TEXTILES
TEXTILE SHIPMENT PROBLEMS CONTINUE
5/00
In 1997 U.S. Customs was mandated to
release the names of companies convicted or fined for transhipment
violations every six (6) months. Importers are reminded to check the
Customs web site for an uptodate list. However, Customs also has a
"watch" list of companies, those companies it suspects of
transhipment but has not yet fined. As a result, many importers are
finding themselves the recipients of requests from Customs for a laundry
list of documents from their suppliers. There are many instances where
the supplier provides all the documentation but the goods are still
barred from entry.
CITA CHANGES ITS TUNE
11/99
Effective September 1, 1999, CITA
instructed Customs to exclude goods from named textile manufacturers
because they were found to tranship textiles and/or textile products.
One criticism of CITA's action was it failure to provide any mechanism
for reconsideration of CITA's decision regarding an individual
company. CITA has since published a petition procedure to
challenge its decisions. Companies wanting to be removed from the
list should file petitions which enumerate their reasons. In
making the final decision, CITA will consider information from the
company as well as that received from Customs, including production
records and information from authorities in the country of exportation
regarding the exporter. Exporters making such requests may also
find themselves again visited by Customs.
CITA EMPOWERS CUSTOMS TO BAN
IMPORTATIONS
9/99
In a highly controversial move, on Sept.
2, 1999, Customs issued new regulations which ban certain foreign
suppliers from importing into the U.S. If CITA targets a company as a
transhipper, Customs now has the power to ban that company from
importing in accord with CITA's decision. CITA has labeled 77 Macao
suppliers for inclusion on this new list. The concern is what other
country's suppliers may be next?
It is not clear this new approach is in
accord with the WTO Agreement on Textiles and Clothing. As these
regulations were issued without opportunity for public comment or input
and because they do not provide a way for a company to challenge its
inclusion on the list of banned entities, a court challenge to these
regulations is expected in the near future.
VISA
QUANTITIES
5/99
In a recent announcement the
Committee on the Implementation of Textile Agreements amended its rules to
require that all visa quantities be reported in whole numbers. An exception has
now been carved out for Bangladesh, Egypt, Peru, and Trinidad and Tobago.
Visas from those countries may reflect fractions or decimals and still be
accepted to accomplish Customs clearance, although Customs will
continue to charge their quota restraints in whole numbers.
VISA
QUANTITIES
5/99
CITA has changed its mind and announced that visa
quantities from Turkey, Egypt and Bangladesh must now be in whole numbers.
Previously CITA advised fractions could appear on a visa but the quantity would
be counted in whole numbers.
SAMPLES VALUE INCREASED BY
CITA
7/98
In the Federal Register on July 9, 1998, CITA made
official that the value of properly marked samples is raised so that samples
valued up to $800.00 are now exempt from import quota/visa requirements.
TEXTILE IMPORTER
ALERT
5/98
Customs continues its focus on textile transhipments.
To lessen the problem of different ports requiring different documents to prove
origin, Customs recently issued TBT 97-049. An importer must be able to produce
the following documentation if requested in order to support an origin claim:
sufficient production records, understandable to the Customs officerevaluating
them; a time line of the processing steps substantiated from the records
produced; a factory evaluation or a listing of the machinery used in the
production of the imported shipment; documentation about the number of workers;
records which allow the tracing of the imported goods through the production
records, including a quantity reconciliation; any work done outside the factory
must also be documented.
In the face of a Customs' inquiry, an importer will
be able to succeed only if the factory cooperates.
TEXTILE/GARMENT IMPORTERS
GUIDELINES SET PRECEDENT FOR ALL IMPORTERS
For the last few years U.S. Customs has made
as one of the focuses of its activities the issue of textile transshipments,
i.e. goods which are manufactured in one country are shipped to another country,
relabeled, shipped to the U.S. and claimed to originate in the second country.
