Prior Disclosure - To Make or Not to Make...

“US Customs is moving in the direction of aggressive penalties for non-compliance.  When US Customs conducts a compliance assessment, an importer must be 99% compliant (i.e., US Customs only allows a 1% error rate) in order to be considered compliant.” -- Assistant Field Director, US Customs Field Office - NYC

Every importer is aware – or should be aware – of the imposition of penalties for the failure to follow US Customs regulations.
 
Even if an importer believes it has been compliant, an internal audit or other self-assessment, can reveal areas where errors have been made, and some of these may have resulted in a loss of revenue to US Customs whether of liquidated, or unliquidated, entries.
 
So what is an importer to do?  Is it better to present the issue(s) to US Customs?  And if so, how does an importer go about doing that without opening up “Pandora's Box” in terms of auditing, or the delay of shipments, on the part of US Customs now that you have put yourself on its radar? Is it better to stay under the radar?
 
Clearly, if a post-entry amendment can be done to rectify the mishap, that is an easy way to resolve the issue. 
 
But what if the impact of a seemingly small discrepancy actually extends across years of entries?  Or perhaps, the discrepancy is narrow in terms of the volume of entries, but nonetheless resulted in a gross underdeclaration of duties?
 
Well, now there is a serious problem to deal with.  Unfortunately, the problem can be a much much (yes, I wrote the word twice) bigger one.  Let me explain why.
 
First of all, 19 USC §1592 sets forth the penalty assessments for failing to pay lawful duties.  The penalties differ based upon a range of culpability, ranging from fraud (the most serious), to gross negligence, to negligence (least serious offensive).
 
They are as follows:
 
Fraud violations = the domestic value of the merchandise.
 
Gross negligence violations =
(A) The lesser of
(i) four times (4x) the loss of lawful duties, taxes, and fees deprived the government, or,
(ii) the domestic value, or,
(B) 40% of the dutiable value, but in no case to exceed the domestic value of the merchandise, if the violation did not affect the assessment of duties.
 
Negligence violations =
(A) The lesser of:
(i)two times (2x) the loss of lawful duties, taxes, and fees deprived the government or,
(ii)the domestic value, or,

(B) 20% of the dutiable value, but in no case to exceed the domestic value of the merchandise, if the violation did not affect the assessment of duties.
 
Of course, there is always the option to try and mitigate the above duties, which would reduce the penalties as follows:
 
• Fraud – from a minimum of 5 times (5x) to a maximum of 8 times (8x) the total duty loss, or 50% to 80% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise;

• Gross negligence – from a minimum of 2.5 times (2.5x) to a maximum of 4 times (4x) the total duty loss, or 25% to 40% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise; or

• Negligence – from a minimum of 0.5 times (0.5x) to a maximum of 2 times (2x) the total duty loss or 5% to 20% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise.
 
Contrast these penalties, including the possibility of mitigation, to that of when an importer does make a prior disclosure.

The penalty is zero (0) if the importations involve unliquidated (i.e., open) Customs entries and no fraud is involved.

If the entries are liquidated (i.e., closed or finalized) and no fraud is involved, the penalty is the interest on the loss of duties.

If a fraudulent violation is disclosed, the penalty is reduced from the regular assessment of the domestic value of the goods to 1 times (1x) the duty loss, or if the violation involves no duty loss, the penalty is reduced to 10% of the dutiable value of the merchandise.

Based on these figures, at face value, making a prior disclosure (codified in 19 USC §1592(c)(4)) would appear to be the prudent path to take. After all, by doing so, penalties are substantially reduced.

A prior disclosure must be submitted prior to the commencement of a “formal investigation” by US Customs. There are many rules regarding how to make the prior disclosure and what must be included within it in order to be considered valid, including, the circumstances of a violation of 19 USC §1592, and a tender of any duty loss.
 
US Customs regulations for Prior Disclosure are found in 19 CFR §162.74 and more information about it can be found in Customs informed compliance publication entitled “The ABCs of Prior Disclosure.” 
 
Questions/comments?  Email me at clark.deanna@gmail.com or post below.

Heartbreaking Oil Spill in the Gulf of Mexico

"The NOAA Ship Pisces reported a dead 25-foot sperm whale was located 150 miles due south of Pascagoula, Mississippi and approximately 77 miles due south of the spill site earlier this week. The whale was decomposed and heavily scavenged. Samples of skin and blubber will be analyzed. Sperm whales are the only endangered resident cetacean in the Upper Gulf of Mexico.

A total of 461 sea turtles have been verified from April 30 to June 16 within the designated spill area from the Texas/Louisiana border to Apalachicola, Florida. Of the 461 turtles verified from April 30 to June 16, a total of 355 stranded turtles were found dead, 34 stranded alive. Four of those subsequently died."

