What is a Foreign Trade Zone?

The question of placing certain imports or exports into a foreign trade zone (FTZ) occasionally arises in my international trade practice. While conceptually I understand its purpose, I decided to explore the “ins and outs” of it to better understand why they exist.

An FTZ is a customs supervised zone that is considered outside the Customs territory. Therefore, requirements that would normally be applied to imports are suspended as long as the goods remain in the zone. In an FTZ duty payment is deferred on imports which are later entered and sold in the U.S. market, and for those that are re-exported, duty-free treatment is allowed.

It is also a zone for which an export may be placed in while certain legal requirements are met. An example of this would be where military jeeps are delivered to the port for exportation to the army of a foreign government, but is still in need of a verification by Customs of the requisite export licenses.

Other advantages of using an FTZ include what is known as “inverted tariff relief,” which occurs when imported parts with a higher duty rate are incorporated into a final product which has a lower duty rate than the parts themselves and is ultimately imported. Likewise, merchandise imported and held in an FTZ for repacking, assembly, storage, exhibition, sorting, grading, mixing, manufacturing, cleaning or processing can be held in a zone for exportation, either in its original state or after undergoing one of these processes and is exempt from State and local ad valorem taxes.

There are 2 types of FTZs: (1) A “General Purpose” zone whose facilities are available for use by the general public and are typically located in a port complex, raw land or an industrial park, and (2) a “Subzone,” which is a single purpose site that allows for operations that cannot be feasibly moved to, or accommodated in, a general purpose zone, such as automobile manufacturing or oil refineries.

Interestingly, despite the ability to undergo the above activities on goods placed in the zone, certain other operations may not be done in an FTZ. These include, the manufacture of watch and clock movements, as well as the manufacture of products subject to internal revenue tax including sugar, tobacco, alcoholic beverages and perfumes containing alcohol, to name a handful of them.

In order for products to be admitted into a zone, Customs Form 214, or its electronic equivalent, must be completed and a permit granting admission is issued by the Port Director. Only a person with a right to make entry of the goods is allowed to make an application for zone admission, however, with a proper power of attorney on file, a Customs broker or zone operator may prepare and/or file the application on that party's behalf.

Along with Form 214, a filer must submit evidence of a right to made entry, the commercial invoice(s), a Release Order (executed by the carrier which brought the goods to the port), an application to unlade (Customs form 317), and any other documentation required by the Port Director.

Customs approves most low-risk shipments without an examination of the cargo, however it may conduct an exam to ensure full compliance with all applicable rules and regulations or to reduce the need for further examination at the time when the goods are entered into the US Customs territory for consumption or into a warehouse.

In certain cases direct delivery of the goods into an FTZ without a prior application (Form 214) may be done provided a written application is made with the appropriate port director at least 30 days before it is to be effective, and provided a description of the merchandise and the type(s) of processing that will be undertaken in the zone are explained.

Merchandise cannot be subject to Customs examination or documentation review prior to its arrival at the zone nor be of the type that is restricted. The FTZ operator must be the owner of purchaser of the goods, and the operations to be conducted must not only be known in advance, but also should be stable and predictable over the long term.

When the merchandise is ready to leave the zone for U.S. consumption, normal entry, classification and appraisement procedures covering foreign merchandise are used. For answers to specific questions, you should contact the local Port Director where the zone is located. US Customs has more than 300 ports of entry in the US, Puerto Rico and the US Virgin Islands.

Authority for establishing an FTZ is found in the Foreign Trade Zone Act of 1934, as amended (19 USC 81a-81u). The regulations governing the Foreign Trade Zones Board are published in 15 CFR Part 400, and US Customs regulations governing zone operations may be found in 19 CFR Part 146.

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

CPSC Issues Final Rule Interpreting the Civil Penalty Factors in CPSA

When it comes to certain imports, aside from US Customs there are other federal agencies whose regulations must be met for an importation to be in compliance. Due to a myriad of concerns including, for example, children's lead safety and clothing flammability issues, compliance with Consumer Safety Product Commission (CPSC) regulations must be met.

With CPSC's issuance of a new final rule of its interpretation of the civil penalty factors found in the Consumer Safety Product Act (CPSA), the Federal Hazardous Substances Act (FFA), and the Flammable Fabrics Act (FFA), as amended by section 217 of the Consumer Product Safety Improvement Act of 2008 (CPSIA), the importing community is now aware of what CPSC considers when making civil penalty determinations.

A civil penalty may be sought against any person who knowingly violates a prohibited act under the CPSA, FHSA or FFA, or who has presumed knowledge of such act as being a violation.

The CPSA, FHSA, and FFA define “knowingly” as the having of actual knowledge, or the presumed having of knowledge deemed to be possessed by a “reasonable man” who acts in the circumstances, including knowledge obtainable upon the exercise of due care to ascertain the truth of representations.

