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U.S. Customs

Compliance Update

Academy’s Compliance Program

• Two programs: ISA and C-TPAT

• Includes Management Buy-In

• Includes a partnership commitment with CBP and the establishment of a Customs Compliance Department with responsibility for oversight of import procedures

• Includes the development of formal policies, documented controls and compliance requirements, and training

Importer Self Assessment“Under the ISA program, importers who have a track record, and have demonstrated high levels of cooperation with government requirements, can take charge of their own compliance without scheduled CBP audits or much other government intrusion.”

Importer Self AuditImporter Self AuditImporter Self AuditImporter Self Audit

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Compliance Opportunities

• Importer Self Audit

• Valuation

• Classification

• Anti-Dumping

• Denied Party

Screening

Collateral Benefits of Operational ExcellenceCollateral Benefits of Operational ExcellenceCollateral Benefits of Operational ExcellenceCollateral Benefits of Operational Excellence

Compliance Basics of Entry Summary - Valuation

• Valuation –• is determined in accordance with the Tariff Act of 1930 (19 USC

1401a, a.k.a. 19 CFR 152) as amended using one of six hierarchical methods of appraisement

– Valuation principles can be rather complex but generally speaking, the preferred method of appraisement is transaction value.

• Transaction value is the price actually paid or payable (“PAPP”)

plus any statutorily defined additions (“CRAPP”), less allowable

exclusions (“HITS”) (see 19 CFR 152.103)

• PAPP is the total payment, whether direct or indirect, made by the

buyer to, or for the benefit of, the seller for imported merchandise.

• There are five statutory additions as follows:, selling “c”ommisions,

“r”oyalty fees, “a”ssists, “p”acking costs, and “p”roceeds

• The allowable exclusions a.k.a. HITS are the following: “h”andling,

“i”nsurance, ‘t”axes, and “s”hipping

Compliance Basics of Entry Summary -Classification

– Classification primarily determines the duty rate of merchandise and indicates if the merchandise is eligible for a duty preference program (e.g. NAFTA, CBTPA etc.)

– Academy pre-classifies all products prior to P.O. issuance. The HTS# is typed on the Purchase Order.

Do you maintain good import records?

• Record Retention Program

– Maintain All Production Related Records For Five (5) Years

– Types of Documents to be Kept:

• Purchase Orders

• Contracts (buying commissions, royalties, etc.)

• Letters of credit, wire transfer payments

• Air Waybills and Bills of Lading

• Telexes, Faxes, Letters, Other Communication with Vendors/Academy

• Commercial Invoice

• Packing List

• Copies of Visas, Textile Declarations

• Certificate of Origin

Monetary Penalties For Failing To

Maintain Records

– Gross Negligence: “Willful Failure Not To Exceed US$100,000 Per Release Of Merchandise Or 75% Of Appraised Value, Which Ever Is Less”

– Negligence: “Negligence Not To Exceed US$10,000 Per Release Of Merchandise Or 40% Of Appraised Value, Which Ever Is Less”

– Consideration Factor – High Cost To Recreate Records That Have Not Been Retained

Origin/Production Reviews

U.S. Customs Enforcement Actions Include:

• Special Audits

• Transshipment lists published by Customs

• Detention/Seizure or Exclusion of goods

• Prohibition on Importation of Goods to the U.S.

• U.S. Customs “jump teams”

• Cooperative actions with foreign governments

• Random requests for additional documents

Production Documentation Requests Outline:

• Fabric and yarn purchase orders

• Declarations of Origin for fabric and yarn

• Records showing finishing operations for fabrics

• Transportation documents showing movement of fabric/yarn to the cutting facility

• Cutting records (i.e., cutting tickets, daily cutting reports, cut lot numbers)

• Timecards and salary/wage reports for employees at cutting facility and sewing facility

• Transportation documents showing the movement of the cut components to the region

• Knitting machine records showing production of knit panels (dates of production, quantity, etc.)

