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CUSTOMS AND INTERNATIONAL TRADE
MISCELLANEOUS
MORE POTENTIAL LIABLITY?
09/07
There is another Justice investigation worthy of note, this one involves Panalpina and claims it facilitated
improper payments. The focus is alleged possible violations of the Foreign Corrupt Practices Act arising
out of supposed bribes being paid to foreign customs officials in Nigeria, Saudi Arabia and Kazakhstan.
This case presents a wake-up call for American freight intermediaries because it raises the question of
under what circumstances could American executives end up in jail for actions taken in other countries?
Customs Update: We told you so
(Published in the Journal of Commerce Online May 4, 2007)
 to view article.
A major concern the trade has had since the Department of Homeland Security was stood up in 2002, is
what would the reorganization do to trade enforcement/compliance? It is, of course, expected and
understandable that the main focus of DHS is national security and that is a uniquely government
function, but there are too many anecdotes about trade enforcement opportunities which have been missed.
The trade has been confronted with the 24-hour rule, advance manifest requirements, 10+2, TSA mandates and many other dramatic changes. At the same time, there have been a plethora of stories
about American companies suffering at the hands of unfair competition through misclassification, undervaluation and the like, the specifics of which have been unattended by Customs and Border
Protection because the agency has simply been overwhelmed with sometimes conflicting priorities and does not have the staffing it needs to properly discharge all its responsibilities equally.
Now comes the Government Accountability Office to tell us, what we thought was going on is, in fact,
real. In a report entitled Customs and Border Protection Needs to Improve Workforce Planning and Accountability, GAO begins by stating:
"Staff resources contributing to customs revenue functions have generally declined since the creation of
DHS due, in part, to department priorities and recruiting and retention problems."
The office quickly admits the staffing levels are now going back up, but anyone who has tried to reach an
import specialist, or learn the status of a drawback claim, petition or protest knows, it just keep taking
longer to get decisions. It is also still the norm that in order to reach a commodity team, the caller will
more likely than not get voice mail and have to hope for a return call in the near future. It is also typical for
those of us on the West Coast to have Customs personnel on the East Coast return our call by leaving a
message early in the morning, long before our normal business hours, and then play phone tag for another day or two!
When DHS was created, Section 412(b) of the Homeland Security Act mandated that Customs was to
maintain certain minimum staffing levels for nine specific revenue function positions: Import Specialists,
Entry Specialists, Drawback Specialists, National Import Specialists, Fines, Penalties, and Forfeitures
(FP&P) Specialists, Office of Regulations and Rulings (OR&R) attorneys, Customs Auditors, International
Trade Specialists and Financial Systems Specialists. The act also mandated minimum levels of support
staff, including management, technical and administrative support functions, such as Liquidators, Seized
Property Custodians, Customs Technicians, Assistant Port Directors, Account Managers (is there anybody who has had just one?) and Economists.
When GAO looked at the staffing levels for its report, it found the numbers were relatively consistent until
April, 2005, when they started to seriously decline. In the last year, Customs has made a concerted
effort, and those numbers are now increasing, but many of these individuals are new to their positions and so must get beyond the initial learning curve.
Despite the increases, the report states a number of openings remain for OR&R attorneys, Customs
Auditors and International Trade Specialists. Additional hurdles come from the fact that the time Customs
Officers, ICE Investigators and OIG Auditors contribute to customs revenue functions has been drastically
reduced due to work volumes. All of us who deal with ICE know from experience, the agency is overrun
with immigration responsibilities. The report indicates the amount of time spent by ICE agents on trade
cases has dropped from an average of 7 percent to an average of 3 percent! No wonder ISET units are becoming de rigueur throughout the country!
The GAO goes on to say that Customs lacks a strategic workforce plan but has taken some steps
recently to improve its "human capital management amid external and internal challenges." It chastises
Customs for still not having performed an assessment to determine the "critical workforce skills and
competencies" needed to meet current and future revenue functions. The report specifically mentions the
intention of Customs to alter the role of Import Specialists, so Customs is developing "congressionally
mandated resource allocation models" to figure out ideal staffing levels, but has not undertaken similar allocation modeling for other positions.
The GAO points out Customs' responsibilities are also changing. Specifically mentioned are the plethora
of free trade agreements to which the United States has become a party, and which, by definition, take a
good deal of the time of the attorneys at OR&R. Time spent negotiating and later enforcing trade deals
means these attorneys are not available to perform other functions, such as issuing binding rulings.
Another change in focus involves the Fines, Penalties & Forfeitures offices. FP&F has always needed
more staff and had more cases than it could handle. Now, in addition to dealing with trade-related
seizures, penalties, liquidated damages and similar enforcement actions, this already overburdened staff is being required to handle immigration and agriculture enforcement.
The GAO report concludes with these recommendations:
1. That Customs develop a strategic workforce plan and work with the White House Office of Management
and Budget to establish and report on performance measures related to customs revenue functions in its Performance and Accountability Reports;
2. The DHS Inspector General should identify areas of high risk related to customs revenue function.
Frankly, there is likely unanimous agreement in the trade -- we dont need someone in Homeland Security
to tell Customs its high-risk areas. What we need everyone (meaning Congress) to understand is you
can't keep asking Customs to do more and then not give it the tools with which to do the job. Of course,
when GAO refers to high risk, it means does the agency have the proper policies and procedures in place
to accomplish its mandated goals, but for those of us in the trade, we prefer the agency be given the
necessary tools to allow it to focus on trade enforcement and facilitation and to do that, Customs needs more resources -- money, equipment and staff.
