kind of like how many states subject consumers to paying a state sales tax on say, a pair of blue jeans, bought at the mall.

The HTSUS is available in hard copy and online and it contains roughly 5,000 descriptions of classifiable articles, arranged into 97 chapters and grouped into 21 sections. Two final chapters, 98 and 99, are special provision chapters allowing for things like temporary duty increases or suspensions, or a special tariff program. For example, two weeks ago President Obama announced an additional duty on certain tires from China. At some point, a tariff number reflecting this temporary duty increase is likely to be found in one of these chapters. As an aside, I have looked through a hard copy of the HTSUS at the Court of International Trade's library and it is pretty neat to see the diversity (not to mention randomness) of articles that are classifiable. Who knew that “dadoed flat jamb” even existed?! For those of you non-carpenters out there, in everyday language, this is a “door jamb,” which, according to wikipedia, is the vertical part of a door frame to which a door is secured.

I cannot provide a detailed lesson in classification here. I can tell you however, that the earlier chapters of the tariff begin with more raw or crude products, and as the chapter numbers rise, so does the complexity of the goods in terms of advanced manufacturing. For example, raw cotton is classifiable in Chapter 52 whereas blue jeans are classifiable under Chapter 62.

Groups of chapters are bunched into sections and for each one, there are section notes. Likewise, each chapter has notes specific to the articles within it, including additional notes specific to the U.S. that describe with greater detail the way in which goods should be classified. Both of the section and chapter notes should be referred to when making a classification determination.

The General Rules of Interpretation (GRI) provide the hierarchy of instructions for how goods should be classified. Each tariff number is made up of 10 digits in the following form - 0123.45.6789 - and the assignment of the appropriate classification begins by looking at the first four digits, which is referred to as the Heading.

There are 6 GRIs and when a classification cannot be determined by the headings and notes alone, then GRI 1 provides that classification is to be determined based on the subsequent GRIs and in sequential order. Therefore, where GRI 1 is insufficient for making a determination, then you look to GRI 2 and its application to attempt to correctly classify a good, and so on and so forth. Such subsequent rules provide guidance for making classification determinations, such as looking at a good's “essential character,” or what a completed article might be in the event of the importation of a disassembled good, or what to do in the event that a good is classifiable under one or more tariff headings.

Once the correct tariff number has been found, then you can see what the rate of duty is. There are 3 types of rates of duty that can be assessed on a good, the most common of which is known as an “ad valorem” rate, which in terms of dollars and cents, is typically a percentage of the total invoiced amount. As I described in my earlier post, under this assessment, an import invoiced at $1000 for which the classification had a corresponding duty rate of 5%, means that $50 would be paid to US Customs in duties.

On occasion a specific rate of duty may be applicable, such as a per piece rate like in the case of a watch movement, or based on weight, such as in the case of a certain type of cotton, classifiable under HTSUS # 5201.00.2200, which has a duty rate of 4.4 cents per kilogram. Finally, there may be combination rates where there is both an ad valorem and specific duty rate, such as in the case of watches, where the other components of a watch are all valued at ad valorem rates. Interestingly enough, due often times to historical reasons, there are some imports, like watches, that are valued not on the final complete article but on various portions which make up the article. Did I mention classification could be tricky?

As for tricks of the trade, it may be worth consulting an expert such as a licensed customs broker or trade attorney to see if your import may be classified under a preferential duty program, such as NAFTA (the North American Free Trade Agreement). Depending on where a good is being imported from, there may be an opportunity to enter your products duty free thanks to a favorable duty treatment agreement between the U.S. and another country, which your trade professional might be aware of. This would not only save the importer money, but those savings could be passed along to the “ultimate consumer,” i.e., your customer.

For more information, you can check out the US Customs Informed Compliance Publication entitled, “Tariff Classification.” Due to the complexity of classification issues, for certain products US Customs has specific publications, such as with textile costumes, children's apparel, and pipe fittings. Questions or comments? Feel free to email me at clark.deanna@gmail.com.

