Stay of Enforcement Lifted on CPSC Flammability Standards

Following a unanimous vote by the U.S. Consumer Product Safety Commission (CPSC), the stay of enforcement on certification for compliance with the flammability standards for non-children's products has been lifted in the following categories:

• Clothing textiles
• Carpets and rugs
• Vinyl plastic film

This means in everyday language, that an importer who fails to certify that CPSC flammability standards have been met on imported merchandise will now be subject to penalties which can exceed well over $100,000 USD.

Starting yesterday (January 26, 2011), an importer will no longer be “forgiven” when it fails to certify that an importation is compliant with CPSCs flammability rules. The compliance certificate indicating this is known as a General Conformity Certificate or “GCC.”

CPSC concluded in 2009 that when certain fabrics have not been treated with the inclusion of substances that could result in the addition of lead into the fabric, lead content testing was no longer required where it was 100% of, or any blend of, the following textiles.

1. Natural fibers, whether dyed or undyed, including cotton, ramie, linen, silk, alpaca, among others; and,

2. Manufactured fibers, whether dyed or undyed, including polyester, spandex, nylon, acrylic and rayon, among others.

Keep in mind that a GCC is still mandatory even where the underlying textile is exempted from CPSC requirements.

While the underlying testing of these fabrics is no longer required, manufacturers and importers still remain responsible for

(a) Providing a GCC with each shipment,
(b) Verifying that the product or material has not been altered or modified so as to cause lead to enter the material or product, and
(c) Assuring for themselves that the fabric is indeed exempt.

GCCs and copies of the test results upon which certification is based must be kept for 3 years. It also must be provided in a timely manner upon request by CPSC, or an importer can find itself subject to a penalty under the premise of having made a false guaranty. As the certifier that merchandise is compliant with CPSC rules, an importer must:

1. Be in possession of the original, or a copy of, the test certificate upon which the GCC is based, and

2. Retain the test certificate together with the original GCC for a minimum of 3 years after the production date.

A GCC must accompany the product whether imported or manufactured in the United States and be furnished to the product's distributors and/or retailers as these companies must also supply GCCs for their products to CPSC upon request.

CPSC requires that the GCC “accompany” a shipment [73 FR 68328, 11/24/08], and it permits a number of methods for doing so, including electronic “accompaniment.”

While the GCC may be made available online, given the reality of facilitating the movement of cargo and U.S. Customs’ physical handling of it, the agency looks for certain records as being included with a shipment. Therefore, its physical inclusion within the shipment is recommended.

Needless to say, it is critical that CPSC flammability rules and regulations are complied with now that enforcement activity will commence and penalty amounts have so tremendously increased. More information about factors CPSC may consider in assessing a penalty can be found at 16 CFR Part 1119, published in 74 FR 45101.

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

OWIT-NY Wine Tasting Event This Thursday!

As Vice President to the OWIT-NY Board, I’d like to invite you to kick off 2011 with the New York Chapter of the Organization of Women in International Trade as we host a private wine tasting at the popular Morrell Wine, a premier wine and spirits store in Rockefeller plaza.

The evening will consist of a presentation and wine tasting of 6 wines (a mixture of red, white and dessert) from 6 different emerging wine-producing countries. During the tasting presentation there will be a selection of Murray’s cheeses and breads to complement the wines.

Join us to taste these international wines and cheeses and combine the satisfaction of working in international trade and the educational experience of understanding emerging wine markets.

Date: Thursday January 27, 2011
Time: Wine presentation 7:30 pm – 8:30 pm followed by networking and personalized wine shopping with Morrell's wine expert
Location: Morrell Wine Store
One Rockefeller Plaza (49th Street between 5th and 6th Avenues)
New York, NY
Cost: $50 for members and $55 for non-members

Space is limited, to ensure a seat please register online Click Here.

Unfortunately, I will not be able to make what is sure to be a really fun event, but I wanted to at least pass the message along in case you can!

Don't forget to follow us on Twitter.com/OWITNY for the latest news and events in international trade.

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

Welcome to a New Year of Customs Audits!