If Congress really wants to have Customs run more efficiently and, therefore, catch more bad guys, there
are several obvious things which are needed. First, the portion of the Homeland Security budget devoted
to Customs needs to be substantially increased. Similarly, the portion of the DHS budget devoted to ICE
also needs to be increased by a large amount. Then, more money is needed by both parts of DHS for training and equipment.
We also have to recognize that when Congress enacts legislation requiring that Customs take specific
action, such as electronic truck manifest filing, the expectations and time lines must be realistic and the
methods selected must have some rational relationship to the ultimate goal. Right now, Customs feels
compelled to ramrod e-manifest through to full implementation because the failure to do so could lead to
enactment of the hair-brained idea of 100-percent examination, when in fact, the better approach to
e-manifest would be to work out the kinks with the existing users before finding the system flooded with
transactions from all the land-border shipments. There are only so many times someone from Customs can say, well, it has to work, before all credibility is lost.
Let's be honest. Customs is caught between a rock and a hard place. On the one hand, it is the frontline
agency when it comes to interdicting the bad guys and illegal "stuff". On the other, its management feels
compelled to do more and more in that area. It is understandable that no one wants to be the person who
let the terrorist or the terrorist device slip through, but at the same time, GAO admits that it did not assess the effectiveness of Customs' performance of its revenue functions.
For those of us who deal with Customs on a daily basis, we find the vast majority of its staff is trying to do
their jobs in less than ideal circumstances, but still seeking to work with the trade. The question is, can
the same be said for Congress? And, is Customs getting the support and direction it needs from the Department of Homeland Security?
Per DHS
07/07
“Beginning January 23, 2007, ALL persons, including U.S. citizens, traveling by air between the United States and Canada, Mexico, Central and South America, the Caribbean, and Bermuda will be required to
present a valid passport to enter (or re-enter) the United States.”
For more details check the DHS website at:
http://www.dhs.gov/xtrvlsec/crossingborders/whtibasics.shtm
http://www.dhs.gov/xtrvlsec/crossingborders/
PANALPINA IN HOT WATER?
07/07
Panalpina is reported to have made public the fact it is cooperating with the U.S. Dept. of Justice in a
recent document request. Justice is reported to be probing bribery of foreign government officials,
specifically in Nigeria, Saudi Arabia and Kazakhstan. Apparently as the result of a plea agreement by the
customer, Justice is now asking Panalpina for documents related to a limited number of other customers and shipments.
OSG FINED $10 MILLION
06/07
Another staggering fine has been imposed, this time on Overseas Shipholding Group which was just
sentenced in Texas to pay $10 million to several groups as part of a $37 million criminal settlement with
the federal government. The case arose from what was characterized as “deliberate” vessel pollution
occurring from violations of the Clean Water Act and Act to Prevent Pollution from Ships, plus conspiracy,
false statements and obstruction of justice. Included in the fine is $7 million to be paid immediately for
making false statements to the Coast Guard, plus another $3 million to be put in escrow for additional charges.
ATTITUDE TEST FLUNKED
06/07
One of the first rules in appearing before a judge is - do not flunk the attitude test. The importer in Resource Club v U.S. clearly did. In that case, Resource’s garments were denied entry due to a phony
visa. The importer petitioned for relief. Customs agreed to release the goods so long as they were
exported back to Cambodia. The storage charges were so high the importer declined, but filed a protest for refund of the duties paid.
The CIT judge rejected the claim that 1563(b) (which deals with abandoned goods) requires the refund be issued as the goods were not in a bonded warehouse.
NEW EXPORT COALITION
04/07
The Coalition for Security and Competitiveness announced its presence on March 6, 2007 by forwarding to
the President its proposals for revamping U.S. export licensing policies. In separate papers, the Coalition
made recommendations about goods subject to munitions controls and those which are dual use.
The Coalition is a consortium of eight (8) prominent trade associations and in its own words “seeks to
modernize the export control system so that America is prepared to meet the security and economic
challenges of the 21st century.” Given the complications the current ITAR controls are causing in Canada
alone, there can be no doubt about the urgent need for reform. For more details visit:
http://www.securityandcompetitiveness.org/
NEW DISCOVERY RULES
04/07
A new set of federal rules took effect in December 2006 dealing with the discovery of electronic
information during litigation. Are you sure your current record retention policies and procedures will keep
you out of trouble if you are a party to a lawsuit? What about if you are a witness? When was the last
time you updated your procedures? Do you have the native forms of your documents? What about the metadata or pdf versions? What do you destroy and when?
Have you spoken with your lawyer about how these changes impact your company? This is another one of those areas where a spot of homework now saves a lot of headaches later.
USDA NEWS
03/07
For the fruit and vegetable industry, USDA has announced the rollout of the Perishable Agricultural Commodities Act Customer Service Line. The telephone number is 800-495-PACA. The service is
designed to provide an easy resource for questions about contract disputes and licensing issues.
F&W UPDATE
03/07
There have been significant changes made to Fish & Wildlife’s Form 3-177 and e-Decs. The new form can be found at http://www.fws.gov/le/ImpExp/faqs.htm Its use becomes mandatory on April 1, 2007,
unless being filed through e-Decs, then the implementation date is March 5, 2007.
CBP CHANGING FDA BOND OBLIGATIONS
03/07
Effective May 1, 2007, CBP proposes to change the conditional release period for food, drugs and cosmetics so that it ends when FDA issues a notice of refusal of admission, when a may proceed notice
is issued or 30 days following the date of release. FDA could extend the time by issuing a notice of sampling.
Of particular interest is CBP’s comment that conditional release does not end with liquidation. Is this
intended as a change in policy or is this CBP’s way of saying we won’t wait for liquidation to close out these cases? Stay tuned!
