Date: Wed, 31 Dec 1997 20:46:45 GMT Server: WebSitePro/1.1h Accept-ranges: bytes Content-type: text/html Last-modified: Wed, 31 Dec 1997 20:46:45 GMT Content-length: 14802 TEXTILE

 

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TEXTILE/GARMENT IMPORTERS GUIDELINES SET PRECEDENT FOR ALL IMPORTERS

For the last few years U.S. Customs has made as one of the focuses of its activities the issue of textile transshipments, i.e. goods which are manufactured in one country are shipped to another country, relabeled, shipped to the U.S. and claimed to originate in the second country. The matter first came to public attention about four years ago when massive criminal raids were conducted in the New York garment district, with substantially fewer companies raided in Los Angeles. Several criminal indictments followed with minimal convictions. Many civil penalty cases are thought to have resulted as well. However, their results are confidential. For many engaged in importing, there have been questions about the full extent of the transshipment problem. As the vast majority of importers are honest, the trading community has been pushing for more detailed information from Customs about the "bad apples" beyond just the occasional call from one’s factory advising a Customs team had just visited or the usual industry rumor mill.

The result was Section 333 of the Uruguay Round Agreements Act (Pub.L. 103-465, 108 Stat. 4809, signed on December 12, 1994), entitled Textile Transshipments. It amended Part V of Title IV of the Tariff Act of 1930 which was enacted into law as 19 U.S.C. §592a. It authorizes the Secretary of the Treasury to publish a list in the Federal Register twice a year of companies outside the U.S. which have been issued penalty cases under the provisions of 19 U.S.C. §1592 [making a material false statement or a material omission as part of the entry process; extends to exports under NAFTA] involving one or more of the following violations: 1) using or providing documents which indicate a false country of origin or source; 2) using or providing counterfeit visas, licenses, permits, bills of lading, or similar documents used in the entry of goods; 3) manufacturing, producing, supplying or selling goods which are falsely or fraudulently labeled as to their origin or source; 4) aiding or abetting the transshipment of goods in a manner which conceals their true origin or permits evasion of quotas or voluntary restraint agreements regarding textiles.

For U.S. importers, a supplier company’s name being published on this "black list" imposes a higher burden regarding reasonable care. The requirement to act with reasonable care arises from the Customs Modernization and Informed Compliance Act [the Mod Act] (Pub.L. 103-182, 107 Stat. 2186 (1993), Title VI). Simply relying on what these suppliers provide by way of documents is specifically NOT reasonable care according to Customs. For the period ending March 1995, no companies were listed. However, for the period ending September 1995, nine companies were named with Customs seeking information about another forty. The nine listed are located in either India or China. The forty being sought have last known addresses in Australia, China, Dominican Republic, Fiji, Hong Kong, India, Jamaica, Mongolia, Malaysia, Taiwan or Togo.

In a September 28, 1995 Federal Register notice, U.S. Customs listed some suggested steps importers should take to verify the information provided by these suspect suppliers:

  1. is there a prior relationship between the parties;
  2. are there prior detentions or seizures of products directly or indirectly produced, supplied or transported by the named supplier;
  3. has the importer visited the supplier’s premises and ascertained a capacity to produce the goods;
  4. if applicable, has the importer independently established that the supplier substantially transforms (i.e. manufactures) his goods;
  5. is the supplier located in the same country as the goods are sourced;
  6. are quotas about to close for the goods in question or are they nearing closure from the main producer countries;
  7. what is the country’s history regarding the goods;
  8. has the importer asked questions regarding origin; and 9) if there is a visa, permit or license, has the importer verified its validity and accuracy with the supplier and scrutinized the document for irregularities which would call its authenticity into question.

How many of these suggested steps are practical is open to question. For example, a long history of conforming goods does not give notice of a potentially problematic shipment. Likewise, should every shipment from China involving a Hong Kong seller be suspect? Does quota closing in one country really have any bearing on goods sourced from another? What good does it do to visit the plant if the supplier conceals his activities from the visiting importer? [Just ask the folks at China Diesel how much it helped them - see China Diesel Imports Inc. v U.S., 18 C.I.T., Slip Op. 94-185 (December 7, 1994).] Does domestically buying goods which were actually manufactured by a suspect supplier [but not knowing of his existence] put an importer on notice of a potential problem if he subsequently buys goods directly from that supplier?