An Importer’s Bond Requirement

Posting a bond with US Customs is part of the process of entering the goods into the U.S., just as paying duties are. The bond is intended to cover any potential duties, taxes or charges that may accrue with an importation, and can be obtained through a surety company. A “single entry bond” can be used for the entry of a single importation, or for larger commercial importers that import more frequently, a “continuous bond” may be obtained.

Depending on the nature of the product being imported, certain requirements such as a specific license, must accompany it. Often times, other U.S. agencies will require that certain paperwork is included with the entry documentation, such as a Lacey Act declaration for certain wood products, or there will be a requirement that certain information is provided to it in advance of an importation, such as the FDA’s requirement to give advance notice of an imported food’s arrival into the U.S. under what is commonly known as the Bioterrorism Act of 2002. US Customs works together with these other agencies to ensure that all rules are met. When they are not, penalties may be assessed against violators.

US Customs has the ability to request that goods be redelivered to the port for an inspection or some other reason well after an importer has received the goods in the U.S. Therefore, for purposes of full compliance with its regulations and requests, US Customs requires the posting of a bond. Keep in mind that in the event a request is not complied with by an importer, such as goods cannot be returned to the port, there is a good chance that penalties will be assessed. In the event an importer does not pay the penalty, the bond serves as a guarantee that the penalties will be paid (through the surety company).

Bond issues can be confusing and complicated to the novice and even more experienced importers. If you have any questions about bonds, feel free to contact me at clark.deanna@gmail.com.

What is the Process for Importing Goods into the U.S. ?

I met with a potential client on Friday to discuss a product from Brazil that she and her business partner are interested in importing. During our discussion it became clear that while on its face, the product itself is inexpensive, by the time all of the costs involved with importing the good into the U.S. are factored in, it’s a much more expensive venture.

As I drew out a diagram of the entire process, namely from the factory in Sao Paolo to their physical possession in New York City, I realized that though the seller had sent them information pertinent to the transaction, such as the cost of the goods per square meter, the tariff classification (up to the 8 digit level) of the product, and quotes for shipping a 20 ft. container on a vessel, I realized that though they possessed this information, there was no connection to the actual process of how this information translated into the importation of the product.

Therefore, I’d like to spell out some of the basics to importing into the U.S.
As each part of the process requires some detail, I will merely provide a brief introduction now, and through subsequent blog posts, describe each of the other facets to importation in greater detail.

U.S. Customs and Border Protection, formerly of the U.S. Treasury, and now a part of the Dept. of Homeland Security, is the agency responsible for overseeing imports into (and exports out of) the U.S. Whenever a product is imported into the U.S., it is “entered” into our borders upon “entry,” which is a declaration to the government of the article being imported and payment of the requisite duties to the U.S. government, which is essentially a tax on a product based on its invoice value at the duty rate. For example, if I import $1000 worth of merchandise and the duty rate is 5%, I am required to pay $50 in duties.

The duty rate is determined by a product’s tariff number, which is set out in the Harmonized Tariff Schedule of the United States. Countries which are members of the WTO (World Trade Organization) or those with whom the U.S. has a free trade (or other preferential) agreement, benefit from more favorable duty treatment than those who are not, which means that an importation from one of these countries will have a lower duty rate assigned to a product than one that is not.

Entry can be done by an importer and is typically done through a licensed Customs Broker, who through the use of a Power of Attorney, makes entry on behalf of the importer. The broker classifies the merchandise, determines its value and provides the requisite paperwork (invoice, packing list, shipping records, required declarations, etc.) to US Customs. Once the goods have been cleared by US Customs, they are admissible into the U.S.