While just a few weeks into the new year, I can’t help but notice that US Customs is off to the races with its auditing programs, one of which I will write about here known as a “Focused Assessment.”

The Focused Assessment program is a systematic risk-based approach to auditing in which the auditing team evaluates a company’s Customs and Border Protection (CBP) related internal controls to determine the likelihood of non-compliance and assess “risk.”

As shown by the definition above, and probably presumed by most importers when it receives the phone call indicating that an audit will be occurring in the (near) future, when US Customs comes in to do one, it already suspects some wrong doing on the part of the importer.

This does not mean, however, that an importer was knowingly or intentionally engaged in “risky behavior,” which can take many possible forms, such as classifying merchandise with an erroneous tariff number, or failing to add into the dutiable value of a product an item supplied by the importer (to its manufacturer) for incorporation into the merchandise ultimately imported, which is commonly referred to as an “assist.”

An example of this would be a women's sleepwear importer supplying bows to its vendor for attachment to robes or night gowns that it imports. Under US Customs regulations pertaining to “valuation” (which in everyday language, is the methodology for determining the dutiable value of imported merchandise), both the cost of the article supplied by the importer AND the cost of the freight to ship it to the vendor must be added to the invoice value of the imported merchandise. This of course, can be a tricky thing to calculate but alas, it is not the subject of this blog post so I will continue with my discussion on focused assessments. (If you have a valuation question, feel free to email me).

There are three (3) distinct phases to a focused assessment.

1. Pre-Assessment Survey: An evaluation of a company’s internal controls over US Customs related operations
2. Assessment Compliance Testing: “Transaction testing” used to measure compliance and/or to determine a loss of revenue (i.e., an amount of duties that the government believes should have been paid on certain importations), and
3. Follow-up Review: Verification of a company’s corrected action

The primary areas US Customs focuses on during an assessment are valuation, classification, anti-dumping/countervailing duties, transshipment and intellectual property rights. Secondary areas for assessment include, foreign trade zone activity, special trade programs, such as NAFTA (North American Free Trade Agreement) and special duty provisions, which are those found in Chapter 98 of the HTSUS (Harmonized Tariff Schedule of the United States).

Key features of a focused assessment include:

a) The identification of imports that represent the greatest risk of trade noncompliance
b) The evaluation of the adequacy of a company’s internal control system, and
c) Methods for improving future compliance by identifying risk and reducing it.

But how does US Customs go about evaluating the adequacy of a company’s internal control system? It does so by looking at the following five (5) specific components of a company.

The first is what US Customs refers to in its focused assessment literature as a company’s “Control Environment,” as this apparently “sets the tone of an organization, influencing the control consciousness of its people.” I must admit, even though US Customs attempts to keep importers informed, language such as this “control environment” definition leave little to be understood.

What it is really getting at however, is the question of “What procedures are in place to maintain checks and balances within a company across company activities?” And, given that US Customs is making this inquiry, this question is focused on a company’s import activities.

The second is “Risk Assessment,” that is, Customs recognizes that multiple external and internal risks are faced by each company, and that these risks must be identified and analyzed. It therefore wants to see that a company has made this identification of potential risks across company activities.

The third is known as, “Control Activities,” which are the policies and procedures in place to ensure that management directives are implemented.

The fourth area US Customs is looking at is categorized as “Information and Communication” wherein the identification and summation of information that supports all other control components is communicated throughout a company’s personnel and those entities it works with (that have reason to be communicated to, with respect to “controls.”)

The fifth and final area, is that of “Monitoring,” which evaluates a company’s internal systems.

An evaluation of these five components occurs in the pre-Assessment Survey portion of the focused assessment. Depending on the results of this survey, determines where US Customs goes next with its auditing actions.

In my experience, these audits are time consuming, disruptive to regular business, and may leave an importer in a sleep deprived state. All the more reason to stay both informed and on top of US Customs compliance guidelines.

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

Footwear is Fun!