2007 HARMONIZED TARIFF
02/07
Now that the 2007 tariff has finally been released to include the WCO changes, it is a race to the
deadline. CBP has made clear that 2006 tariff provisions may only be used until February 3, 2007.
Thereafter, the new 2007 tariff provisions must be cited and any entries relying on old tariff numbers will be
rejected. As the number of changes in the new tariff is considerable, CBP stated that rejects may be
given additional time before being considered late filed, but it may be best to not test that theory,
especially since a written explanation is needed justifying the longer refilling time. It seems likely that
prudent parties may choose to file their 7501s early, in order to avoid untimely filing problems and the enforcement consequences which usually follow.
Customs is allowing a 17 day grace period. This does not mean the 2006 tariff numbers may be used after
February 3. If you file an entry after that date with an old tariff number in it, it will be rejected, but it may not end up the subject of a claim by CBP that the goods were misclassified.
Traders are also reminded that none of the free trade agreement rules of origin will be updated prior to the
deadline, so be careful. The expectation is that all previously qualified goods remain eligible under their
FTA, but importers and exporters need to make sure. Bear in mind, after February 20th, you better have your classifications right. No more excuses!
CBP ATTEMPTS TO EDUCATE TRAVELERS
01/07
Travelers arriving in the United States are undergoing greater inspections as Customs and Border Protection ramps up its efforts to educate travelers and keep out prohibited agricultural products and the
pests they carry. One such blitz took place in Tecate, CA last month. Almost 600 vehicles and over 800
pedestrians were inspected during an unannounced operation over a five (5) day period. Seven (7%)
percent of the vehicles and five (5%) of the travelers carried prohibited plant and animal products.
Customs Update: Ford vs. Customs
[Published in the Journal of Commerce Online Sep 13, 2006]
for a printable version of this article
In May ("Record what?", May 4) we wrote about a case brought by U.S. Customs seeking to recover nearly $42 million from Ford Motor Co.
Traders will remain vitally interested in the outcome of this case because if Customs prevails, it will turn
NAFTA on its head and put a whole raft of previously unknown responsibilities on traders under this and every other trade preference program.
The case originated in an investigation initiated by El Paso (Texas) Customs in January, 2001. Readers
may recall, as part of that investigation, Customs issued a demand that Ford provide its underlying NAFTA Certificates of Origin. Ford complied.
Customs then sought records maintained by Ford's Mexican supplier. In so doing, Customs issued a
summons to Ford, instead of initiating a verification of the supplier as provided in NAFTA. Admittedly, Ford
did not provide all the demanded records, only those the supplier volunteered, but rather than seek to
enforce the summons by contempt proceedings, Customs opted instead to initiate a $41,931,997
record-keeping penalty against Ford. Not surprisingly, the automaker challenged Customs' choices and methods. When the parties could not resolve their differences, two lawsuits followed.
Acting first, Ford in October, 2005 filed in Detroit federal court seeking declaratory relief. Three months
later, Customs filed in the federal court in El Paso, seeking recovery of the full penalty. As noted in the
May column, Customs then sought to dismiss Ford's lawsuit claiming, in summary, that NAFTA was an agreement between three countries and so only the federal government could rely on it.
In its complaint, Ford argued that Customs acted in an arbitrary and capricious manner and contrary to
law. Ford asserted it was not required to maintain the supplier's records. Ford also argued the (a)(1)(A) list
(the records importers are required to maintain) conflicts with 19 C.F.R. 181.22 and that Customs failed to
notify importers they were required to maintain and produce records relating to the country of origin and
tariff classification of parts of NAFTA goods (not the goods being imported, but the parts and components
the suppliers use to make those imported goods). Further, Ford argued Customs may not apply
record-keeping penalties to goods entered before 2000 as it was only then that Customs finalized those
penalties. Ford also urged that Customs not be allowed to assess a 1509 (record-keeping) penalty
against an importer for failing to comply with a summons for records, that Customs failed to comply with
the Administrative Procedures Act in promulgating the record-keeping regulations, and, finally, that
Customs' failure to be sufficiently specific about the records importers are expected to maintain violates basic principals of due process.
In January, 2006 Customs filed its own case seeking to collect the penalty. Customs then sought
dismissal of Ford's suit, or its transfer to the El Paso court where its own case was filed. The May column
mentioned the Motion to Dismiss had been filed and a decision was pending. On August 23, the judge issued her decision.
While Customs' motion was granted, it was not for the NAFTA reasons asserted. First, the court held it
did have subject matter jurisdiction, meaning it had the power to hear the case, despite the government's
claims about NAFTA, because Ford was challenging the implementing regulations, not the agreement itself.
Several additional procedural and substantive objections were raised by Customs, but the one which
seemed to have the most sway with the court claimed Ford filed suit first in order to be before the most
favorable forum and so the race to the courthouse should not be favored in this instance (although the first to file usually succeeds in fending off later filings in other jurisdictions).
At the same time, the court found Customs filed suit in El Paso because that is where the matter arose,
where its employees and attorneys are located and where the summons was issued. Put another way,
the court found Customs did not arbitrarily pick a geographic location which was inconvenient for Ford, but
rather El Paso was a natural one given the surrounding facts. The court also seemed impressed by the fact Ford filed suit in anticipation of Customs' filing its own case.
Additionally, the court held the issues raised by Ford in the Michigan lawsuit could just as easily be
interposed as defenses in the Texas case. So, in the end, Customs won simply because it was the
natural plaintiff (the party most likely to bring suit) and because it picked a reasonable forum. It is
important to keep in mind that Customs has only won Round One -- where the lawsuit will be heard. It is a long way from succeeding on the merits of the case.