Other importation issues, which I will discuss in future blog posts as each requires a bit of explanation, include:

• Obtaining a Bond
• Valuation
• Classification
• Marking (country of origin)
• Preferential duty treatment (free trade agreements)
• Other agency requirements (e.g., FTC – packaging statements like "biodegradeable"; FDA – declaration of food imports; CPSC – GCC re apparel and flammability and lead certifications of compliance; TTB – labeling of wine requirements; USDA/APHIS - when a product is considered an endangered species)
• Insurance (risk of loss)
• Transportation of the goods from the port to its final U.S. destination

Questions or comments? Email me at clark.deanna@gmail.com

Children, Apparel and Textiles: Rules, Rules, and Now... a Final CPSC Rule

The Consumer Product Safety Commission (CPSC) is the U.S. federal agency responsible for protecting consumers from known risks related to the ordinary use of a consumer product and reducing hazards associated with them. Clothing and textiles are considered consumer products and as such are subject to the guidelines set forth by CPSC, which, with respect to this new rule, are the federal rules and regulations found at 16 CFR Part 1500.

Recently, CPSC announced its final determination that certain materials do not exceed the lead content limits specified in the Consumer Product Safety Improvement Act of 2008 (CPSIA), section 101(a). Under this section, a consumer product is considered a banned hazardous substance under the Federal Hazardous Substances Act (FHSA) where it

1.Is a consumer product designed or intended for children 12 years old and younger, i.e., a “children's consumer product,” and

2.Contains more than 300 ppm of lead (as of 8/14/09, formerly 600 ppm through 8/13/09. This rule is subject to change as of 8/14/11, to a lower limit of 100 ppm of lead, unless CPSC determines it is not technologically feasible to have this lower limit)

Until this Final Rule was published, the children's apparel industry, among others, had been scrambling to meet the testing requirements mandated by CPSIA which not only required the testing, but mandated that it be done only by CPSC accredited labs. Major concerns over the lead paint and lead content testing of apparel, non-textile components, such as zippers and buttons, and decals or paints applied to the surface of textiles, had been raised in an effort to comply with the new standards and provide adequate support for the certifications made in the still mandatory “General Certificate of Conformity” (GCC) which is a declaration by an importer, U.S. domestic manufacturer or retailer, certifying to a product's conformance with CPSC rules.

The Final Rule, Lead Content and Children's Apparel:

Whether for children or adults, the main component of a clothing article is its fabric. Certain components such as a zipper or buttons may be either necessary or used as adornment, as is common with children's apparel, however their use with clothing tends to be minimal. Clothing may be 100% of a material such as cotton, or a blend such as polyester and spandex. Lastly, there may be a decorative element of some type such as a decal or rhinestones also sewn or glued onto a garment. All of these fabrics and components are subject to certification that they are in compliance with the CPSIA lead content rules.

In its Final Rule, CPSC announced its determination that “certain products or materials inherently do not contain lead or contain lead at levels that do not exceed the lead content limits under CPSIA, section 101(a),” provided that “these materials have neither been treated or adulterated with the addition of materials that could result in the addition of lead into the product or material.” Included in this list are textiles consisting of

1.Natural fibers, whether dyed or undyed, inc., inter alia, i.e., among other things, cotton, ramie, linen, silk, and alpaca; and
2.Manufactured fibers, whether dyed or undyed, inc., inter alia, rayon, polyester, nylon, acrylic and spandex

In everyday language, this means that lead content testing is no longer required of apparel made up of 100% of, or any blend of, any of these materials because CPSC has determined that “most textile products are manufactured using processes that do not introduce lead or result in an end product that would not exceed the CPSIA's lead limits.” This does not mean, however, that the requirement to provide a GCC has been eliminated, however the underlying testing of a textile made up of one or more of these fabrics, which supports a declaration of conformity on a GCC, is no longer required. Despite being relieved from testing however, manufacturers and importers remain responsible for verifying that the product or material has not been altered or modified so as to cause lead to enter the material or product.

With regards to the other components of a garment, the Final Rule does not relieve the testing requirement for metal and plastic items, such as zippers, snaps and buttons since the CPSC was unable to make a determination that component parts made of plastic or metal are below the mandated lead content limits. In an upcoming rulemaking however, a date for which was not announced by CPSC, CPSC intends to address component part testing, as well as delineate products which may fall into an exemption.

In addition, other components like glass beads and rhinestones also remain subject to CPSIA lead content testing since many leaded glass based products contain lead levels that exceed the statutory limits. A lifting of this testing is not likely to occur as CPSC specifically voted on July 17, 2009 to not exclude these items from the lead content requirements.