Having made a classification determination regarding the extent of textile fiber on the sole of a client’s shoe recently, I found myself trying on the example the company had sent me. As I admired this shoe on my small foot, I remembered why this case was particularly interesting.

I was exploring the proper classification of footwear which had a sole made out of a rubber and plastic combination. In making this determination, regard is to be given to the material of both the upper sole and the “outer sole,” which, in case it isn’t already obvious, means that part of the footwear (other than an attached heel) which, when in use, is in contact with the ground. [General EN (C) to Ch. 64, HTSUS]

The “outermost sole” of the shoe is the part directly exposed to abrasion and wear. It can consist of any of a variety of materials, inc. leather, rubber, plastic, cork, rope, crepe, wood, etc., have differences in thickness or degrees of flexibility, and have an infinite variety of surface designs. After reading this definition, I took a look at the winter boots I had worn to work and it turned out there was a felt covering on the bottom of the shoe. What a surprise!

Why cover an outermost sole with a textile anyway? Duty savings of course!

A favorable duty rate may be obtained where footwear has an outer sole of textile. In this example of a shoe with a rubber and plastic sole, upon importation it would be dutiable at a rate of 37.5% under HTSUS 6404.19.35. That is, for every $100 worth of shoes imported, $37.50 in taxes, i.e., duties must be paid to US Customs.

Contrast that to a shoe which, upon importation, has a textile material covering the outer sole. This would be dutiable at a rate of 12.5% under HTSUS 6405.20.90, and hence, only $12.50 would need to be paid in duties for every $100 worth of shoes imported. This rule also applies irrespective of the duration for which the textile material will continue to be in contact with the ground.

What matters to US Customs is that the product is introduced into the “stream of commerce” as “entered” (which in everyday language, means brought into the U.S. for consumption, i.e., sale, purchase, use, as opposed to temporarily coming in for say, a trade show), and is a commercial reality in its condition as entered. That is, it is not “entered” as one article in an effort to evade a higher duty rate, only to be modified into something else that will be “consumed.”

For some funny examples, check out Customs ruling HQ 965751 (11/18/02), which is where you will also find some greater detail into the definitions I’ve provided above.

In addition, US Customs is looking at which constituent covers the majority of the outer sole. In Customs ruling HQ 089600 (9/11/91), citing HQ 084713 (8/3/89), US Customs found that the outer sole which had the greatest external surface area in contact with the ground is what should predominate as the outer sole. In the ruling it dealt with plastic "dots" scattered across the sole, which nonetheless comprised the predominant material of the outer sole for tariff purposes due to their ubiquity. The shoe was therefore considered to have a sole made up of a rubber and plastic combination.

I enjoy analyzing footwear. Footwear is fun!

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

"Avoiding Cultural Missteps"

Please join me this afternoon for a presentation on how to avoid "cultural missteps" presented by the California State Bar Association.

This program will address avoiding cultural missteps when working with clients and lawyers in the Middle East, Asia, including China and India, and Europe. The speakers will address their experiences and describe how cross-cultural differences affect the practice of law and business relationships. Drawing on their experiences in international trade, in a Fortune 500 company, and with Sharia law, the speakers will illustrate some of the cultural differences practitioners may come across when working with international clients, partners, and opposing counsel. From this, participants will learn to recognize some potential cultural pitfalls.

Panelists include:

Deanna Clark
Leel Peesapati
Todd Gallinger

For more information and to register, please click here.

Customs Entry and Filing Procedures

Every importer knows that a lack of good entry procedures can lead to delayed, detained, or even seized shipments. Inadvertent classification declarations that lead to additional duty liability are common as well.

Action taken by Customs when this occurs may result in, for example, the issuance of a Notice of Action (Customs Form 29) whereby it applies what it believes is the correct HTSUS number and notifies the importer of the additional duties that must be paid.

The late payment of duties is another common occurrence, so much so that Customs has what I like to call a “parking ticket” approach to addressing the oversight of late payment. This is typically done through an assessment of liquidated damages whereby Customs demands a seemingly large amount of money, or alternatively, allows you to pay a much smaller amount, say $250, provided that it is paid within 60 days of the date of Customs’ notice to the importer. This is known in Customs-ease as the “Option 1” mitigation alternative to payment of the larger liquidated damage amount. This payment may be made through the customs broker or importer.