• Sewing line records – how many garments output per line, per worker, per day. List of workers performing what operation

• Transportation documents showing movement of knit-to-shape or cut components to the assembly factory, if not in the same factory as cutting

• Timecards and wage/salary reports for employees supervising the knitting machines

• List of production operation steps for product

• Packing & Shipping records

• Quality Assurance Inspection Certificate

Pref. Program Producer

Must Obtain & Retain

Traceable Records for These

Activities

Production Verification of

Operations

Raw Materials

(Fabric/Yarn) &

Trim Items

Transportation

from/to facility

Cutting

Operations

Sewing/Assembly

Operations

In-Line/Final

Inspections

Finishing/Packing

Operations

Export/Shipping to

US Importer

Transportation

from/to facility

Factory Profile

Employee

Timecards

Employee

Wage/Salary

Records

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• Raw materials

- PO’s, invoices, BOL’s, receiving records, proof of payment to raw material company

- Export/import records (if from another country)

- Transfer records (if from importer/buyer, CMT or subcontract)

- Internal production records (if produced by manufacturer)

• Cutting records for products assembled from cut components

- Manual cutting records

- Workers’ daily tickets

- Copy of mini-marker (or full-sized marker)

Production Review Outline

• Production records

- Summary of steps

- Production manager/ floor records

- Worker daily records

- Listing of machines

- In-line inspection reports

- Factory profile/registration

• Employee records

- Time cards

- Wage/payroll records

- Salary receipts

Production Review Outline (Cont’d)

• Subcontracted production work

- Same as above

- Transfer records from sub to primary contractor/ shipper

- Payment by shipper/primary contractor

• Outward processing arrangement

- Transport from original country and import into second country

- Proof of production in second country

- Transport from second country and import into original country

• Exportation of finished goods from purported country of origin

- Proof that manufactured goods were actually exported to US

• Proof of payment to actual manufacturer

- LC, payment records between buyer and actual manufacturer

Production Review Outline (Cont’d)

• Date Discrepancies: Textiles were sewn before fabric arrived; garments were sewn before cutting; etc.

• Transportation/Shipping Documents don’t coincide with processing that takes place in each country;

• Fabric invoices don’t cover the amounts, colors, types needed to produce the PO quantity;

• Cutting, Production, Inspection, Finishing, and Packing Records: Quantities do not match

• Production Steps: Illogical sequence of operations;

• Timecards/Salary Records: Workers who participated in the production of the PO were absent on dates of production;

• Sewing tickets/Cutting tickets are missing

Common Document Pitfalls

• Suspension of Producer from Program

• Denial of US Importer’s Claims—US Importer must pay full duties on shipment and possible penalties/liquidated damage claims, which could be charged back onto the Producer

• Cancellation of future orders by US Importer

• Company could be labeled a “transshipper” resulting in damage to corporate reputation

• CBP begins to detain and exclude all shipments of merchandise from that Producer from entry into the US

Consequences of Non-Compliance or

Unsatisfactory Documentation

Supply Chain Mission Statement:To establish overlapping

business security practices to

effectively deter infiltration of Academy’s Supply Chain

Risk Assessment

Potential Risk Assessment

• Definition:

Identification of import shipments, through data collection and analysis, to determine the possibility of infiltration into the Supply Chain

Potential Risk Assessment

Internal ControlAssessment

Pre-Assessment Survey (PAS)

PotentialPotentialAreas of RiskAreas of Risk

ForeignFactorySecurity

In-transitVisibility

Security Threat Awareness

Country of Origin

Cargo Discrepancy

Container Security & Seal Integrity

8.7 8.7 Security. As a certified member of the U.S. Customs and Trade Partnership Against Terrorism (“C-TPAT”), Academy is obligated to ensure that its Vendors meet the criteria for security mandated by the C-TPAT program. In order to comply with these requirements, Vendor will cooperate with Academy in the implementation of measures to enhance the security of its exports of Merchandise and Materials to the United States and in particular agrees to undertake the following obligations:

(a) Maintain written and verifiable procedures and documentation tracking Materials and Merchandise from point of origin of the Materials to Delivery Location. From time to time, upon the written request of Academy, Vendor will send copies of its written tracking procedures and documentation to Academy's Vendor Compliance Department.