-as reported on June 16, 2010 by the Dept. of Commerce’s National Oceanic and Atmospheric Administration. Click here to go directly to this webpage.


Having gone to Tulane Law School down in New Orleans, LA and personally traveled to both the Louisiana wetlands and Gulf Shores of Mississippi, this seemingly endless oil spill is breaking my heart.

Known as the “Deep Water Horizon Oil Spill,” this could-have-been-avoided “accident” has yet to be contained despite a month having passed since its commencement. Given that this literally growing problem must be affecting vessel operators and others involved with international trade, I decided to take a look at the Federal Maritime Commission’s (FMC) website to see what it had to say.

The FMC has an entire section of its website dedicated to this incident. It is monitoring the spill's potential effects on shipping lines, rates, schedules, ports, and terminals and offers a number of resources. In addition, it is providing expedited review for agreements to facilitate adjustments that may be required as a result of the spill or response activities. Through the link above, the FMC further directs interested parties as to where they need to go for relief.

The FMC has incident sheets, response updates from various government agencies and interestingly, the NOAA’s website allows you to see trajectories (scroll down the page until you see the section entitled “Current Trajectory Maps”) which are updated once a day and include trajections based in part, on weather patterns, of the spill’s growth and direction.

Let’s hope that the hole on the ocean floor gets plugged soon. With hurricane season here, it's only a matter of time before the siphoning project will have to be put on hold.

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

Toxic Purses?

Earlier this week I saw a news piece on Headline News about toxics in handbags. It mentioned how over time as you get to love your handbag, i.e., the more it is worn, the greater the risk of releasing chemicals which were not on its surface thereby exposing yourself to them.

In an effort to reduce shopper concerns, retailers including Saks Fifth Ave., Target, TJMAXX, and many others, all agreed (according to Headline News) to not sell products with contaminants in them.

But how does a retailer actually prevent this? And given the nature of manufacturing in today’s modern world, how can exposure to toxics (which lie beneath the surface) over a certain amount of time be avoided?

At the federal level, the Consumer Product Safety Commission (CPSC) has regulations regarding maximum levels of certain chemicals, such as Lead and Pthalates in consumer products. CPSC has also found lead to not be naturally occurring in certain articles, like cotton.

On top of federal regulations, however, some states, like CA, have taken matters into their own hands when it comes to the protection of consumers. It has done this through a law that came out in the 1980s (and is gaining renewed momentum) called Proposition 65.

Proposition 65 requires businesses to warn people about significant amounts of chemicals in the products they make where that chemical is both (1) known to cause cancer, birth defects or other reproductive harm, and (2) is listed on the “Prop 65 List.”

California’s Prop 65 in its simplest terms, requires a label where a product contains a chemical compound that exceeds the Safe Harbor Level. Safe Harbor determinations are based on a person’s exposure to a chemical, assuming daily exposure at that level.

The warning to consumers is typically done via the placement of a “warning label” directly onto the merchandise itself.

Retailers and importers therefore, need to test their products (typically done at the production level) for the existence of these chemicals and, if found, are subject to the label requirement.

As for which parts to test, merchandise is subject to testing for all parts to which a user may come into contact with, or otherwise be exposed to. Therefore, all outer and inner surface materials require testing.

With all of the recent buzz around the existence of chemicals in consumer products, namely with lead, phthalates and cadmium, I decided to look into the Proposition 65 rules regarding these 3 chemicals.

While stated in simple terms, there are technically several subdivisions of each of these chemicals, only a handful of which are on the Prop 65 List and therefore, subject to testing. They are:

5 Listed Phthalates:

Di(2-ethylhexyl)phthalate) (DEHP)
Di-n-butyl phthalate (DBP)
Di-n-hexyl phthalate (DnHP)
Butyl benzyl phthalate (BBP)
Di-isodecyl phthalate (DIDP)

4 Types of Lead:

Lead
Lead acetate
Lead phosphate
Lead subacetate

1 Type of Cadmium

Cadmium

California’s Office of Environmental Health Hazard Assessment (OEHHA) provides a list of “Safe Harbor Levels,” of which there are 2 types (NSRLs and MADLs (defined below)). These levels are intended to assist in determining whether warnings are required on products for exposures to the listed chemicals because if those levels are exceeded, a label is required.

According to Susan Luong of the Prop 65 Office, however, they are not intended to provide a “maximum acceptable amount” of a chemical in a product (like how CPSCs regulations provide) because there is no established allowable concentration level for listed chemicals.

In my experience working with importers who want to be compliant with state and federal laws, having limits but declaring that they are not maximums is confusing. This is because in order to be compliant, there need to be straightforward rules so that those entities subject to penalties for not following them, understand what needs to be done and can add measures to their compliance programs as appropriate.