To give you an overview of Entry Filing, think about it as a two step process. (19 CFR Part 141).

Step 1: Filing an entry that seeks the Immediate Delivery/Release of the shipment (CF 3461), which is done with the shipment Waybill, commercial invoice (or a pro forma invoice when the commercial invoice cannot be produced), packing lists, and such other documentation as is necessary to determine merchandise admissibility.

Keep in mind that while required to produce certain documentation to the Customs Broker, and to Customs on request, most information is transmitted to Customs electronically through the Automated Broker Interface (ABI).

This must be done within 15 calendar days after the arrival of the importing carrier, but will usually be done earlier on vessel shipments (5 days before arrival) and on air shipments, “wheels up” from the foreign airport.

Step 2: Filing a ‘Follow Up’ Entry Summary (CF 7501) that provides greater detail about the shipment along with the duties preliminarily determined to be due (estimated duties.).

This must be filed within 10 working days after the time of entry/release of the goods for delivery under the CF 3461.

For more information on how to fill out the Entry Summary, click here for instructions published by Customs earlier this month.

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

Protecting Intellectual Property: US Customs and Gray Market Goods

Preventing the importation of merchandise that infringes on the intellectual property rights of a United States trademark or copyright owner is one of US Customs’ mandates that it takes very seriously.

Determining who is authorized to import products that have on it the design, labeling, words, or other “work” that belongs to a non-importing party can be tricky. This is because, under most licensing agreements, a party (known as the “licensee”) is only given a limited right to use the “work” of another (known as the “licensor”) on its merchandise. Limitations may include use within a limited timeframe, or on certain types of products only.

Another limitation arises from distribution rights. These provide for the sale and/or distribution of a product within a certain geographical area.

Making a determination as to who has the authority to import articles upon which a protected “work” has been used can therefore become all the more complex when you add to these facts the following additional circumstances:

The lawful production of an article in one location which is then subsequently
(a) sold, and
(b) exported to another location outside of the limited licensed-for zone.

To give you an example in everyday language, this means that if I have permission to sell a good that has party “AA’s” logo on it in the European Union (EU) only, then in theory, I am precluded from selling it in another territory.

Okay, easy enough. But what if that product is lawfully sold within the EU and then that buying party decides to sell it for export to the United States?

Now we’re entering the “gray market” zone… (“doo-do-do-dooo, doo-do-do-dooo…” anyone out there remember the “Twilight Zone”© theme song?)

While preventing the importation of an outright counterfeit article (see the definition below) is a relatively easy concept to grasp, a lesser known concept, known as “gray market goods,” are another type of import that US Customs is on the look out for to intercept and prevent its importation.

A counterfeit trademark is a spurious mark that is identical with, or substantially indistinguishable from, a federally registered trademark. Merchandise imported into the United States bearing marks that are “counterfeit” of a federally registered trademark recorded with CBP shall be seized pursuant to section 526(e) of the Tariff Act of 1930 (19 U.S.C. §1526(e)), as implemented by 19 CFR § 133.21.

An easy way to think about the definition of a “gray market good” is to think of it as a “parallel good,” that is, it is

1) A genuine product (i.e., not a fake or counterfeit)
2) Lawfully made (typically overseas)
3) With the permission of the owner of the “work”
4) Which bears a copyright, trademark, or trade name, and
5) Is imported into the United States
6) Without the authorization of the United States trademark or copyright owner.

US Customs will protect gray market goods of only those copyrights, trademarks, and trade names that are recorded with its agency. This protective status commences from the time of recordation with US Customs of the “work.”

Where US Customs has conferred gray market protection, imported merchandise bearing the protected “work” will be detained and is subject to potential seizure, forfeiture, and of course, penalties, so you want to be sure to have all of your paper work in order to prove that you have been given permission to import products of this kind into the U.S. so that your shipments do not get held up at the border.

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