Terms and Conditions of P.O.---Security

b. Maintain verifiable security procedures at its manufacturing and distribution facilities,

including container security, container inspection, container seals, container storage,

physical access controls, employee identification system, visitor identification, deliveries,

procedures for challenging and removing unauthorized persons, personnel security, pre-

employment verification, background checks, personnel termination procedures, procedural

security, documentation processing, manifesting procedures, shipping and receiving, cargo

discrepancies, security training and threat awareness, physical security, fencing, gates, and

gate houses, parking, building structure, locking devices and key controls lighting, alarm

systems and video surveillance cameras, information technology security, and employee

accountability. Guidelines for Vendor’s Container Search and Seal Integrity Program are

summarized in Appendix 2. From time to time, upon the written request of Academy,

Vendor will certify as to its compliance by furnishing a properly executed copy of the

Factory Security Certification Questionnaire set forth in Appendix 3 to Academy's Vendor

Compliance Department.


c) Grant to Academy or its designated representative the right from time to time,

upon prior written notice to Vendor and at reasonable hours, to visit Vendor's

facilities to perform an audit of Vendor’s compliance with its security obligations

set forth in subsections 8.1 (a) and (b) above.

Upon completion of any review by Academy, Vendor will be advised in writing if

any corrective action is required to assure compliance with the C-TPAT program.

Based on the type of corrective action required, the parties will mutually establish

a time period for implementation of the corrective measures required. If Vendor

does not comply within a reasonable time period with the requirements for C-

TPAT compliance, Academy will be entitled to treat Vendor’s failure to comply

as a material breach of this Agreement.

8.8 Global Sourcing Guidelines. Vendor shall meet the standards of conduct

for vendors in its Global Sourcing Guidelines set forth in Appendix 4.


RULES FOR CONSTRUCTING THE MANUFACTURER CODE

These instructions provide for the construction of an identifying code for a manufacturer or shipper from his name and address.

The code can be up to 15 characters in length, with no inserted spaces. However, it may be thought of as five "pieces" as follows:

COUNTRY (Piece 1: 2 characters)

Use the ISO code for the country, such as "PE" for Peru.

MANUFACTURER NAME (Pieces 2 and 3: up to 3 characters each)

Use of the first three characters from each of the first two words of the name. There will be no third piece if the name is one word. Amalgamated Plastics Corp. would give "AMAPLA"; Bergstrom would give "BER".

If there are two or more initials together, treat them as a single word. For example, ABC Company, A.B.C. Company, or A B C Company would all yield "ABCCOM."

ADDRESS LINE WITH STREET NAME and/or BOX NUMBER (Piece 4: up to 4

characters)

Find the largest number on this line and use up to the first four digits. For example, 11455 Main Street Suite 9999 would yield"1145". A suite number or a post office box should be used if it contains the largest number. However, use no number in the case of One Hundred Century Plaza. There will be no fourth piece if there is no numeric on the address line.

When numbers are separated by commas or hyphens, ignore all punctuation and use the number that remains. For example,

either "12,34,56 Akasaka Road" or '12-34-56 Akasaka Road" would yield "1234". Note that the address line on the invoice may be after the line containing the city and zip code (or equivalent). For example, German

invoices frequently place the city and its numeric code before the street address. Be sure to identify the address line numericand use it, not the city numeric.

CITY (Piece 5: up to 3 characters)

Use the first three letters from the city name. Tokyo would be "TOK," St. Michel would be "STM."

Apply these general rules to construct a manufacturer code

1) Ignore all punctuation, such as commas, periods, ampersands.

2) Ignore all single character initials, such as the "S." in Thomas S. Delvaux Company.

3) Ignore the English words "a", "an", "and", " of", "the".

4) In the case where multiple company names and/or addresses appear on the invoice, use the name and address associated with the corporate headquarters as opposed to the division, office, etc.