For traders, the implications of the case are profound. Can you imagine now having to receive your
suppliers' proprietary information about sourcing, input costs, labor and overhead costs and the like before
making entry just to be sure you qualify? If that becomes the standard for American traders, we will quickly be out of the free trade agreement business for good!
$10 MILLION SETTLEMENT
11/06
In a recent press release, San Diego Customs announced it had settled with Pioneer Speakers for $10 million! Pioneer was accused of claiming NAFTA on imported speakers which were made with ineligible
parts. The original case involved a claim for $21+ million for the purportedly false NAFTA claims and another $15+ million for claimed record keeping violations.
When Pioneer’s $10 million is added to the $40+ million sought from Ford, also involving record keeping
issues associated with NAFTA claims, no importer should question Customs’ intention to seriously pursue perceived record keeping and other irregularities.
2007 TARIFF CHANGES STILL PENDING
11/06
The new tariff is supposed to come into effect on January 1, 2007. However, the ITC is still working on changes at the 9th and 10th digit levels. Once the ITC is done, Congressional approval is the next step,
followed by publication in the Federal Register. As such, smart money suggests the new tariff is not likely going to be ready for implementation until mid to late January.
These tariff changes are supposed to be duty neutral but traders will need to carefully monitor these
extensive changes to make sure they do not end up paying more duty under the new tariff. Traders should
also be vigilant with their analysis and record keeping, not just because of Pioneer’s recent experience
and what Ford is still addressing. The changes to the tariff are being published without updating the tariff
shift rules for the various free trade agreements. As such, traders will need to be particularly careful that
their tariff shift qualifications remain as valid as they did under the old tariff. The latest version of the tariff is available at:
http://www.usitc.gov/tata/hts/other/rel_doc/fr/index.htm
PROTEST IS NEEDED FIRST
11/06
The appellate court has again reinforced the statutory requirement that an importer must first file a protest in order to get into court. Int’l Customs Products claimed that by reclassifying its white sauce, Customs
had failed to follow the proper procedure in revoking its ruling and would also likely drive it into bankruptcy
because of the severe financial consequences of that duty change. The CIT agreed but was overturned by
the appellate court which said, you must file your protest and have it denied before you ask the court for relief.
EU IMPOSES MORE RESTRICTIONS ON TRADERS
09/06
The EU has legislation which comes into effect on January 1, 2007 that requires all of the bloc’s importers and exporters to have special security certificates for easier access across borders. Companies that fail
to comply could face serious delays which, of course, leads to additional and likely substantial costs.
The security amendments were published by the European Commission in May 2005. More details can be found at http://ec.europa.eu/taxation_customs/customs/policy_issues/customs_security/index_en.htm. Have
your buyers qualified? If not, what will their failure to promptly act do to your business and the quality of your goods?
APHIS CHANGES EXEMPTION FOR CANADIAN FRUITS AND VEGETABLES
09/06
In the past, agriculture products grown in Canada were exempt from inspections and user fees. In the August 25, 2006 Federal Register, APHIS proposes that all agricultural products imported from Canada
are subject to inspection, while commercial conveyances become subject to user fees.
APHIS claims to be taking this action on the grounds that it is not recovering its operating costs at the
U.S./Canada border, but also because, it is asserted, of the existence of increasing interceptions of
prohibited material originating elsewhere but shipped across the U.S. northern border and presenting a
high risk of introducing plant pests or animal diseases into the U.S. Put another way, APHIS is imposing
these user fees as a means to expand its activities at the border. For more details, see http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/E6-14128.htm
FORD WINS – SORT OF
08/06
In a civil record keeping penalty case being closely watched for its precedential value, Ford won, in a
manner of speaking. While the case was ordered dismissed in Michigan, Customs was also reminded
the Michigan court did have jurisdiction, but the matter could just as easily be heard where Customs filed it – in El Paso.
CF 4811 USAGE
08/06
Customs has issued a reminder to the trade about the filing of 4811s, the notification which directs the
receiving of notices of liquidation, bills and refunds. In it, Customs stated a 4811 may not be submitted
with a PEA or SIL, so if the refund is to be directed to an agent rather than the importer, the only option is
a protest. If this is the route you are taking, make sure block 11 in section IV of the C.F. 19 is completed.
Customs reiterated that a direction in that block overrides an existing 4811 designation. For more details, see Customs August 25, 2006 notice.
Customs Update: Record what?
(Published in the JOC Online May 4, 2006)
for a printable version of this article
Added to the law as part of the Mod Act in 1994, importers are under an obligation to keep defined records and the failure to maintain those records can lead to penalties, and, boy, are those penalties
starting to fly!
One in particular caught everyone's attention when it became public that importer Ford Motor Co. had
failed to support its North American Free Trade Agreement claims. As a result, it was hit with a $25
million penalty for making false NAFTA claims and another $16 million for record-keeping violations.
Shortly, thereafter, Ford's name was again associated with a messy situation, this time involving record
keeping. As Ford is in litigation on these issues, we can look at the public record to see just how convoluted a situation this has become.
In October 2005, Ford filed suit in federal court in Michigan seeking declaratory relief. Specifically, Ford
claims that Customs is operating in an arbitrary and capricious manner (the legal standard required) by
insisting that American importers who claim NAFTA must provide the records of their foreign suppliers and the failure to do so allows the imposition of serious record keeping penalties.
The history of the situation is common for importers of NAFTA-eligible goods from Mexico. Ford was
required to produce its NAFTA Certificates of Origin to support its claims. Then it was required to produce
records maintained by its Mexican supplier. In this instance, Customs served a summons on Ford for
records related to country of origin and classification of component parts and materials. Ford quite
understandably took the position that it was not obligated to keep those records in the ordinary course of
business or by the NAFTA agreement or Customs' own regulations, and so Customs was out of line in
making its demands. Customs then imposed a huge penalty on Ford for failing to produce those records.