With more companies being the target of these laws due to greater consumer awareness, it is imperative that federal and state agencies give manufacturers, importers and retailers the information they need to be compliant.

NSRL ("No Significant Risk Levels" (NSRLs) for carcinogens)
MADL ("Maximum Allowable Dose Levels" (MADLs) for chemicals that cause reproductive toxicity)

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

OWIT-NY Event - Seaport Enforcement at New York/Newark Port

"Processing Cargo at the Port of New York/Newark," featuring U.S. Customs and Border Protection Chief Kevin H. McCabe, Seaport Enforcement Branch

THIS WEDNESDAY JUNE 9, 2010

This week OWIT-NY is having its final program of the Spring season with Officer Kevin McCabe from our local port. Having met the very friendly and knowledgeable Mr. McCabe last fall while taking a tour of, and on, his turf, namely, the Port of New York/Newark, I found his wealth of knowledge and easy going nature a welcoming personality at US Customs.

Officer McCabe plans to speak on subjects including:

Advanced Targeting Information
Container Security Initiative (CSI)
Customs Trade Partnership Against Terrorism (C-TPAT)
Radiation Screening, Detection and Mitigation
Non-Intrusive Inspections (container x-ray)
Physical Examination of Cargo
Internal Conspiracy Threats
Cargo Examinations
Special and Joint Operations

and he will be available to answer any questions we in the audience may have. You won't be disappointed if you come and join me there this week. Click here for more information and to register.

Hope to see you there!

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

Anti-dumping and Countervailing Duties – What the Heck Are They?

I remember hearing in the news earlier this year that China wanted to retaliate against the U.S. for an anti-dumping duty imposed on tire imports from China. I also remember seeing a Customs entry with the duty amount included on the Entry Summary for an importation of certain tires, and the conference call wherein the client was, well, freaked out as the hefty amount of the anti-dumping duty was more than double the invoice price of the tires themselves.

In case what I've written above doesn't make any sense, in everyday language, this means that once this antidumping duty was added onto the cost of the merchandise plus freight, etc., the tires would have (presumably) been cheaper to have just bought them from a manufacturer here in the U.S.

“Combating” this type of commercial behavior on the part of foreign markets is precisely what these anti-dumping duties (ADD) and countervailing duties (CVD) are intended to prevent. They're essentially a tax that makes an imported product more expensive.

Let me provide some definitions. Anti-dumping occurs when a foreign company sells a product in the U.S. at less than fair value. Hence, ADD are intended to offset the lower prices.

Countervailing duties address the receipt of government subsidies that benefit those parties involved in the production of, manufacture, or exportation of goods.

When a domestic producer believes that its market here in the U.S. is being harmed by a flood of lower priced imports of the same product from other countries, it can petition the Dept. of Commerce (DOC) to impose an ADD, a CVD, or both.

DOC makes an ADD or CVD determination after a lengthy investigatory process that includes collecting data, by way of questionnaires, from domestic and foreign manufacturers, and foreign exporters of the product. Foreign manufacturers or foreign exporters may request a “separate rate,” in order to receive a lower ADD or CVD rate. For those who do not make this request, imports by these foreign manufacturers or foreign exporters are subject to the “All Others” rate.

I had an interesting conversation with Sam Zengotitabengoa (love his last name) from the DOC's International Trade Administration office recently regarding the preliminary determinations made for an ADD and CVD on ribbon. Specifically, it was on “Narrow Woven Ribbons with Woven Selvedge from the People's Republic of China and Taiwan” affecting HTSUS subheadings 5806.32.1020, 5806.32.1030, 5806.32.1050, and 5806.32.1060, with other “catch all” language to bring in other types of ribbon.

Preliminary Determination:
ADD “All Others” Cash Deposit Rate: 231.40%
CVD “All Others” Cash Deposit Rate: 59.49%

When a preliminary determination is made, DOC notifies US Customs with instructions on what “cash deposit” to collect. It can either be made in the form of a cash deposit or a bond in the amount of the ADD or CVD owed. (As an aside, from what I've heard, it sounds like surety companies are not really on board with issuing a bond for ADD or CVD cash deposits, which has been demonstrated in part by all the hoops that need to be jumped through in order to obtain one for ADD/CVD purposes.)

Since no notice with respect to the ADD case was made regarding the cash deposit despite publication in the Federal Register that it would be instructing US Customs about it (at least none had been at the time I started writing this post), I had no choice but to put a call in to the DOC (Sam). After all, how can I advise clients as to cash deposits if there are no public instructions explaining what to do? And, how does the importing community know how to be compliant – and US Customs for that matter – if the DOC never instructed us on what to do?

US Customs has a web page that is supposed to inform the importing community what DOC instructions are. Sam and I looked together to confirm that no public notice had been published by Customs on its website even though DOC had issued the “message” (message no. 0070303) on March 11, 2010. He therefore, emailed me the message which I thought was quite kind of him.