The matter first came to public attention about four years ago when massive
criminal raids were conducted in the New York garment district, with
substantially fewer companies raided in Los Angeles. Several criminal
indictments followed with minimal convictions. Many civil penalty cases are
thought to have resulted as well. However, their results are confidential. For
many engaged in importing, there have been questions about the full extent of
the transshipment problem. As the vast majority of importers are honest, the
trading community has been pushing for more detailed information from Customs
about the "bad apples" beyond just the occasional call from one’s factory
advising a Customs team had just visited or the usual industry rumor mill.
The result was Section 333 of the Uruguay
Round Agreements Act (Pub.L. 103-465, 108 Stat. 4809, signed on December 12,
1994), entitled Textile Transshipments. It amended Part V of Title IV of the
Tariff Act of 1930 which was enacted into law as 19 U.S.C. §592a. It authorizes
the Secretary of the Treasury to publish a list in the Federal Register twice a
year of companies outside the U.S. which have been issued penalty cases under
the provisions of 19 U.S.C. §1592 [making a material false statement or a
material omission as part of the entry process; extends to exports under NAFTA]
involving one or more of the following violations: 1) using or providing
documents which indicate a false country of origin or source; 2) using or
providing counterfeit visas, licenses, permits, bills of lading, or similar
documents used in the entry of goods; 3) manufacturing, producing, supplying or
selling goods which are falsely or fraudulently labeled as to their origin or
source; 4) aiding or abetting the transshipment of goods in a manner which
conceals their true origin or permits evasion of quotas or voluntary restraint
agreements regarding textiles.
For U.S. importers, a supplier company’s name
being published on this "black list" imposes a higher burden regarding
reasonable care. The requirement to act with reasonable care arises from the
Customs Modernization and Informed Compliance Act [the Mod Act] (Pub.L. 103-182,
107 Stat. 2186 (1993), Title VI). Simply relying on what these suppliers provide
by way of documents is specifically NOT reasonable care according to Customs.
For the period ending March 1995, no companies were listed. However, for the
period ending September 1995, nine companies were named with Customs seeking
information about another forty. The nine listed are located in either India or
China. The forty being sought have last known addresses in Australia, China,
Dominican Republic, Fiji, Hong Kong, India, Jamaica, Mongolia, Malaysia, Taiwan
or Togo.
In a September 28, 1995 Federal Register
notice, U.S. Customs listed some suggested steps importers should take to verify
the information provided by these suspect suppliers:
- is there a prior relationship between the
parties;
- are there prior detentions or seizures of
products directly or indirectly produced, supplied or transported by the named
supplier;
- has the importer visited the supplier’s
premises and ascertained a capacity to produce the goods;
- if applicable, has the importer
independently established that the supplier substantially transforms (i.e.
manufactures) his goods;
- is the supplier located in the same country
as the goods are sourced;
- are quotas about to close for the goods in
question or are they nearing closure from the main producer countries;
- what is the country’s history regarding the
goods;
- has the importer asked questions regarding
origin; and 9) if there is a visa, permit or license, has the importer
verified its validity and accuracy with the supplier and scrutinized the
document for irregularities which would call its authenticity into
question.
How many of these suggested steps are
practical is open to question. For example, a long history of conforming goods
does not give notice of a potentially problematic shipment. Likewise, should
every shipment from China involving a Hong Kong seller be suspect? Does quota
closing in one country really have any bearing on goods sourced from another?
What good does it do to visit the plant if the supplier conceals his activities
from the visiting importer? [Just ask the folks at China Diesel how much it
helped them - see China Diesel Imports Inc. v U.S., 18 C.I.T., Slip Op.
94-185 (December 7, 1994).] Does domestically buying goods which were actually
manufactured by a suspect supplier [but not knowing of his existence] put an
importer on notice of a potential problem if he subsequently buys goods directly
from that supplier?
If the supplier is providing counterfeit
documents, is he really going to divulge that to his innocent supplier? What
does it mean to "scrutinize" the visa? Is it enough to determine that the
details in it match those of the shipment?