The law is clear. If Customs wants records from the exporter/producer, it must follow the procedures
contained in NAFTA and initiate a verification. It did this for entries filed in 1996 from this supplier and
profusely praised the supplier's record-keeping and understanding of NAFTA's requirements when it issued its audit findings.
In 2001, Customs served a summons on Ford to produce records for about 500 NAFTA entries filed in
1996. The goods in question came from the same supplier and were imported during the same period as
the records previously reviewed and approved. In a gesture of good faith, Ford claimed to have provided
certain limited records which related to approximately 45 percent of the entered value of products imported from that supplier covered by NAFTA claims.
What is remarkable about Customs' position is its arrogance. If Customs believes a response to a
summons is incomplete, its remedy is to get a court to order production of the records. Instead, Customs
walloped Ford yet again (we all recall the recent court decisions imposing millions of dollars in fines on
Ford for a variety of violations unrelated to this particular scenario). The original negligence penalty was for
$41,931,997! It was later mitigated to $21,642,481! Given that the record-keeping penalty for negligence is $10,000 per entry, an enormous number of entries had to be involved.
Ford's lawsuit also asks the Court to invalidate any attempt by Customs to stretch the definition of
(a)(1)(A) records beyond the NAFTA Certificate of Origin, plus that Customs not be allowed to circumvent
the statute of limitations governing 19 U.S.C. § 1592 by bootstrapping to a claimed record-keeping
violation which itself seeks records after liquidation and more than five years after entry, i.e., outside the applicable statute of limitations.
At about the same time as Ford filed its lawsuit in Michigan, the federal government filed its own lawsuit
seeking to collect the full $41,931,997. As a result, Customs' response to Ford's lawsuit was to seek
dismissal or a transfer to Texas where its own lawsuit was filed. The basis for the government's defenses
was that the U.S. domestic courts do not have jurisdiction to enforce NAFTA except through suits brought
by the government. In other words, there is no basis for Ford to argue from the NAFTA agreement, only
Mexico and Canada can challenge the government's actions. While a neat trick, it avoided the real basis of Ford's suit -- that Customs was engaging in creative regulation making.
The parties then duked it out in their pleadings trying to convince the judge which case should be allowed
to proceed. Only at the Reply stage, does it come out that El Paso Customs notified Ford in January
2000 that it was under investigation for violations unrelated to a prior disclosure which had been filed by
Ford. Customs claimed the summons in question was an outgrowth of that investigation.
Stay tuned. The hearing on the government's motion to dismiss was originally scheduled for April 13.
Given that Customs sees record-keeping violations as the means to enforce summons, it is safe to
assume there are several more of these cases out there. Yet again, we find Customs has forgotten its role
in informed compliance -- the deal made with the trade as part of the Mod Act is Customs informs and the
trade complies. How is the trade supposed to comply if it is not told of Customs' expectations, (never mind that they are unrealistic and beyond the scope of NAFTA?
MORE CITATIONS POSSIBLE
06/06
Handing Customs yet another tool it can use against errant brokers, the Court of International Trade has
just issued a decision in a case against UPS. In that case, Customs issued several relatively small
penalties against the company which cumulatively exceeded the $30,000 maximum mentioned in the regulations.
UPS argued $30,000 was the overall maximum. The court agreed, holding $30,000 applied per penalty,
but that regulatory language does not limit the number of penalties Customs may issue against a broker.
More About the SWPM Regulations - Enforcement
04/06
to view document in PDF format
Customs Update: An egg by any other name...
(Published in The JOURNAL of COMMERCE ONLINE March 28, 2006)
to view document in printable format
Whether you look at the DP World fiasco or the multitude of bills being proposed in Congress, it is clear
that politics keeps rearing its ugly head when it comes to international trade issues; and the venues in which that happens keep expanding.
On March 15, Immigration and Customs Enforcement issued a press release about one of the more
unusual cases with which we have been involved. It all began in 2001 when representatives of the Chinese
consulate in Los Angeles approached U.S. Customs and asked for assistance in stopping what the
Chinese called the theft of their cultural property. What they meant was the exportation from China and
Hong Kong of dinosaur eggs. It is important to keep in mind these are mineralized rocks that are traded
as commodities and, if restored, are sold as knick-knacks and for decorative purposes. Some of the more prominent pieces are also displayed in museums.
Customs and ICE conducted their investigation and, as noted in the press release, a seizure ensued.
What is interesting about this case first and foremost is that it involves dinosaur eggs. Who knew there
were admissibility issues with such a commodity? Perhaps even more interesting is these dinosaur eggs
are freely traded and sold, and not just in the U.S. but worldwide. The law now requires a permit to export
such items from China, even though they are still readily discovered throughout the country-side, but no
such requirement is imposed in Hong Kong and it is the marketplaces there where eggs remain readily available for sale and trade.
Equally perplexing is the fact that Chinese law did not bar trading in cultural property until the mid-1990s
and even then, it was not publicized in the West. In fact, until this case was initiated, no one in the U.S.
had any idea there was an issue. From a constitutional point-of-view, how can you be held to violate U.S.
law if you have no notice there is a law you could be violating? Think about how much more preposterous
it is to have the U.S. government seek to prosecute you in the U.S. for violations of Chinese law if you are a foreign national? But, that is what happened to the defendant in this case.
Now, in its press release ICE claims the goods were mislabeled as geological specimens and minerals.
