1

Customs and International Trade Compliance for Retail

Chains: Recent Developments in Enforcement

2

CBP increased attention to importer compliance leads to increased enforcement activities:

• Information requests (CF-28s) and Notices of Action (CF-29s)

• Investigations—civil and criminal• Focus on protecting the revenue—increased

collection of duties and fees

• CBP Audits—Focused Assessments (FAs) & Quick Response Audits (QRAs)

3

Recognize implications and potential enforcement ramifications that inquiries from CBP and other regulatory agencies (i.e., FDA, USDA) create. Particular issues include:

• Antidumping (AD) and countervailing duty (CVD) cases• Tariff Classification—implications regarding scope of AD CVD orders• Country of Origin—implications for special programs, AD/CVD orders• Duty-free benefits from special programs (GSP) and FTAs (NAFTA)• Health and Safety issues—CPSC (toys), FDA (medical devices), among

others

4

Targeting by CBP to determine high risk imports• Regular analysis and evaluation of information on

real time basis. Targeting criteria include:

• Security• Political developments• Economic considerations• Revenue impact• Types of products/commodities imported—tariff

classifications• History of importers, vendors, manufacturers, buying &

selling agents• Past issues and record with CBP

5

Targeting leads to identification by CBP of imports from:

• Specific countries, geographical regions (China, India – most AD/CVD cases; high import levels;

• Specific importers• Specific foreign vendors• Specific manufacturers

6

After targeting, increased scrutiny by CBP on high risk imports:

• Textiles & apparel—often misclassified and inaccurately described on invoices and import documents (subject to high duty rates)

• Products subject to AD CVD orders• Intellectual property issues (counterfeit or

infringing goods)• Health and Safety• Compliance generally

7

C-TPAT – Customs Trade Partnership Against Terrorism

• Security of Supply Chain• Updates and verification by CBP• Trusted importer • Less Scrutiny

8

Scrutiny on compliance = revenue to government Key areas:

• Security• Tariff classification• Valuation

• Buying vs. selling agents• Assists• Post-importation price adjustments and payments• Dutiable royalties

• Compliance with other agency requirements• FDA and FCC (electronics, products with lasers, medical devices—for

example, thermometers, blood pressure cuffs)• USDA (food and animal products)• EPA

9

More Requests for Information, CF-28’s focusing on:

• Tariff Classification• Valuation• Country of origin• Qualification for special programs—GSP, NAFTA

& other FTA’s

10

War story #1: Retailer’s Sourcing group learns of a deal offered by a vendor in China of paintbrushes. Paintbrushes of various sizes are being sold at a price that is only 20% of typical wholesale cost for similar brushes. The price is so good that merchants place order for $200K in various sizes and styles of paintbrushes.

A month after the importations, importer receives a request for information from CBP requesting detailed information about the paint brushes, including the materials from which they are made. They had been classified upon entry under a provision for paint brushes with bristles of man-made/synthetic fiber material.

Turns out the brushes were made of natural bristles, animal hair, and subject to dumping duties of approximately 350% for imports from China during the time in question.

11

War story #1 (continued):

Because the brushes had been imported, not brought into a bonded warehouse or FTZ initially, which would have allowed for exportation to avoid the AD duties, even if classified correctly, the importer was subject to the duties. CBP issued a rate advance, increased duty bill and later a penalty under section 1592 for negligence in classification.

12

Focus on imports potentially subject to AD/CVD

• Scope issues—tariff classification identified in scope

• Tariff classification is not conclusive re scope; scope language governs

• Verification of Country of origin

13

Recent AD/CVD orders extremely broad in scope• Importers can challenge inclusion of their products in

scope by seeking a scope ruling• Tariff classification is specified in AD/CVD order but not

determinative• Scope language governs• Sometimes entered tariff classification is wrong• DOC issues rulings excluding products from scope and

including products in scope

14

War Story #2:

Retailer sources various models of log splitters from China. Subsequent to imposition of AD/CVD order on log splitters from China, retailer finds new supplier in Taiwan and begins importing same models of log splitters from Taiwan.

Petitioner in US, one of the domestic manufacturers of log splitters expresses concern that the log splitters coming from Taiwan are still really from China. CBP inquires with importer regarding country of origin of log splitters. Issues CF-28s for information to confirm origin; requires single entry bonds for each entry of log splitters from Taiwan until CBP is satisfied.

Retailer went back to vendor to confirm origin. Vendor had factory in Taiwan that was rather empty. Now the rest of the story…

15

Health & Safety Issues• Small parts… toys - Consumer Products Safety

Commission - CPSC• Products with lasers… FDA Form 2287• Radiation—Bed Bath & Beyond Cobalt 60,

situation reported in press• Radioactive product prohibited from importation without

compliance with NRC regulations—denied entry• Cobalt 60 is found in recycled metal—stainless steel

16

War Story #3:

Importer purchases FOB China. Containers arrive at U.S. port, cleared Customs and on the way out of the yard, sensors detect radioactivity coming from container… the rest of the story…

17

Measures retailers can take to protect themselves:• Where deals are “too good to be true”

• Be suspect, verify tariff classification and potential duty impact before committing to purchase

• Verify country of origin if products being purchased are subject to AD/CVD duties in another country—especially one that is geographically close to stated country of origin.

• Investigate suppliers• Be aware of AD & CVD orders that could affect retailer’s

imports• Recent AD/CVD cases against Chinese imports impose

duties of 300% to 400% in some cases

18

Measures retailers can take to protect themselves (continued):

• If imported product is subject to AD/CVD order, review scope to determine if the order really covers it—consult experts if any doubt

• If CF-28 is received, take it seriously and recognize potential implications; seek advice from experts—customs counsel, knowledgeable broker, consultant

• If issue has potential for substantial duty or penalty exposure, engage counsel—importer may not recognize seriousness of matter until consultations with counsel or qualified expert

• DO NOT WAIT until it’s too late – be as proactive as possible

19

Compliance steps for importers—processes in place to:• Ensure accurate classification

• Whether imports subject to AD/CVD orders

• Support entered values• Arm’s length price + statutory additions

• Recognize and report assists

• Verify and report correct country of origin

• Document special program claims

• FA Audit’s first step is review of existing documented compliance program

20

Tools and duty-savings opportunities available to importers—must have compliance process in place to support

• Special program or FTA available to eliminate or reduce duties?

• For more information about countries where duty-free or reduced benefits are available, see me after the session

• Most advantageous and legally supportable tariff classification?

• First sale or middleman involved? Can first sale be utilized to legitimately lower dutiable value?

21

QUESTIONS????

22

David P. Sanders Williams Mullen1666 K Street NW, Suite 1200Washington, DC 20006(202) 293-8113dsanders@williamsmullen.com