U.S. Customs and Border Protection

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U.S. Customs and Border Protection
Department of Homeland Security ? Customs
and Border Protection
WESCCON October 22, 2010 San Diego, California
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The Textile Import Industry
TEXTILES CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CHG CY08-09
Importers 68.9K 70.4K 69.3K 68.3K 68.7K 1
Lines 8.3M 9.0M 9.7M 10.2M 10.2M -0.1
Value 100.3B 104.2B 106.9B 105.2B 93.4B -11
Duty 10.0B 10.6B 11.2B 11.1B 10.0B -10
CY09 Industry Total All Imports Overall
Importers 68.7K 313.7K 22
Lines 10.2M 95.9M 11
Value 93.4B 1.7T 6
Duty 10.0B 21.5B 47
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Textile/Apparel Supplier Countries by Value 2008
and 2009
CY 2008 CY 2008 CY 2008
RANK COUNTRY of TEV
1 CHINA 36
2 MEXICO 6
3 INDIA 5
4 VIETNAM 5
5 INDONESIA 4
6 BANGLADESH 3
7 PAKISTAN 3
8 HONDURAS 3
9 CANADA 2
10 ITALY 2
11 CAMBODIA 2
12 THAILAND 2
13 HONG KONG 2
14 EL SALVADOR 2
15 SRI LANKA 1
CY 2009 CY 2009 CY 2009
RANK COUNTRY of TEV
1 CHINA 40
2 MEXICO 6
3 VIETNAM 6
4 INDIA 5
5 INDONESIA 4
6 BANGLADESH 4
7 PAKISTAN 3
8 HONDURAS 2
9 CANADA 2
10 CAMBODIA 2
11 THAILAND 2
12 ITALY 2
13 EL SALVADOR 1
14 SRI LANKA 1
15 GUATEMALA 1
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Apparel Supplier Countries by Value
CY 2008 CY 2008 CY 2008
RANK COUNTRY of TEV
1 CHINA 33
2 VIETNAM 7
3 INDONESIA 5
4 MEXICO 6
5 BANGLADESH 5
6 INDIA 4
7 HONDURAS 4
8 CAMBODIA 3
9 THAILAND 2
10 EL SALVADOR 2
11 PAKISTAN 2
12 SRI LANKA 2
13 ITALY 2
14 GUATEMALA 2
15 PHILIPPINES 2
CY 2009 CY 2009 CY 2009
RANK COUNTRY of TEV
1 CHINA 38
2 VIETNAM 8
3 INDONESIA 6
4 MEXICO 6
5 BANGLADESH 5
6 INDIA 4
7 HONDURAS 3
8 CAMBODIA 3
9 PAKISTAN 2
10 EL SALVADOR 2
11 THAILAND 2
12 SRI LANKA 2
13 GUATEMALA 2
14 PHILIPPINES 2
15 ITALY 2
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Trade Preference Programs
Department of Homeland Security ? Customs
and Border Protection

• Unilateral/Bilateral/Multilateral Preference
  Programs
• African Growth and Opportunity Act
• Qualifying Industrial Zones Jordan/Israel/Egypt
• Caribbean Basin Trade Partnership Act
• Haiti HOPE 1 and 2, HELP
• Andean Trade Promotion and Drug Eradication Act
• Free Trade Agreements (Israel, NAFTA, Jordan,
  Chile, Singapore, Australia, Morocco, CAFTA,
  Bahrain, Oman, Peru)
• Unique Qualifying Rules for Each

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Textile Enforcement
Department of Homeland Security ? Customs
and Border Protection

• Textile Production Verification Team 2009
  (Preference Claims)
• Visited 11 Countries
• Visited 223 Factories to Validate FTA/Trade
  Preference Claims
• Number of Factories Compliant 111
• Number of Factories Non Compliant 96
• 45 Non-Compliance Rate

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Enforcement Challenges Post 1/1/09
Department of Homeland Security ? Customs
and Border Protection

• Significant Shift Away from China Quota
  Enforcement
• FTA/Trade Preference Claims
• Continue to Use Textile Production Verification
  Team Visits
• Port Verifications
• Continue to Initiate Special Enforcement
  Operations
• Continue to Work with Foreign Counterparts to
  Exchange and Reconcile Trade Data
• Continue to Work and Expand Interaction with U.S.
  Mills to Ensure Validity of Claims
• Altered Affidavits
• Misrepresentation of Information