Well, that is exactly what they are. In fact, to be technically correct, these are paleontological specimens
which is a sub-set of geological specimens, but Washington didn't want to be confused by the facts. The
focus of what ICE and Customs argued was that if these items had been called dinosaur eggs, inspectors
would have stopped them from entry. On the other hand, the case has been pending since 2001, but
neither ICE nor Customs has yet seen fit to publish anything, not even a What Every Member of the Trade
Community Should Know About Informed Compliance publication, to notify the importing community (or
even its own inspectors) these goods cannot be traded. So, does anyone really believe an inspector would
have known there was a problem to import these goods? On the other hand, putting the word "eggs" in the
invoice description would surely have had CBP and the Department of Agriculture tying up the shipment for weeks.
So, who's telling the truth? Let's look at what ICE talked about in its press release. It made mention of a
guilty plea, a correct statement of fact. It also mentioned that the defendant was subjected to one year of
probation, ordered to pay a fine and agreed to forfeit certain fossils which had been seized. All of these
facts are true. However, ICE also engaged in some slight of hand. It didn't really tell the truth. If you look
at the public record, you will see that the plea which was agreed to by all parties involved a violation of the
marking statute, 19 U.S.C. 1304. It was not an acknowledgment that anyone was smuggling goods. No
one admitted the Chinese were correct in their claims that dinosaur eggs could not be bought and sold, or even that they qualified as cultural property.
If the Chinese really believe they need to protect their cultural property, why do its dinosaur eggs remain
freely traded in Hong Kong? What about those available on online auctions or at any number of the trade
shows around the world? What steps have the Chinese taken to let the world know of their concerns?
Certainly the Italians and the Greeks have been vigorous in publicizing their efforts to seek recovery from
museums and other art enthusiast who have in their possession artworks thought by either government to have been stolen. Where are the comparable efforts by the Chinese?
What this case really came down to was Washington putting tremendous pressure on the Chinese to
reform their domestic laws and activities when it comes to textiles, intellectual property rights, conversion
of currency and the like. In return, the U.S. wanted to deliver something to the Chinese and so a large pile
of hyperbole was created to make a minor situation into something major. If the enforcement arm of
Homeland Security is willing to engage in such actions, and they are obviously politically motivated, what else can we expect from our government when it comes to enforcing the law?
MORE ABOUT DUMPING BONDS
01/06
Most importers now know that to qualify to import aquaculture, a bond must be posted in the approximate
amount of the dumping duties due in the 12 month period covered by the bond, plus $50,000 for the
“regular” Customs bond. The bigger hurdle is the surety requirement to fully collateralized those bonds.
Satisfying this requirement is especially complicated if the original bond becomes insufficient. Then a
larger replacement bond must be posted, but the collateral from the first bond cannot be used as
collateral for the replacement bond, simply because the first bond remains at risk until the underlying
entries are liquidated. So, if the first bond was for $500,000 and the second for $1,000,000, for that one calendar year, the importer has $1,500,000 pledged to the surety.
Now comes a lawsuit filed by the National Fisheries Institute filed in late December 2005 arguing:
- The new bond policy violates 19 U.S.C. § 1623(a) which limits Customs’ ability to require a bond in
cases where a bond or security is not otherwise required by law;
- Customs’ bond policy violates 5 U.S.C. § 706(2) as “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law” and “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;” and
- There is no rational reason why this new bond requirement applies only to importers of aquaculture
products.
As this case progresses, another complication may have arisen. Many foreign suppliers of aquaculture
(especially shrimp) have qualified as a foreign importer of record on a DDP term of sale. Some within
Customs think that since the antidumping duty is factored into the cost at which these companies resell their products to their American buyers, perhaps reimbursement really does take place.
Will twice the dumping margin at time of liquidation rear its ugly head at some time in the future?
Beware!!!!
USDA AND HHS HOLD PUBLIC MEETING
12/05
The Food Safety and Inspection Service of USDA and the FDA (of HHS) announced a joint public meeting to discuss and solicit public comment on a consistent regulatory approach concerning jurisdiction over
certain food products that contain meat and poultry. The meeting will take place on December 15, 2005
from 10 a.m. to 4 p.m. at the Donald E. Stephens Convention Center, 5555 N. River Rd, Rosemont IL.
FSIS has authority over meat and poultry products. FDA has authority over all other foods. The two
agencies previously formed a working group to examine jurisdictional issues for food categories that
contain meat and poultry ingredients. The decisions of that working group are now acknowledged to no
longer be consistent in light of marketplace changes. One example cited is FSIS regulates corn dogs but FDA regulates bagel dogs.
The most recent proposal from the working group would have FSIS regulate products that primarily contain
meat and poultry ingredients, such as bagel dogs, meat and poultry-based sandwiches and natural casing. FDA would regulate products that contain meat and/or poultry as ingredients for flavor
accentuation only, provided they do not contribute to the identity of the food product, such as pizza.
The purpose of the meeting is to invite public comment and input to help determine the administrative,
operational, marketing and/or labeling costs which may arise from the contemplated regulatory changes. For more details, check the FDA website at www.cfsan.fda.gov/~comm/register.html.
APHIS REVISES CERTIFICATION PROGRAM
12/05
APHIS has issued a final rule instituting a certification program for foreign production sites in countries
where Ralstonia solanacearum race 3 biovar 2 (potato brown rot) is known to occur. It also applies to the
export of article of Pelargonium spp. (e.g. geraniums) and Solanum spp. (e.g. eggplant and huckleberry) to the U.S.
