Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Noncompliance Headaches Continue

It has long been understood that achieving 100% trade compliance with textile and wearing apparel imports has been challenging for both Customs and the trade community. In a recent presentation, Janet Labuda, the U.S. Customs and Border Protection (CBP) Director of Textile Enforcement, reminded the audience just how daunting that challenge remains. Textiles (including wearing apparel) still account for approximately 40% of all duties collected and about 22% of all import entries filed. Customs’ focus is on preference claims where a 45% rate of noncompliance has been found, but CBP is also examining short-supply fabric claims, which recently resulted in $2 million in denied claims.

Under Ms. Labuda’s direction, CBP has assembled a cross-functional team to review textile and wearing apparel imports from China. Over a relatively short period of time, the team visited 60 companies in Los Angeles, another 60 in Manhattan, and another 61 throughout the rest of the country. The result confirmed CBP’s worst fears. In one example, goods worth $33 million were imported by one company, but the person acting as importer was getting paid just 1¢ per garment. In other words, this person did not qualify to act as importer of record, and the value being declared at time of entry was significantly underreported. In other examples, a shipment was originally offered for entry with a value of $200,000. When Customs refused the entry, the corrected entry reflected a value of $1.7 million. Another entry originally submitted at $250,000 was ultimately revised to $1.5 million. According to Ms. Labuda, more than half of the importers interviewed did not have the right to make entry. They had no knowledge about the goods and also had no interest in those goods.

While these CBP efforts may be focused on importers, it is clear that CBP considers the customs brokers to be the “linchpin” and recognizes that freight forwarders are also involved. As a result, CBP and the Federal Maritime Commission are cooperating as these investigations continue.

For Customs, the issue is supply-chain security. Who are the real parties to the transaction? Without knowing that fact, risk at all levels cannot be properly measured or addressed. From the trade’s perspective, many honest importers are getting stuck in the middle. They file an entry; it is refused on the grounds the value is too low, despite proof of payment. A significantly higher value is then arbitrarily set by CBP. Do you challenge CBP; or do you pay the duty, get your goods, and argue about it later? Not surprisingly, most choose to secure the goods and argue about valuation later. Should the fact there are some dishonest importers mean that everyone who imports from China should be treated with the same heightened skepticism and close scrutiny?

One last word of warning – if you are purchasing branded merchandise on a DDP or LDP basis, do not think you are off the hook. From CBP’s perspective, you may well have some form of liability if the seller does not make proper entry. Does this mean that as the DDP or LDP buyer, you should demand to get a copy of the 7501 from your seller? CBP says yes, but is that realistic? Even if you elect to do so, does it mean the document you are given is authentic? How are you supposed to make that determination? Each company will have to answer these questions for itself. What do your SOPs require?

Leave a Reply

remember my information