BEWARE! CPSC intends to make random inspections of products in the marketplace to assure compliance with CPSIA. For products found to exceed the lead limits, appropriate enforcement action will be taken, which could include monetary penalties and/or criminal liability.

Therefore, when using a new manufacturer or supplier, testing for lead content at the outset of a production would be prudent action for any importer to make to meet its U.S. Customs informed compliance obligations. As discussed briefly below, lead paint requirements for children's apparel still stand. Therefore it would likely be more cost effective to have the lead content and paint testing done at the same time.

The Final Rule and Lead Paint:

The Final Rule still mandates the testing of children's consumer products where a paint has been applied to the surface, or the material or product has been treated with paint or a similar surface coating [16 CFR 1303 and section 14 of Consumer Product Safety Act, as amended by section 102(a) of CPSIA]. Therefore, any apparel with pigments applied to the surface of the textile material must be tested.

This blog post focuses on the Final Rule provisions related to apparel and textiles, however the determinations regarding lead content across various materials and consumer products, including ceramic glaze and clay, precious gemstones and paper, and non-consumer products, like cosmetics and foodstuffs, were also discussed in the published rule, the complete version of which may be found at 74 FR 43031, dated August 26, 2009, which is also the effective date of the Final Rule. It should be noted that any quoted references herein also are taken from this publication. For more information about the Consumer Safety Product Commission, click here to go to the website.

Questions or comments? Email me at clark.deanna@gmail.com

Dept. of Commerce Makes Preliminary Countervailing Duty Finding on Plastic Grocery Bags Out of Vietnam

When a U.S. industry believes that its market share in the U.S. is being injured due to a cheaper version of the same article - as a result of a subsidy provided to foreign manufacturers from its own government - a petition may be filed on behalf of the U.S. industry’s interests for a determination of the existence of foreign subsidies, and hence, the imposition of a countervailing duty.

A countervailing duty is basically an additional tax, derived from the Dept. of Commerce and imposed by U.S. Customs, on a particular product. The effect is intended to cause the foreign import to be more expensive and therefore, more competitive with U.S. manufactured goods.

In this case, polyethylene retail carrier bags (“PRCBs”), commonly known as plastic grocery bags, among other kinds, from Vietnam, Indonesia, and Taiwan are at issue (though this blog post focuses only on Vietnam). For more information on the nature and progress of the investigation covering all of the countries, click here.

The U.S. agencies that work together towards a determination as to the existence of the foreign subsidization of a particular product are the U.S. International Trade Commission and the Dept. of Commerce. Each conducts certain fact finding investigations, which includes activities such as the completion of questionnaires by affected parties as well as receiving live testimony at hearings.

On March 31, 2009, petitions were filed by two U.S. makers of PRCBs, namely, Hilex Poly Co., LLC, of Hartsville, SC, and Superbag Corporation of Houston, TX, in order to have an investigation commenced into the subsidization of PRCBs by the Vietnamese and other governments with the goal being the imposition of countervailing duties in the event of an affirmative finding.

With the Dept. of Commerce’s preliminary report (signed on Monday 8/31/09) stating that a finding of countervailing subsidies was made, the International Trade Administration of the Dept. of Commerce’s publicly announced in its "Fact Sheet" a finding of subsidization by the Vietnamese government ranging from 0.20% de minimus to 4.24% in counteravailable subsidies.

In everyday language, this means that the range of subsidies provided to this industry by the Vietnamese government ranged from 0.20%, which is perceived as being insignificant or “de minimus,” because it is so small of an amount as to essentially not be worth the effort to address, to 4.24%.

Having made a preliminary finding, by this Friday (9/4/09), or shortly thereafter, there will be a publication in the Federal Register of the Dept. of Commerce’s preliminary report (Report). Part of this publication will include information about the additional duties that are to be collected by Customs as of the date of publication of the Report, from both specific Vietnamese manufacturers of PRCBs, as well as all others. The countervailing duty rates will be as follows:

Manufacturer Name Duty Rate (i.e., extra duty amount to be paid)

Advanced Polybag (none b/c de minimus)

Chin Sheng Company, Ltd. 1.69%

Fotai Vietnam Enterprise Corp. 4.24%

All other producers/exporters from Vietnam 2.97%

Of course these are just the preliminary determination figures. Once the final determination is published, those new countervailing duty rates established by the Dept. of Commerce will then be collected by Customs, effective from that date of publication. Stay tuned to the International Trade Commissions' website for additional publications affecting this countervailing duty investigation.

