SANDLER & TRAVIS TRADE ADVISORY SERVICES, INC.
An Affiliate of Sandler, Travis & Rosenberg, P.A.
INTERNATIONAL TRADE & CUSTOMS SEMINARS
BEST PRACTICES FOR SURVIVING
ORIGIN VERIFICATIONS BY US CUSTOMS &
BORDER PROTECTION
Nicole Bivens Collinson
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Today’s Topics
1.
Textile Apparel Transshipment – Why is it still a hot topic?
2.
CBP’s Enforcement Mechanisms and How to Survive Them
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FTA/Preferential Trade Program Claims
Non-Preferential Trade Claims
3.
The Ins and Outs of Production Documentation Reviews
4.
Best Practices for Smooth Sailing
5.
Update on Other Product Standards Compliance
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1. Textile Transshipment –
Why Is It Still a Hot Topic?
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Illegal Textile/Apparel Transshipment Defined
Claiming a false country of origin to circumvent quota, safeguards, etc.
or to obtain duty-free treatment under a FTA/preferential trade
program.
HOW?
1.
Wholly assembling garment in 1st country, finishing it in 2nd country,
and claiming 2nd country as COO;
2.
Performing major operations in 1st country, minor operations in 2nd
country, and claiming 2nd country as country or origin; or,
3.
Wholly assembling garment in 1st country, sewing false country of
origin labels into garments in 2nd country, and claiming 2nd country as
COO.
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Why is it bad for business?
 Decreased competitiveness of importing countries’ domestic
market
 Distortion of quota/safeguard and other quantitative restraint levels
 Unfair competitive advantage gained by violators
 Consumers are misinformed about the true origin of goods
 Importers Can’t Import
 Exporters Can’t Export
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Why is it bad for business?
•
Delays in release of goods
•
Increase in costs for the Importer
•
Corporate image and reputation damaged
•
Goods could be seized
•
Increased inspections
•
Increase in post-entry inquiries by CBP
•
Potential cancellation of contracts/orders
•
Harm to Importer’s business relationships
•
Added costs/bottom line impact
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Why is transshipment still such a hot topic?
 We have seen a renewed push in transshipment prevention
initiatives by CBP because of –
• Pressure from Congress, domestic textile industry and labor
unions for stricter enforcement of rules of origin
• The Mod Act requires importer reasonable care
• Increase in number/use of Free Trade Agreements and
preferential trade programs
• Attempts by companies to circumvent Chinese safeguards
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Importance to Manufacturers/Exporters
•
More Buyers requiring LDP/DDP
•
Involvement discourages US buyers
•
Ability to provide CBP requested documentation in very timely
matter
•
Importer/supplier relationship subject to level of cooperation
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2. CBP Enforcement Mechanisms
and How to Survive Them
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How Customs Enforces the Rules of Origin
 Textile Production Verification Team Visits (“Jump Team
Visits” or FTA/Preference Program “Verification Visits”)
 Detentions/Exclusions - Production Record Reviews
 CF-28s/CF-29s and Production Records Reviews
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Textile Production Verification Team Visits
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Jump Team/Verification Visits
 All producers of textile/apparel articles, regardless of use
of FTAs/preference programs, are routinely subjected to
unannounced, onsite factory verifications by CBP.
 The Jump Team/Verification Team typically consists of
two or three-persons—usually Import Specialists and CBP
Agents
 Purpose of Visit: Jump Team will seek to verify country of
origin, recent FTA/preference program claims made, and
look for evidence of transshipment.
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Jump/Verification Team’s Assignment
 Meet with and interview the Producer’s Senior Management;
 Tour the Producer’s facility, looking for evidence of
transshipment activities;
 Request and review production documents for recent shipments
to the US
 Submit written report to CBP HQ as to: (1) whether the
factory’s records clearly substantiate the origin of the goods;
and, (2) whether the factory poses a risk of engaging in illegal
transshipment
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Jump/Verification Team’s Meeting With Senior Management
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Typical questions:
When was the company established and by whom?
Does the company have any other related factories? Where are
they located and what are there names?
What products does the company manufacture?
What is the factory’s monthly production capacity?
How many employees are involved in the production of the
merchandise (KTS, cutting, sewing, inspecting, finishing, etc.)?
What is the skill level of the employees?
What is the typical work week– 5 days, 6 days, 7 days?
What is the typical workday– 8 hours, longer?
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Jump/Verification Team’s Meeting With Senior Management
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Typical questions: (continued)
How many and what types of machines does the factory have?
Does the factory subcontract production? To whom?
Does the factory use OPA?
Who are your primary customers in the United States?
Does the company sell to customers in countries other than the
United States? If so, where and what percentage of its
production is dedicated to non-US markets?
Does the factory maintain production records for goods shipped
to the United States? Do their subcontractors maintain
production records?