Some important upcoming time frames are:

24-Jun-10
To file entry of appearance with the Secretary of the Commission [USITC Rules § 201.11(b)(3)]
7-Jul-10
To file pre-hearing brief (mandatory ) [USITC Rules § 207.23]
8-Jul-10
Requests to appear at hearing in connection with the Final Phase
9-Jul-10
9:30 a.m. Prehearing conference for those desiring to appear at hearing and make oral presentation
11-Jul-10
To file written testimony in connection with your presentation at the hearing [ USITC Rules § 207.24]
15-Jul-10
Hearing in connection with the Final Phase
22-Jul-10
To file post-hearing briefs [USITC Rules § 207.25]
22-Jul-10
For a non-party to file a written statement in support or opposition to the petition
6-Aug-10
USITC to provide parties all info. on which no opportunity to comment had been given
10-Aug-10
Final comments due - must not contain new factual info.

FYI - Message no. 0070303 is on the Customs ADD/CVD website.

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

2010 World Trade Week NYC

Join me and other OWIT-NY members this Tuesday for a networking cocktail hour to celebrate World Trade Week. You will connect with business owners and professionals, all active in the global arena.

Date: Tuesday May 18, 2010.
Time: 6:00 pm to 8:00 pm
Venue: Public House Restaurant, 140 East 41 Street b/w Lexington and Third Avenue, NYC

The mission of World Trade Week NYC is to underscore and promote the importance of international trade to the New York City metropolitan area economy. New Yorkers depend heavily on international commerce for their jobs, standard of living, and the myriad goods and services available to its diverse population. World Trade Week NYC is part of an annual nationwide celebration of international trade observed by business, and trade-related organizations across the United States during the third week of May. For more information on World Trade Week 2010 events, please click here.

The Awards Breakfast, scheduled for May 17th, recognizes outstanding companies that have grown through global expansion. OWIT-NY will be exhibiting at the breakfast for the first time, as this is the great market place to meet fellow international traders and learn the latest trends in our industry. I will be at the OWIT-NY booth and the Awards Breakfast. Here is the address:

Baruch College
55 Lexington Ave., 14th Floor
New York, New York

Hope to see you there!

Fashion Law 101

"Very interesting and informative. Especially her real life experience stories."

"She was great and I loved how she connected actively with all of us!"

"I liked best how well Deanna explained the terms and ideas of international trade law."

-- Feedback from various students

Last month I gave a lecture on International Trade Law with a focus on the apparel and textile industries at the Fashion Institute of Technology. In preparing for it I realized that an hour and a half was only going to be enough time to skim the surface of international trade topics as they related to apparel and textiles. In addition, since the course I was guest lecturing in is entitled “Global Marketing of Luxury Goods,” I wanted to tie in marketing issues as they related to the agencies for whose regulations US Customs enforces at the border.

Recognizing that these students would be working in areas involving sourcing, marketing, logistics, buying, and dozens of other areas, in my attempt to provide a broad overview, I started with what the main legal issues are for fashion and luxury imports and I did this by talking about those agencies which are heavily regulatory of apparel. Some examples include the Consumer Safety Product Safety Commission (CPSC) which requires, inter alia, certificates for certain imports of apparel for lead content, lead paint, and flammability issues. The Federal Trade Commission is another agency dealing with issues such as care label requirements (for washing/dry cleaning/ironing) and fiber content.

I further had a number of props that I passed around to students so that they could take a closer look at articles that dealt with the compliance issues I had raised. One frilly women's underwear that I passed around to demonstrate the FTC and CPSC issues, further provided an example regarding loose threads on a garment, as this panty had a lot of loose strings hanging from it. I wanted the students to know that some U.S. companies have inspectors in the foreign country from which the product is being exported. They inspect the merchandise to ensure that it is of a quality that the buyer approves of, and that some large buyers reject goods overseas leaving the importer to find a secondary buyer, such as a Marshall's or T.J. MAXX.

I also talked about US Customs issues (big surprise) such as proper country of origin determinations, the marking of products, and I led a discussion around how to classify articles and in particular a woman's bridesmaid dress.

Lastly, I wrapped up the lecture with a number of images that I took while in China in December. I wanted students to think about challenging assumptions, an example of this being an image I had of a sweatshop in Macau that took up a floor in a non-descript building. I figured it was important that the students recognize that other countries do not operate like the U.S., and when working with foreign companies, to recognize that our assumptions as to what something may look like, or how it might operate, is not necessarily that for which we have some familiarity with.

All in all, between my presentation and the contributions from the professor, Henry Welt, based on the student feedback I received after the presentation, the lecture was a success. Of course, I enjoyed giving the lecture immensely and look forward to an opportunity when I may do it again.

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