Questions or comments? Email me at clark.deanna@gmail.com

Foreign Corrupt Practices Act of 1977 and International Trade

I was recently asked to speak to a reporter about the Foreign Corrupt Practices Act (FCPA).

FCPA focuses on combating the problem of bribing foreign officials to favor, or further, a particular business deal. It also requires the implementation and maintenance of effective internal accounting controls of books and records so that business transactions by issuers of securities traded on a U.S. exchange are accurately reflected.

The FCPA provides for the imposition of monetary and criminal penalties for corruptly paying, or offering to pay, directly or indirectly, money or anything of value to a foreign official to obtain or retain business. Imposition of these penalties is enforced by the Department of Justice (DOJ) with respect to the anti-bribery provisions, and the Securities and Exchange Commission is responsible for the civil enforcement of the anti-bribery provisions with respect to issuers. Prosecution may take place against any individual, or other party, including, a company, director, officer, employee, agent or stockholder of a firm that acts on behalf of the firm.

The FCPA originated in the 1970s from a desire to end the bribing of foreign nationals and thereby cease abuses in American business transactions. In an attempt to restore integrity in business deals globally, in 1988 the U.S. reached out to some of its fellow members of the Organization of Economic Security and Development (OECD), who were also major trading partners with the U.S. Today, nearly 40 other OECD member countries have ratified (signed) the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions.

So how does it affect international trade? Mainly with respect to exports. So much so, that the DOJ specifically mentions exporters in its introduction to its "Lay Person's Guide to FPCA." A multitude of government regulations and laws govern the exportation of goods in order to try and safeguard U.S. economic interests abroad as well as U.S. foreign policy interests.

While certain practices may be legal in one country with respect to bribing officials in order to obtain a contract with a government - or a greater likelihood of obtaining one - be it for an international sale of U.S. exported goods, or otherwise, that does not mean that those practices, are legal under the FCPA. Therefore, understanding FCPA rules, having a strong FCPA compliance program, and training employees so as to minimize incidents of violations are imperative for any company conducting international business.

For an example of a company that failed to comply with FCPA regulations, click here to read more about the $800 million (out of a total of $1.6 billion globally) penalty that Siemens AG, a German engineering company, was struck with last year by the the U.S. Interestingly enough, the experience has caused Siemens to hold seminars in FCPA compliance in order to assist others with meeting FCPA requirements by identifying its own shortcomings at the time of the penalty.

Looking for more information? Feel free to email me.

Why the Blog? Why Not! But seriously...

Ever wonder where all of your possessions come from?

Being in America, so much of our daily experience is somehow connected to international trade, whether it's a result of the food we are eating, the clothes we are shopping for, or the toothpaste we're using before going to bed. As a kid, I used to wonder, "where does all of this stuff come from?" Turns out, a lot of it comes from other countries.

As a practitioner of international trade law, I definitely recognize that all of this "stuff" comes from every corner of the globe. What came as a surprise however, was how many government agencies are involved with the importation, and exportation, of virtually every single article I may have within my reach wherever I am, be it at home, the office, or the yoga studio.

These agencies set the rules and monitor, oversee, and enforce their mandates across comodities. The stated reasons generally boil down to the simple idea of protecting America, be it via a threat of food contamination, pest infestation, or more obvious threats, such as concealed weapons.

I wanted to provide a space where topics of international trade could be shared in “everyday” language in order to better educate the masses about it. That doesn’t mean there won’t be times where strict regulatory or other complex information won’t be provided, but hopefully whatever explanation goes along with it will allow for an understanding in non-lawyer terms. And if not, feel free to email me with your questions or comments!