Etc.
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Jump Team’s Tour of the Facility
The Team will look for evidence of transshipment, such as:
 Not enough workers present or not enough machines being used
to produce the merchandise;
 Skill level of the workers is very low;
 There are cartons of knit panels/fabric components, fabrics or
yarns from other countries;
 Boxes of knit panels are not being delivered to a factory that is
responsible for linking and looping;
 Shipping cartons bear the wrong country of origin;
 Etc.
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Jump/Verification Team’s Review of Production Documents
 The Jump Team will choose a style number that was recently
shipped to the US, and request the factory to show them:
• All raw material records
• Production records for the finished garments
• Employee timecards and payroll records
 The Team will review the records to trace production from
receipt of raw materials, production, and shipment of finished
goods to the United States.
 The documents must show a logical, chronological progression
in the production of the finished goods.
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Jump/Verification Team’s Production Document Review
NOTE: Factories should already have recordkeeping
processes—the request for records should not confuse the
factories!
Records should be maintained by contractors/subcontractors for
all style numbers for –
• At least 1 year following date of shipment to the US for non
FTA/preferential trade program goods (best practice); or,
• The period required under the FTA/preferential trade
program (i.e., AGOA requires producers/vendors to keep
records for at least 2 years); or,
• The period required in the vendor agreement (if longer than
CBP recordkeeping requirements)
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Consequences of an Unsatisfactory Visit
 CBP imposes national criteria, begins to detain all shipments of
merchandise from that producer for all US importers, and requests
production records.
 Detained shipments may be excluded from entry.
 CBP may ban shipments from the producer.
 CF-28s/CF-29s may be issued requesting documents for—
• Previously filed FTA/preferential trade claims; and/or
• Future FTA/preferential trade program claims.
 If goods are still within the conditional release period, CBP may
demand redelivery (and liquidated damages for failure to redeliver).
 FTA/preferential trade program producers/vendors may be suspended
or expelled from the program.
 CBP could begin scrutinizing US importer’s other imported
merchandise (from other vendors, producers, countries).
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Detentions/Exclusions of
Merchandise
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Detention/Exclusion Timeline
1. Merchandise Presented for Examination
CBP is required to detain or release goods within 5 working
days after the goods’ arrival in the US.
2. Customs Issues Notice of Detention
A Notice of Detention (which can also be accompanied by a
CF-28) will be issued to the customs broker or the US
importer. The US Importer is required to respond and present
all of the required documentation within 30 days of the date
of Notice of Detention or the goods will be excluded. No
extensions will be granted by CBP.
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Detention/Exclusion Timeline
NOTE – CBP is required to make its decision (release or
exclude) by Day 30, so US Importers must respond with
production records as early as possible within the 30-day
period so that CBP will have time to make a decision.
3. Deemed Exclusion: If no decision is made by CBP
within this 30-day period, the goods will be “deemed
excluded.”
4. Decision to Exclude: If the goods are excluded, the US
Importer may—
• Export the goods (they may never reenter the US);
• Destroy the goods under CBP supervision; or,
• Protest CBP’s decision to exclude the goods.
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CF-28s/Non-Detention
Situations
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CF-28s/Non-Detention Situations
 Even when goods are not detained, CBP may later issue a CF-28
requesting records to substantiate origin or verify a FTA/preferential
trade program claim.
 US Importer will have 30 days in which to respond, and CBP may
grant extensions.
 If CBP is satisfied with the documentation, no further action will be
taken.
 If CBP is not satisfied with the documentation, CBP may—
• Request additional information/documentation;
• Issue a CF-29 Notice of Action;
• Request redelivery of the goods to CBP;
• Begin detaining future shipments; and/or
• Begin denying future FTA/preferential trade program claims.
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CF-29s: Notices of Action
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CF-29s: Notices of Action
 If CBP disagrees with the manner in which the US
Importer originally the merchandise (i.e., declared origin,
eligibility for FTA/preferential trade program), CBP will
issue a CF-29 Notice of Action proposing to take a certain
action on the entry (i.e., denial of claim, change in origin).
 The Notice will typically request that the US Importer
respond within 20 days—submit production records
 If no response is made (or documents are unsatisfactory),
CBP will take the proposed action.
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3. The Ins and Outs of Production
Documentation Reviews
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Keys to Production Documentation Reviews
 CBP has wide latitude in deciding which records it wants to review.
 All documents must be translated into English.
 Submit a detailed document timeline with the records.
 Submit a detailed explanation of who all the parties to the transactions are and
what role they played.
 Records should contain one or more reference numbers (PO#, style number,
production order number, cut lot number, contract number, etc.) that may be
used to trace production from the raw materials to the finished goods.
 Avoid submission of only computerized summaries– CBP wants the original,
contemporaneous documents.