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Verifying Trade Preference Claims
Department of Homeland Security ? Customs
and Border Protection

• Verifications Will NOT Require the Detention of
  the Merchandise
• A Sample from the Immediate Shipment May Be
  Required This Requires an Examination
• CBP Will Request the Affidavit via a CBP 28
  Request for Information
• CBP Will Contact the Mill Regarding the Veracity
  of the Document and the Information Contained on
  the Affidavit Including Quantity and Type of Yarn
  and Fabric

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Verifying Trade Preference Claims
Department of Homeland Security ? Customs
and Border Protection

• CBP Does NOT Support the Use of Blanket
  Certificates
• Affidavits Must Contain Contact Information
• The Yarn Producer Must Prepare the Affidavit
• Affidavits Must Contain Specific Information
• Type of Yarn/Fabric
• Should Link to Other Supporting Documents
  Contracts Invoices Purchase Order Numbers

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Verifying Trade Preference Claims
Department of Homeland Security ? Customs
and Border Protection

• Document Requirements for Claims Requiring
  U.S./Regional Yarn or Fabric
• Records that Demonstrate the Goods Were Made in
  the U.S./Region
• Purchase Orders
• Invoices
• Delivery Notices
• Transportation and Export Records
• Entry Documents Showing Goods Crossing the Border
  into the Country of Final Production

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Verifying Trade Preference Claims
Department of Homeland Security ? Customs
and Border Protection

• If Documents Do Not Substantiate the Claim of
  Preference the Duty-Free Treatment Will Be
  Denied.
• Prior Claims May Be Reviewed for Sufficiency and
  CBP Will Determine if a Pattern of Non-Compliance
  Exists
• Penalties May Be Assessed, as Appropriate

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• Use of Short Supply Claims in CAFTA
• FY 08 and 09 474 lines with a total value of
  12.8 M for 38 different importers were reviewed.
• 243 (51) of those lines were determined to be
  non-compliant.
• 1.4 M in revenue to be recovered has been
  identified. 
• Pocketing Fabric
• 22 Targeted Entry Reviews Loss of Revenue 70K
• FTA Annual Verification Initiative

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• Operation Mirage Initiated As a Prototype to
  Determine the Scope and Impact of Undervalued
  Textiles Claiming China as the Country of Origin
• Scientific Statistical Sample of 181 Importers of
  Record (IoR) and 400 Entry Lines
• New IoR Number Used over the Last 18 Months
• More than 50,000 in Value
• ISA Partners Eliminated
• Volunteer Teams of CBP and ICE Personnel
  Conducted Visits to the Sampled IoR
• Visits to the Brokers (Filers) and Freight
  Forwarders Were Also Conducted

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• Approximately 55 of the IoR Visited Did Not Have
  the Legal Right to Make Entry (19 U.S.C. 1484)
• Did Not Own the Goods
• Had No Financial Interest In the Goods
• In Most Instances Did Not Even Know that Goods
  Were Being Imported into the United States
• Had NO KNOWLEDGE of the Transaction No
  Paperwork Contracts, Invoices, Payment Records
• DDP/LDP Parties Importing Branded Merchandise for
  Major Retailers

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• Bogus (Exist on Paper Only) Importers
• No CBP Systems to Validate IoR
• EIN/CBP Generated ID Numbers Are Not Vetted
• Entities Keep Generating New Identities on Paper
• Inability to Collect Duties
• Inability to Penalize
• Inability to Hold Anyone Accountable

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• First Time Importers Are Assumed to Be Low Risk
• IoR Quickly Saturates the Bond before
  Discrepancies Are Found
• Bonds Cover Duties, but No Monetary Penalties
• Entities Find It More Advantageous to Change
  Their Names and Obtain New Bonds
• Companies Not Paying Their CBP Bills on the
  Sanction List and Create New Identities

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• Brokers Have No Contact with the IoR
• Relying on Information Provided Through Freight
  Forwarders
• Not Exercising Proper Supervision and Care
• Accepting Billing Waivers
• Powers Of Attorney Not Validated Improperly
  Executed