SWPM DEADLINE CHANGES
10/05
In the last minute, APHIS announced soft wood packaging materials deadline changes. Originally scheduled to be fully implemented on September 16, 2005, the day before, APHIS and Customs
announced that from September 16, 2005 through January 31, 2006, Customs will operate on an informed
compliance basis. In other words, it will notify those whose goods contain non-compliant wood packaging
about what is required and give them more time to comply. Even within this timeframe, however, repeat
offenders can expect enforcement to take place. Between February 1, 2006 and July 4, 2006, Customs
will begin rejecting violative goods. Starting July 5, 2006, non-compliant goods will be barred. For
questions, call APHIS at 866-738-8197 or 703-734-5346 (operating until October 16, 2005). Customs is also answering port specific questions at 202-354-1000 or 877-227-5511.
Information about the requirements in other countries can be found at http://www.aphis.usda.gov/ppq/wpm/export/requirements.html. There are listings for Argentina, Australia,
Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Ecuador, Egypt, European Union,
Guatemala, India, Korea, Mexico, New Zealand, Nigeria, Peru, Philippines, South Africa, Turkey, and
Venezuela. If the country to which you plan to ship is not listed, APHIS provides a means for more assistance at http://www.aphis.usda.gov/ppq/pim/exports/CPOs_exp.htm.
SWPM DEADLINE CHANGES
09/05
In the last minute, APHIS announced soft wood packaging materials deadline changes. From September
16, 2005 through January 31, 2006, Customs will operate on an informed compliance basis. It will notify
those whose goods contain non-compliant wood packaging about what is required. Between February 1,
2006 and July 4, 2006, Customs will begin rejecting violative goods. Starting July 5, 2006, non-compliant
goods will be barred. For questions, call APHIS at 866-738-8197 or 703-734-5346 (operating until October
16, 2005). Customs is also answering port specific questions at 202-354-1000 or 877-227-5511. Information about the requirements in other countries can be found at http://www.aphis.usda.gov/ppq/wpm
Customs Update: Bond Guidelines Change Again
(Published in the Journal of Commerce Sept. 16, 2005)
to view document in printable format
A series of recent articles have reminded us all that Customs and Border Protection is still being criticized
for its processing of anti-dumping and countervailing duty entries. One such article reported that Customs
collected only $25.5 million of the $195.5 million owed between 2002 and 2004! Another highlighted the
dramatic increase in the number of anti-dumping cases filed since enactment of the so-called Byrd
Amendment. The number of cases rose from 15 in 1997 to more than 30 yearly in 2002 through 2004.
The Byrd Amendment, named for Democratic Sen. Robert Byrd of West Virginia, is part of the Continued
Dumping and Subsidy Offset Act of 2000. It mandates that companies which bring petitions alleging
dumping or countervailing duties apply, if successful (and precious few are not), are rewarded through
distribution of the very funds collected as a result of their successful actions. Naturally, these types of
proceedings are viewed as self-serving. Many companies have benefited quite nicely. In fact, the latest
figures suggest that 40-plus companies have received more than $1 million each. Of course, the World
Trade Organization has found the Byrd Amendment to violate its rules and several countries have already
taken or will shortly retaliate against American products, notably the European Union, Canada and Mexico.
In response to that criticism, in July 2004 Customs published guidelines for the setting of bond amounts
involving agriculture/aquaculture goods subject to anti-dumping duties. At that time, Customs announced
that in the future, bonds for shrimp would be set at the value of product imported for the preceding 12
months multiplied by the dumping duties that value would generate. So if $1 million was the value and the
dumping margin was 40 percent, the bond amount becomes $400,000, plus the minimum continuous bond of $50,000, for a total bond amount of $450,000.
In August 2005, Customs issued a clarification. In the past, it was only in the context of textile and
apparel imports that Customs sought production records to prove where a given shipment was processed.
Requests for similar documents are now often made in the context of shrimp importations. In the past,
under the now expired textile quota system, importers (some with the complicity of their suppliers and
others without any knowledge of what was being done) often found their goods had been transshipped, i.e.
made in one country (e.g. China), shipped to a second country (e.g. Vietnam), relabeled to reflect the
name of the second country and then exported to the U.S. That syndrome has now impacted the shrimp
industry. As a result, its announcement Customs advised that changes are being made to the way in which bond amounts will be set.
First, it appears Customs intends to expand the types of products subject to the new guidelines as it
announced Customs will now give 60 days notice for any new products subject to these increased bond
guidelines. At the same time, Customs states that if a product has been subjected to the guidelines and the need changes, it will remove the product from the list.
In deciding whether to include products under these revised bond guidelines, a series of factors will be considered:
1. Previous collection problems concerning a specific case or industry;
2. Similarity to previous cases or industries experiencing uncollected revenue problems;
3. Whether the merchandise is subject to very low duty rates or was it duty free prior to the dumping case being initiated;
4. Projected ability of the industry to pay future duty liabilities;
5. Low capitalization of the involved industry such that new or increased duty liabilities create
increased risk;
6. Whether the involved industry is so highly leveraged that new or increased duty liabilities create increased risk; and
7. Any other relevant factors.
In publishing its notice, Customs also advised it may choose to increase the bond of a given importer,
even if calculated in accord with the newly stated formula. If so, the importer will be given 30 days notice
and will have 30 days to respond. The new bond amount will not take effect until 14 days after the response is reviewed and a final determination sent to the importer.
In gauging the importer's response, Customs will evaluate:
1. The importer's prior record regarding timely payment of all duties, taxes and charges;
2. The importer's prior record in complying with redelivery demands and responses in other enforcement and administrative actions;
3. The value and nature of the merchandise involved;
4. The degree and type of supervision Customs will be required to exercise over the transactions;
5. The importer's prior record in honoring bond commitments, including payment of liquidated damages and anti-dumping/countervailing duties;
6. Any additional information contained in any bond application;
7. Any other factors, such as whether the importer has switched sourcing so as to lower its duty liability.
While the list does not specifically mention transshipment, it seems obvious that if an importer has
participating in transshipping or had its suppliers do so, Customs would need to more closely supervise those importations, and that, in and of itself, could lead to a higher bond amount.