Manufacturer I.D. Code

Direct Import Partnership ProgramsDirect Import Partnership Programs

� Master Purchase Agreement

� Terms & Conditions of Purchase Order

� Appendix 1: EDI Implementation Guide

� Appendix 2: Factory Security Certification Questionnaire for our C-TPAT Program

� Appendix 3: Guidelines for Vendor’s Container Search & Seal integrity Program

� Appendix 4: Global Sourcing Guidelines

� Appendix 5: Marking Requirements for Mutilated Samples – HTS #9811.00.60

� Appendix 6: Floor Ready Guidelines

Examples of some manufacturer names and addresses and their codes:

LA VIE DE FRANCE243 Rue de la Payees FRLAVIE243BRE

62591 Bremond, France

20TH CENTURY TECHNOLOGIES

5 Ricardo Munoz, Suite 5880 VE20TCEN5880CAR Caracas, Venezuela

THE E.K. RODGERS COMPANIES

One World Trade Center GBEKRODLON

London, England SWLY 5HQ

THE GREENHOUSE45 Royal Crescent USGRE45BIR

Birmingham, Alabama, 35204

CARDUCCIO AND JONES

88 Canburra Avenue AUCARJON88SID

Sidney, AustraliaN. MINAMI & CO.,LTD.

2-6, 8-Chome Isogami-Dori,Fukiai-Ku JPMINCO268KOB

Kobe, Japan

BOCCHACCIO S.P.A.

Via Mendotti, 61 ITBOCSPA61VER8320 Verona, Italy

MURLA-PRAXITELES INC.

Athens, Greece GRMURINCATH

SIGMA COY E.X.T.

4000 Smyrna, Italy ITSIGCOY1640SMY1640 Delgado

Appendix 2: Factory Security Certification Appendix 2: Factory Security Certification

QuestionnaireQuestionnaire

It is Academy’s policy that all suppliers establish facility procedures to safeguard

against the introduction of non-manifested cargo into outbound shipments. Such

items would include drugs, biological agents, explosives, weapons, radioactive materials, illegal aliens and other contraband.

Vendor must comply with all domestic and local laws, rules and regulations

governing the sale, use of shipment of contraband. Also, the supplier will

cooperate with local, national and foreign Customs agencies to safeguard against the illegal shipment of contraband.

As a business partner, Vendor is required to provide information and answer all questions on the FACTORY SECURITY CERTIFICATION QUESTIONNAIRE .

Factory Security Questionnaire—Appendix 2

• Began in 2003

• Questions cover specific areas of security control

Factory Security Facility Audit

• Philosophy: audit 20% of our factories that do 80% of our

production

• Performed through Bureau Veritas inspection company

Rating Levels

• Acceptable

• Improvement Plan

• Unacceptable – factory will be “suspended”

Business Partner--Factory

Appendix 3: Guidelines for VendorAppendix 3: Guidelines for Vendor’’s Container Search s Container Search

& Seal Integrity for our C& Seal Integrity for our C--TPAT ProgramTPAT Program

Container Search program

• Procedures:

1. Container Tracking---shipments should be anticipated prior to their arrival at facility.

2. Inspection of all Vehicles—trying to gain access to shipping and receiving areas.

3. All containers arriving at facility must be inspected at earliest point (outside of facility)

4. Seal inspection/verification prior to container access to your facility.

• All containers arriving at facility must have:

a. Documentation verified

b. 7 point container inspection

Container Seven Point Inspection:

1. Undercarriage:

a. Inspection prior to entering facility

b. Check C-Beams (support beams)—they should be visible.

•

2. Outside/inside Doors:

a. Secure reliable locking mechanisms.

b. Look for different color bonding material.

c. Any plates or repairs to the container?

•

3. Right Side:

a. Any unusual repairs to structural beams?

b. Repairs to the walls on the inside of the container must be visible on the outside.

c. Use hammer to tap side walls. Listen for hollow sound.

•

4. Left Side:

a. Any unusual repairs to structural beams?

b. Repairs to the walls on the inside of the container must be visible on the outside.

c. Use hammer to tap side walls. Listen for hollow sound.