The rule, in its own wordy way, further describes a list of new and expanded prohibited acts which include:

1. the importation, distribution in commerce, sale (or offer for sale) of a non-compliant consumer product (or other product or substance) that is regulated by the CPSC;

2. the failure to furnish a certificate required by any other act enforced by CPSC, inc. a tracking label;

3. the importation, distribution in commerce, sale (or offer for sale) of a consumer product containing an unauthorized third party certification mark;

4. the exercise (or attempted exercise) of undue influence on a third-party conformity assessment body that tests products for CPSC compliance;

5. the importation, distribution in commerce, manufacture or sale of products subject to voluntary corrective action, for which none has been taken;

6. the importation, distribution in commerce, manufacture or sale of a product subject to a mandatory recall;

7. the exportation (for purposes of a sale) of any consumer product or substance that is subject to a court ordered recall, voluntary CPSC announced recall, or banned under the FHSA;

8. the importation, distribution in commerce, manufacture or sale of a banned hazardous substance under FHSA ;

9. any misrepresentation about the scope of a consumer product subject to a recall or a material misrepresentation during an investigation to a CPSC employee or officer; and,

10. the exportation (for purposes of a sale) of a consumer product not in conformity with an applicable CPSC rule.

There are statutory factors the CPSC must consider when making a determination of the assessment of a civil penalty following the undertaking of a prohibited act. Considerations enumerated by the CPSC include:

1. the nature, circumstances, extent and gravity of the violation, including, the nature of the product defect or of the substance;

2. the severity of the risk of injury;

3. the occurrence or absence of injury;

4. the number of defective products distributed or the amount of substance distributed;

5. the appropriateness of the penalty in relation to the size of the business of the person charged, including, how to mitigate undue adverse economic impacts on small business; and,

6. such other factors as appropriate.

For more information on this new rule go to CPSC's website. This final rule goes into effect upon publication in the Federal Register.

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

International Trade and Marketing for the Fashion Industries at FIT

The mission of ITM is to prepare students for entry-level managerial positions in international operations of fashion and related businesses, including import/export, legal and finance documentation, customs compliance, trade policies, management, marketing, sourcing, logistics, and international business ethics.

Last week I had the pleasure of meeting with Christine Pomeranz, the Chair of the International Trade and Marketing Program (ITM) at SUNY’s Fashion Institute of Technology. This is by far one of the coolest programs I have ever come across and given the volume of imports of textiles and apparel into the U.S., it makes perfect sense that this kind of program would be included in a school focused on fashion.

As soon as I walked onto the campus I instantly felt at home. The student body was lively, diverse and dynamic, and with student elections pending, I noticed creative fashion-focused “vote-for-me” signs, some of which were even inspired by famous designer logos. Seeing these surroundings completely put me at ease to discuss potential future adjunct faculty positions in the areas of International Trade Law or International Trade and Fashion Law with Chairwoman Pomeranz.

During our conversation I became evermore impressed with the ITM program’s focus and caliber. There are four (4) different “tracks” that students can follow. They are:

1. International Trade Law and Fashion Law
2. International Business Management
3. International Trade and Policy Management
4. International Marketing Management

Whichever track is chosen, all students in the ITM program must take core courses in international trade, international business transactions, global marketing, import/export regulations, and global sourcing, as well as taking a practicum in international trade or a senior internship. All of these are integral to a well rounded education in international trade if you ask me!

I truly enjoyed learning about the ITM program and look forward to the opportunity to be included as an adjunct faculty member. To learn more about the program click here. Check it out!

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

OWIT-NY Event on March 16, 2010 6 pm: "Transcendental Security"

Featuring Ken Wheatley MA, CPP, Sr. Vice President, Sony Electronics, Inc.

The Industrial Revolution, Quality Circles, and Product Design. Is "Security" or Enterprise Risk Management the next business transformation? Do you know what The Great Barrier Reef, Hair Growth, and Bad Supply Chain Security all have in common?

Do you know how to stop “The Drip” that could up-end your trade operations?

There are eight leadership skills. How might two of them be holding you, or your clients, back from having a world-class strategic security program?

Join us for a lively discussion and multimedia presentation on these and other aspects of transforming your business operations and transcending perceived obstacles. For starters, there are two questions Ken would like you to think about and send him your thoughts before the meeting:

Why does your company exist? Why do you (and your employees/co-workers) get up every day to go to work?

Please send your answers to him at: ken.wheatley@am.sony.com as soon as possible.

Date: Tuesday March 16, 2010.

Time: Networking and refreshments at 6:00pm. Program commences at 6:30 pm and concludes by 8:00pm.

Location: Law offices of Baker & McKenzie at the Grace Building, 1114 Avenue of the Americas (between Fifth and Sixth Avenues), New York, New York. The entrance is on 42nd Street directly across from Bryant Park.

Cost: $20 for OWIT members, students and government employees
$25 non-members

*MEMBERS PLEASE NOTE: Any OWIT-NY member accompanied by an importer, exporter, or freight forwarder will be awarded a free pass (valued up to $25) to a future OWIT-NY event.

To attend, register on-line by clicking on the “Events" section at www.owitny.org. Online registration is available up to 24 hours before the event. If you miss the on-line registration, you can choose to pay by cash or a check at the door provided there is still space available. Please note that the event is limited to 45 people.

Hope to see you there!