Most importers of shrimp have encountered problems with the new bond requirements because the
number of sureties writing these types of bonds has decreased dramatically and the few who are still
writing them are requiring 100-percent collateral, often through stand-by letters of credit.
If subject to Customs' August directive, the formula used to set an importer's bond amount will consider
sudden changes in declared value, claimed country of origin, classification and the like. If Customs
concludes the importer has flunked the "attitude test," the bond will be set by multiplying the 12-month
import value by the deposit rate in effect on date of entry. A similar formula may also be applied to first time importers.
If subjected to this higher bond requirement, the importer must wait 3 months before seeking reconsideration. A decision on any such request will be made within 30 days.
Now more than ever, having a good reputation with Customs is important. Flunking the "attitude test" will come at an ever higher price!
SEAFOOD THAT GOT HIGH!
08/05
On August 1st, Florida's Agriculture and Consumer Services Commissioner announced the arrest of two men for allegedly trying to smuggle nearly 200 pounds of marijuana from Florida to New York in a refrigerated truckload of seafood.
SOLID WOOD PACKING MATERIALS
08/05
Customs has published another announcement reminding importers the soft wood packaging materials regulations will become effective in the U.S. on September 16, 2005. Shipments will be stopped. Make
sure you are ready.
BASMATI RICE SEIZED
08/05
FDA recently announced that U.S. marshals seized over $80,000 worth of basmati rice. FDA held the Pakistani rice to be adulterated by insect contamination - weevils, beetles and insect larvae were found
during a laboratory analysis.
As is typical, the goods were held at the importer's premises under embargo but when the importer
refused to destroy or recondition, FDA took the action of asking the U.S. Marshal to intervene.
KING CRAB SHIPMENT FORFEITED
07/05
The U.S. Court of Appeals for the Ninth Circuit issued a decision in June 2005 holding that King crab taken in violation of Russian fishing regulations is forfeited under the Lacey Act. The facts of the case
involve two Russian vessels which were suspected of catching the crab in waters protected by Russian
law while having their monitoring equipment turned off. When the crab was off-loaded in Blaine, WA,
Customs seized it under the Lacey Act, 16 U.S.C. § 3372(a)(2)(A), relying on evidence provided by
Russian authorities. The importer argued he held a security interest in the load through a financing
agreement with the Russian fishing vessels and there was nothing inherently illegal about possessing crab. Besides, said the importer, I know nothing about where the crab was caught.
The trial court held the innocent importer defense was not available because the crab itself was
contraband because of where it was caught, even though the load might not otherwise be illegal to
possess. The Lacey Act makes it illegal to import, export, transport, sell, receive, acquire or purchase
any fish or wildlife or plant taken, possessed, transported, or sold in violation of any law, treaty, or
regulation of the U.S., any Indian tribal law, if the law or regulation of any State is violated or in violation of
any foreign law. See 16 U.S.C. §3372(a). The Act provides for both civil and criminal penalties. On appeal, the Ninth Circuit affirmed the decision of the lower court.
While decided by a federal appellate court which has jurisdiction only over the U.S. western states, this
case puts all traders of fish, wildlife and plants on notice to be sure they know and can properly
document where their product originates. In this case, what cost the importer his goods was the fact he did not know (or at least claimed not to know) the vessels went into protected waters.
For more details, see USA v. Deep Sea Fisheries, et al, No. 03-36006, D.C. No. CV-02-02167-JCC (June 9, 2005).
ICE FRAUD INVESTIGATION LEADS TO
NAFTA PROSECUTION
7/05
Providing yet another example of the stupid things importers sometimes do, a California company has
admitted criminal liability for undervaluing its goods resulting in a $3.5 million duty loss. It agreed to repay
that amount plus a $2.1 million fine, one of the largest regarding NAFTA related goods.
Triunfo-Mexi, Inc. is a Los Angeles based importer of Mexican products. Its officers admitted more than
32,000 Mexican products were imported, primarily through Calexico, including condensed milk, instant
drink mixes and other products subject to quota. While the quota was open, correct values were declared. Once closed, values were reduced by 90%!
Apparently the three (3) principals forgot that Customs is able to compare entered values between
shipments and will now pay for that ignorance. Each is subject to a $250,000 fine and a maximum sentence of two years in jail! Sentencing is scheduled to take place on August 22, 2005.
CREATIVE ACCOUNTING - II!
07/05
Working as sales representatives, three (3) Chinese individuals have been arrested for a host of charges
revolving around wire fraud conspiracy as they and others are said to have falsified purchase orders and
end-user certificates to facilitate phony sales. Supposedly they pocketed over $1 million while diverting
their employer’s goods and revenue by allegedly using straw buyers, demanding bribes, creating front
companies and falsifying corporate records, all done, it is claimed, to hide the scheme from an
unidentified high-technology company which is said to make products used to generate radio signals and
control radio frequencies, so possible export license violations are said to be under review.
KNOW BEFORE YOU BUY
07/05
Reminding traders yet again, it is best to really know your seller and his activities, the U.S. Court of Appeals for the Ninth Circuit recently held loads of crab were forfeited because the crab was caught in
waters protected by Russian law. The importer argued he knew nothing about the illegal activities but the
court held that was not a defense under the Lacy Act, 16 U.S.C. §3372(a). For more details, see USA v. Deep Sea Fisheries, et al, No. 03-36006, D.C. No. CV-02-02167-JCC (June 9, 2005).
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