•

5. Front Wall:

a. Blocks and Vents are visible.

b. Use tool to tap front wall. Listen for hollow sound.

c. Range finder/measuring tape can be utilized to front of container when empty to see if there are any false walls. Dimensions of container will be shorter.

•

6. Ceiling/Roof:

a. Certain height from floor. Blacks and vents are visible.

b. Repairs to ceiling on inside of container should be visible on outside.

c. Use tool to tap ceiling.

7. Floor:

a. Should be certain height from ceiling

b. Look for unusual repairs.

Container Inspection

Before loading conduct a 7-point inspection of the container.

Front Wall –measure distance inside and out

7-point container inspection• Walls (right side and left side)

• Ceiling and roof

Check right side and left side of walls

Look for irregularly spaced panels in ceiling

7-point container inspection

• Outside/undercarriage

Check for compartments under trailer and in landing gear


• Floor

Check for

holes in floor

or difference

in the wear or

age of the

wood


• Doors

Seal Integrity Program

• Seal Affixing Process: VVTT

•

• Seals must be verified at the factory, port of origin, port of arrival, DC entrance, and Receiving Dock.

•

• V---View seal and container locking mechanism.

• V---Verify seal # for accuracy. Compare with shipping documents and look for alterations. Is this the type of seal that is normal for those shipping lines?

•

• T----Tug on seal.

• T---Twist and Turn seal to make sure it does not unscrew. Seals are threaded, so they can be unscrewed. These altered seals are reusable throughout the supply chain for multiple attacks.

•

• After container/seal pass inspections, container can be opened. Seals should be kept for investigative purposes. Have a disposable policy for seals! Keep for one week and then dispose.

•

• After container is opened, a quick inspection of cargo should be conducted. If contraband is found, close container doors and contact a Supervisor. Overage/Shortage of cargo should be documented and recorded. Records needed to conduct investigations.

��Container Inspection ChecklistContainer Inspection Checklist

The Container Inspection Checklist included, must be

completed for all empty containers entering the Vendor’s premises to be loaded with Products destined for export to

Academy. Upon completion, the checklist should be signed by a representative of the Vendor, and maintained with the

Vendor’s shipping file for at least one year. The checklist is subject to audit by Academy or its representatives.

Inspector Signature: ______________________________Time____________________

I have visually verified to the best of my ability the condition of the container as noted above and found that the structure of the container is structurally sound,

weather tight, has no false compartments, contains no unmanifested material and the locking mechanisms are in good order. The container is approved for

stuffing. Or, I have noted the condition found and advised my supervisor and not approved the container for stuffing.

Other comments

�Locking Mechanism in good working order

�Outside/Undercarriage condition

�Inside/Outside door condition

�Ceiling/Roof condition

�Floor condition

�Right Side condition

�Left Side condition

�Front Wall condition

Describe unacceptable condition(If there is an unacceptable condition or unmanifested material a supervisor must complete the Incident Report Form. If an unacceptable condition is found stop the

inspection and notify your supervisor)

Check if Acceptable

Inspection

Seal Number(s) attached at origin:

Inspectors Name: Shipping Manifest #:

Container #: Date:

Academy, Ltd. Container Inspection Checklist(This form must be completed for all containers signed and maintained with the local shipping file for at least one year and is subject to audit)

��Container Inspection Incident ResponseContainer Inspection Incident Response

The Container Inspection Incident Response Form included as Exhibit 2 of this Appendix 3 must be completed (i) in the event that an unacceptable condition or unmanifested material is found during a container inspection and the container is not approved for stuffing, and/or (ii) upon receipt of a loaded container, to verify the integrity of the seals and to confirm and record any changes in the structure of the container or to record whether any unmanifested materials are discovered with the shipment. Upon completion, the form should be signed by a representative of the Vendor, and maintained with the Vendor’s shipping file for at least one year. The checklist is subject to audit by Academy or its representatives.