If the supplier is providing counterfeit documents, is he really going to divulge that to his innocent supplier? What does it mean to "scrutinize" the visa? Is it enough to determine that the details in it match those of the shipment?

The thornier issues this recommended list raises are the consequences if the importer has not taken these steps. Should the importer hold his goods from entry until he undertakes each step? Should his broker decline to enter the goods until each step is undertaken? Should application of these recommended steps differ depending on the size of the company and/or whether or not the importer employs an agent in the country of export? While Customs is to be commended for its attempt to provide the importing community with reasonable care guidelines, those guidelines need to be practical and commercially possible. Whether the current list proves to be helpful remains to be seen.

Publication of this listing of nine recommended steps could also be an indicator of steps Customs might recommend in other contexts. As a result, how Customs approaches reasonable care regarding textile imports should be monitored by all importers, especially since we still await publication of the regulations implementing the Mod Act.

 

MORE TEXTILE PROBLEMS
8/96

As part of its continuing effort to insure accuracy of import declarations, Customs has extended its audits of major importers to include transshipment issues. As a result, 18 importers of textiles and wearing apparel which are large in size and import from Macao and Hong Kong are rumored to be selected for Customs audits. It is understood that Customs will include in its audit questions about whether the importer has visited the factory. If so, how often? What special training regarding textile rules of origin does the importer provide to its employees? Another area of inquiry has to do with agents. How are agent payments handled? What sort of background and factory investigations are conducted? Is there a written agency agreement? Does it include language prohibiting transshipment?

Can importing textiles or wearing apparel get any more difficult?

 

NEW U.S. TEXTILE RULES OF ORIGIN TAKE EFFECT
7/96

The new U.S. rules of origin for textile products and wearing apparel took effect on July 1, 1996. No longer does the place of manufacture or assembly confer origin. In addition, goods not previously considered textile articles are effected, e.g. umbrellas, watch straps, car seat belts, parachutes and doll clothing. The new rules are process driven and apply to all textile articles and wearing apparel except those from Israel plus these new rules REPLACE the NAFTA marking rules. The rules are divided into three areas: 1) general rules, 2) special rules and 3) multi-country rules.

The general rules confer origin if the good is wholly produced in the country where it is produced. With yarn, origin is conferred by spinning or extrusion. For fabric, origin is conferred by formation. Another process which confers origin is assembly. Minor subassemblies do not change origin, e.g. collars, cuffs, plackets and pockets. Minor embellishments also do not change origin, e.g. appliques, beads, spangles and buttons. Assembly occurs only when at least two pieces of fabric are involved which existed prior to assembly in essentially the same condition as is found in the final article.

The special rules deal with knit to shape, major parts and specially listed commodities. Knit to shape is defined as 50% or more of the exterior surface area is formed by major parts which have been knitted or crocheted directly to the shape used in the good. Major parts exclude collars, cuffs, pockets, placards, paddings and linings. Where these minor parts cover the exterior surface, the concealed surface will still be considered to determine whether the 50% requirement has been met. There are 16 types of goods specifically mentioned which are exempted from the rule of assembly confers origin approach. These goods include diapers, handkerchiefs, scarves, quilts and household furnishings. In this category, origin is conferred either by where the yarn is spun or extruded or where the fabric is formed.

The most complicated rules apply in the multi-country situation. Origin is determined by where the most important processing or assembly operation took place. Customs will NOT consider time, cost, value added or complexity in making its decision. If application of this rule still does not provide an answer, the final rule of origin is determined by the country where the last important processing occurred. Unfortunately Customs has yet to provide any criteria by which to make such a determination.

If application of the fabric formed rule leaves an importer in the position of not being able to get his visa from the country where the fabric was formed, he might consider having his good made from fabric formed in more than one country in order to trigger the multi-country rules. But what happens with the Federal Trade Commission requirements regarding U.S. made garments which remain unchanged? Customs is also trying to address the foreign assembly implications under 9802.

 

Copyright © 1997 S.K. Ross & Assoc., P.C.