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• 19 U.S.C. 1484
• information shall be transmitted either by the
  owner, or purchaser of the merchandise ora
  person holding a valid license
• A nominal importer does not have the right to
  make entry.
• The importer must exercise reasonable care

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• 18 U.S.C. 1001
• falsifies, conceals, covers up by any trick,
  scheme, or device a material fact
• Makes any materially false, fictitious, or
  fraudulent statement or representation, or
• Makes or uses any false writing or document
• Shall be fined, imprisoned not more than 5 years

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Special Enforcement Initiatives
Department of Homeland Security ? Customs
and Border Protection

• 18 U.S.C. 1002
• Ditto for possession of false papers to defraud
  the United States

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Doing Business Using DDP/LDP

• Dont!!!!! But If You Insist
• Make a Surprise Visit to the IoRs Address
• Does it Exist?
• Is Anyone There?
• Is It Virtual Office Space?
• Do They Know Details about the Transaction?
• How Many Layers Are in the Transaction?

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Doing Business Using DDP/LDP

• Ask for and Review the Customs Entry
• Does the Information on the Entry Match Your
  Purchase Order?
• Description?
• Quantity?
• Value?
• Who Is the Broker? Has the Broker Met the
  Importer of Record? Who is Orchestrating the
  Transaction? Importer? Freight Forwarder?

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• The Broker is Licensed by CBP to Conduct CBP
  Business
• The Broker is a Critical Player in and Advocate
  of a Secure Supply Chain
• If You Do Not Know Who Is Importing the Goods Do
  You Know What They Are Importing?
• If the Information Regarding the Importer Is
  Incorrect Are You Confident that Everything
  Declared to CBP on the Entry Is Correct?

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• The Purpose of a Customs Brokers License Is NOT
  Simply to File Entry Data on Behalf of Others
• No Person May Conduct Customs Business . . .
  Unless that Person Holds a Valid Customs Brokers
  License Issued by the Secretary under Paragraph
  (2) or (3) of 19 U.S.C. 1641(b). 

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• The Term Customs Business Is Defined to Mean
  Those Activities Involving Transactions with
  (CBP) Concerning the Entry and Admissibility of
  Merchandise, Its Classification and Valuation,
  the Payment Of Duties, Taxes, or Other Charges
  Assessed or Collected By (CBP) upon Merchandise
  by Reason of Its Importation . . . .  19 U.S.C.
  1641(a)(2).

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• It also includes (also includes means in
  addition to the primary task set forth in the
  previous slide) preparation of documents or forms
  . . . and the electronic transmission of (same) .
  . . intended to be filed with (CBP) in
  furtherance of such activities. . .or activities
  relating to such preparation, BUT DOES NOT
  INCLUDE THE MERE ELECTRONIC TRANSMISSION OF DATA
  RECEIVED FOR TRANSMISSION TO CUSTOMS. 

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• The importer of record has to be the owner or
  purchaser of the merchandise, and the broker
  should always ascertain if that is the case
  before declaring that a certain party is the
  importer of record.  Bear in mind that the
  declarations made at entry are to be done
  exercising reasonable care and are certified by
  the broker as being true and correct.  19 U.S.C.
  1484.

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• The customs broker statute provides A customs
  broker shall exercise responsible supervision and
  control over the customs business it conducts. 
  19 U.S.C. 1641(b)(4).  The phrase responsible
  supervision and control is defined to mean that
  degree of supervision and control necessary to
  ensure the PROPER transaction of (its) customs
  business . . .. 19 CFR 111.1.  If a broker does
  not know that the person it is listing on an
  entry is a qualified importer of record, it
  clearly has failed to ensure that a PROPER
  transaction of its customs business has occurred.

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Role of the Broker
Department of Homeland Security ? Customs
and Border Protection

• Invalid POAs. Part C of 19 CFR 141
• Disclosing business proprietary and Customs
  business documents to unlicensed persons. 111.24
• Freight forwarders conducting Customs business
  without a license.
• Brokers accepting made-up commercial invoices
  without any supporting documentation. 141.86
• Brokers NOT properly identifying importer when
  the transactions terms of sale identify DDP or
  LDP party.

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Department of Homeland Security ? Customs
and Border Protection

• Thank You