USITC Investigates Proposed Modifications to the HTSUS Regarding Chemical Weapons

April 9, 2010: Publication of preliminary report on the USITC website
May 21, 2010: Deadline for public comments on preliminary report
June 25, 2010: Submission of final report to the President

The U.S. International Trade Commission (USITC) has proposed modifications to the Harmonized Tariff Schedule of the United States (HTSUS) to address the control and monitoring of materials in international trade that are capable of being used as chemical weapons or for the production of chemical weapons.

The US tariff system is based on the World Customs Organization's Harmonized Convention System. Like many countries around the globe, being a signatory to this Convention means that when the WCO directs a change, member countries - of which the US is one - must implement the changes into their nation's tariff. In this case, the WCO's recommendations are scheduled to become effective on January 1, 2012.

The USITC is preparing and making available a preliminary report and a final report setting forth the proposed changes to the HTSUS that will be needed to maintain conformity between the tariff and the WCO's Harmonized System, including appropriate explanatory information on the proposed changes. The public is invited to submit any comments until May 21, 2010.

The preliminary report will be forwarded to the President via the United States Trade Representative's office on or about April 9, 2010, and it will be made available for public inspection through the USITC's electronic docket (EDIS) and posted on the USITC website.

As described by the USITC, “the Harmonized System nomenclature provides a uniform structural basis for the customs tariffs and statistical nomenclatures of all major trading countries of the world, including the United States. The Harmonized System comprises the broadest principles of classification and levels of categories in the HTS, that is, the General Rules of Interpretation, Section and Chapter titles, Section and Chapter legal notes, and heading and subheading texts to the 6-digit level of detail. Additional U.S. notes, further subdivisions (8-digit subheadings and 10-digit statistical annotations) and statistical notes, as well as the entirety of chapters 98 and 99 and several appendixes, are national legal and statistical detail added for the administration of the U.S. tariff and statistical programs, and are not part of the international Harmonized System. The proposed changes included in this investigation are set out in a Recommendation promulgated by the World Customs Organization (WCO) on June 26, 2009, in order to update and clarify the international Harmonized System nomenclature.”

Written submissions should be addressed to the Secretary, United States International Trade Commission, 500 E Street SW, Washington, DC 20436. The USITC's electronic docket (EDIS) is where the public record for this collection of proposals may be viewed.

For more information, contact David Beck, Director, Office of Tariff Affairs and Trade Agreements (202-205-2603, fax 202-205-2616, david.beck@usitc.gov).

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

FMC to Initiate Rulemaking Relieving NVOCCs From Publishing Rates in Tariff

“Under the current economic conditions, the commission must use its expanded exemption authority to simplify the business processes of American companies, put cash back into businesses, and generate additional American jobs.” – Commissioner Rebecca F. Dye

In a 3 to 1 vote, the Commissioners of the the Federal Maritime Commission (FMC) voted last month to initiate a proposed rulemaking that would excuse Non-Vessel Operating Common Carriers (NVOCCs) from the requirement to publish in its tariff the rate it charges for shipping cargo.

"Tariff means a publication containing the actual rates, charges, classifications, rules, regulations and practices of a common carrier or a conference of common carriers. The term “practices” refers to those usages, customs or modes of operation which in any way affect, determine or change the transportation rates, charges or services provided by a common carrier or conference and, in the case of conferences, must be restricted to activities authorized by the basic conference agreement."
--46 CFR Part 520.2

As described by the FMC in its announcement about the vote, NVOCCs are “common carriers that act as intermediaries between their shipper customers and steamship lines.” In other words, they are not vessel operating common carriers, i.e., the ship operator themselves, but rather they work to coordinate the movement of the cargo in relation to the transportation needs of the shipper, while to the average person, often appears to be the carrier themselves.

NVOCCs also come under the designation of an Ocean Transportation Intermediary (OTI). Along with freight forwarders, these two parties make up the two intermediary cargo coordinating bodies available for use in overseas waterborne shipping. You can learn more about them in a prior blog post here.

Under the current federal maritime regulations, found in 46 CFR Part 500, NVOCCs must publish their rates in their tariff which is filed with the FMC. While the proposed rulemaking is intended to relieve NVOCCs from filing this information, it doesn't come without any strings attached – several other conditions will be imposed such as:

1. A continued requirement to “publish standard rules tariffs” that would contain the Terms and Conditions under which the carriage is governed
2. A requirement to provide these tariff rules for free to the public
3. A requirement that the rate charged for carriage be agreed to and “memorialized in writing” by the date upon which the cargo is received for carriage, and
4. A requirement that NVOCCs hold for a period of five (5) years documentary proof of the agreed upon rates and terms for each shipment, and upon request by the FMC, to make such records promptly available.

Keep in mind that while the FMC has voted to begin the process of creating a new rule, the practice of “notice and hearing” must still take place and this process takes time. In other words, just because the FMC is announcing this proposed change, there may be no changes for many months, and the final version, while close, may ultimately have slight variations. The FMC addressed this in a subsequent press release which can be read here.

The petition requesting this relief from filing was brought by the National Customs Brokers and Freight Forwarders Association and the FMC decision is widely supported by the shipping and intermediary, i.e., OTI, community.

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