The thornier issues this recommended list
raises are the consequences if the importer has not taken these steps. Should
the importer hold his goods from entry until he undertakes each step? Should his
broker decline to enter the goods until each step is undertaken? Should
application of these recommended steps differ depending on the size of the
company and/or whether or not the importer employs an agent in the country of
export? While Customs is to be commended for its attempt to provide the
importing community with reasonable care guidelines, those guidelines need to be
practical and commercially possible. Whether the current list proves to be
helpful remains to be seen.
Publication of this listing of nine
recommended steps could also be an indicator of steps Customs might recommend in
other contexts. As a result, how Customs approaches reasonable care regarding
textile imports should be monitored by all importers, especially since we still
await publication of the regulations implementing the Mod Act.
MORE TEXTILE PROBLEMS
8/96
As part of its continuing effort to insure accuracy of
import declarations, Customs has extended its audits of major importers to
include transshipment issues. As a result, 18 importers of textiles and wearing
apparel which are large in size and import from Macao and Hong Kong are rumored
to be selected for Customs audits. It is understood that Customs will include in
its audit questions about whether the importer has visited the factory. If so,
how often? What special training regarding textile rules of origin does the
importer provide to its employees? Another area of inquiry has to do with
agents. How are agent payments handled? What sort of background and factory
investigations are conducted? Is there a written agency agreement? Does it
include language prohibiting transshipment?
Can importing textiles or wearing apparel get any more
difficult?
NEW U.S. TEXTILE RULES OF ORIGIN TAKE
EFFECT
7/96
The new U.S. rules of origin for textile products and
wearing apparel took effect on July 1, 1996. No longer does the place of
manufacture or assembly confer origin. In addition, goods not previously
considered textile articles are effected, e.g. umbrellas, watch straps, car seat
belts, parachutes and doll clothing. The new rules are process driven and apply
to all textile articles and wearing apparel except those from Israel plus these
new rules REPLACE the NAFTA marking rules. The rules are divided into three
areas: 1) general rules, 2) special rules and 3) multi-country rules.
The general rules confer origin if the good is wholly
produced in the country where it is produced. With yarn, origin is conferred by
spinning or extrusion. For fabric, origin is conferred by formation. Another
process which confers origin is assembly. Minor subassemblies do not change
origin, e.g. collars, cuffs, plackets and pockets. Minor embellishments also do
not change origin, e.g. appliques, beads, spangles and buttons. Assembly occurs
only when at least two pieces of fabric are involved which existed prior to
assembly in essentially the same condition as is found in the final
article.
The special rules deal with knit to shape, major parts and
specially listed commodities. Knit to shape is defined as 50% or more of the
exterior surface area is formed by major parts which have been knitted or
crocheted directly to the shape used in the good. Major parts exclude collars,
cuffs, pockets, placards, paddings and linings. Where these minor parts cover
the exterior surface, the concealed surface will still be considered to
determine whether the 50% requirement has been met. There are 16 types of goods
specifically mentioned which are exempted from the rule of assembly confers
origin approach. These goods include diapers, handkerchiefs, scarves, quilts and
household furnishings. In this category, origin is conferred either by where the
yarn is spun or extruded or where the fabric is formed.
The most complicated rules apply in the multi-country
situation. Origin is determined by where the most important processing or
assembly operation took place. Customs will NOT consider time, cost, value added
or complexity in making its decision. If application of this rule still does not
provide an answer, the final rule of origin is determined by the country where
the last important processing occurred. Unfortunately Customs has yet to provide
any criteria by which to make such a determination.
If application of the fabric formed rule leaves an importer
in the position of not being able to get his visa from the country where the
fabric was formed, he might consider having his good made from fabric formed in
more than one country in order to trigger the multi-country rules. But what
happens with the Federal Trade Commission requirements regarding U.S. made
garments which remain unchanged? Customs is also trying to address the foreign
assembly implications under 9802.
|