Seal Numbers not matched:Recommended response: If the seal attached to the container does not match the shippers documents or the ASN, an investigation and report to CBP may be warranted. Documents should be reviewed toascertain if the new seals are the result of a CBP inspection or other

custodians may have added/changed the seals, or if there is no resolution for the new seals, further investigation and reports may be warranted.

Locking Mechanisms Broken Recommended response: If the container cannot be properly sealed and secured, the container should not be used. Tag container for repair.

Not Watertight or Unsafe structure:Recommended response: If the container appears unsafe or not watertight, the container should not be used, but tagged for repair.

Unmanifested Material (e.g. People, personnel, weapons of mass destruction, drugs or contraband discovered)

Recommended response: If there appears to be a weapon of mass destruction, other unsafe material or contraband in the container, call local law enforcement or a hazardous material response team, notify senior company management and senior management who will notify the local authorities and customs and await further instructions. If there

is an apparent immediate threat, evacuate the immediate area.

Evidence of Container Tampering (e.g. New Paint or recent

weld repair) – Recommended response: A more detailed inspection of the container, looking for false wall including measuring the container

to verify there is no false compartment prior to loading.

Actual Response and Resolution Type of Incident and Recommended Response

Type of Incident and Response

Other Seal Number#Other Seal Number#

Cable Seal Number#Carrier Seal Number#

Inspector, NameInspector Signature

Shipping Manifest #:

Container #: Date:

Academy, Ltd. Container Inspection Incident Response (To be completed and filed locally in the event that an unacceptable condition or unmanifested material is found during a container inspection and the container is not approved for stuffing, and to be

utilized upon receipt of a loaded container to verify the integrity of the seals and to confirm and record any changes in the structure of the container or to record if any unmanifested materials are

discovered with the shipment.)

Appendix 4: Global Sourcing Guidelines & Code of Appendix 4: Global Sourcing Guidelines & Code of

ConductConduct

Academy is committed to legal compliance and ethical business practices in all of

its global sourcing operations. Academy attempts to identify reputable companies

that are committed to comply with all applicable laws and regulations of the country

or countries in which they are conducting their business. This code sets forth the

guidelines all factories must follow in order to do business with Academy and

covers all manufacturing contractors, including, but not limited to, cutting, sewing,

printing, embroidery, finishing, dying, laundry, and any other manufacturing process

that is subcontracted to complete a finished product. Also included are

manufacturers who sell packages, i.e. completed garments—Landed Duty Paid or Delivered Duty Paid.

Academy Vendors are required to Comply with U.S. Academy Vendors are required to Comply with U.S.

Laws Regarding Importation of Merchandise into the Laws Regarding Importation of Merchandise into the

United StatesUnited States……....

�Legal Requirements

�Health & Safety/Working ConditionsHealth & Safety/Working ConditionsHealth & Safety/Working ConditionsHealth & Safety/Working Conditions�Wages & HoursWages & HoursWages & HoursWages & Hours�Employment PracticesEmployment PracticesEmployment PracticesEmployment Practices…………discrimination,disciplinary

practices, child labor, forced labor, environmental practice, product quality, ethical practice, sub-contracting, monitoring

Appendix 5: Marking Requirements for

Mutilated Samples

There are certain marking requirements to allow samples to be imported

duty free. It is imperative that all commercial samples be mutilated or

indelibly stamped or marked “SAMPLE” according to the United States

Customs Regulations. The commercial invoice must also state that the

goods are samples and are marked per the above guidelines. Please

review compliance requirements as posted on the Academy vendor web-

site, vendor.academy.com.

Appendix 6: Floor Ready RequirementsAppendix 6: Floor Ready Requirements

For the complete Floor -Ready Guidelines please download Academy's SMART Guide from our vendor website

http://vendor.academy.comhttp://vendor.academy.com. Any questions concerning

information contained herein or in reference to the Purchase Order should be addressed prior to shipment of goods.

All instructions must be fully complied with and become applicable to all shipments consigned to Academy. Failure to comply in full with these requirements will result in additionalfreight and/or labor costs, which may be passed on to the shipper in the form of a chargeback. Academy’s goal is to improve the flow of merchandise through our Distribution Center.