 Records should create a paper audit trail that clearly, logically, and
chronologically tells the whole story.
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Modular vs. Non-Modular Production Operations
 Modular Manufacturing: CBP has acknowledged that
many factories are using modernized line systems of
production, in which traditional documents (i.e., cutting
tickets, sewing tickets, manual timecards) are not used.
Rather, all of the records generated for these functions are
automated. Ensure to make CBP aware of this for
production document reviews.
 Traditional Production System: Producers that do not use a
module system will still be required to present cutting
tickets, sewing tickets, manual timecards to verify
production.
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Common Document Pitfalls
 Dates: Garments sewn before fabric arrived or before cutting, etc.;
 Transportation/Shipping Documents don’t coincide with processing that
takes place in each country;
 Fabric/trim invoices don’t cover the amounts, colors, types, etc. needed to
produce the PO quantity;
 Cutting, Assembly, Inspection, Finishing and Packing Records: Quantities
do not match, dates of operations are illogical;
 Production Steps: Illogical sequence of operations
 Timecards/payroll: Workers absent on dates of production;
 Sewing tickets/Cutting tickets are missing
 Missing subcontractor production records, timecards and payroll records
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4. Best Practices for Transshipment
Prevention Programs
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Best Practices for Transshipment Prevention
1.
Issue formal corporate policy to employees, agents,
vendors, producers, subcontractors on the prevention of
illegal transshipment.
2.
Document transshipment prevention policy and
procedures in compliance manual.
3.
Make transshipment prevention part of employee
training.
4.
Train agents, vendors, producers, subcontractors on the
rules of origin and transshipment prevention
policies/procedures
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Best Practices for Transshipment Prevention
5.
Seek binding rulings from CBP.
6.
Seek attorney or broker advice.
7.
Have attorney or broker periodically review sample
production records for a recent shipment to verify
vendor/producer compliance
8.
Maintain lines of communication within textile
associations.
9.
Make valid CBP origin declarations.
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Best Practices for Transshipment Prevention
10.
Make valid FTA/preferential trade program claims:
 Proper CBP declarations
 Valid Certificates of Origin
 Valid Declarations of Compliance for Brassieres
11.
Protectection through your contracts, PO terms and conditions,
agent agreements, vendor agreements, etc.—
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Require retention of records
Prohibit unauthorized subcontracting
Provide “out” from agreement for violations
Condition payment on legitimacy of goods
Impose indemnification for penalties/expenses of
transshipment
Include penalty provisions in letters of credit if information
falsified
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Best Practices for Transshipment Prevention
12. Require retention of records for at least one-year from
date of shipment for non-FTA/Preference Program
goods.
13. Require retention of records for at least the period
required by CBP for the FTA/Preference Program used
(i.e., AGOA – 2 years, FTAs usually 5 years).
14. Perform regular and periodic inspections of
manufacturer operations/document reviews.
15. Require agents to perform regular and periodic
inspections/document review.
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Best Practices for Transshipment Prevention
16. Require updated factory profiles annually or when major
factory changes occur.
17. Obtain Manufacturers’ Declarations of Origin.
18. Train vendors/producers/subcontractors on how to
handle Jump Team Visits, compile production records,
etc.
19. Require vendors to immediately notify you and the agent
if a Jump Team Visit occurs.
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Tips for Factory Profiles & Factory Visit Reports
Factory Profiles and Factory Visit Reports form an
excellent audit trail showing that the Importer has
exercised due diligence and only places orders with
factories that—
• Have been proven to be open and in full operation; and,
• Have the requisite machinery and skilled manpower to
produce the imported merchandise
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Laundry List of Back-Up Records To Be Maintained
 Importer/agent inspection records from factory visits
 Factory profile for producers/subcontractors (verification of production
forms, if used)
 Importer purchase order
 Commercial invoice, packing list, transportation, export clearance
records for finished garments shipped to the United States
 Certificates of origin, Declarations of Compliance, Manufacturers
Affidavits of Origin
 List of production steps and time required for each step
 Product specifications
 Costing sheets
 Raw material (fabric, yarn, sewing thread trim) records:
• Purchase orders, packing lists, invoices
• Bills of lading/air waybills
• Customs export/import clearance records
• Certificates of origin
• Warehouse records (receiving and “pull” records)
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Laundry List of Back-Up Records To Be Maintained
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Cutting records (tickets, daily records)
Assembly records (tickets, daily records)
Knitting machine records (KTS)
Finishing records (washing, ironing, packing, etc.)
Transportation records showing movement of components from/to
cutting facility, sewing facility, facility of any subcontractor used
(including Customs import/export clearance records for OPA
operations)
In-line and final inspection records
Employee timecards (including timecards for employees supervising
knitting machines)
Employee payroll records (including records for employees
supervising knitting machines)
Proof of payment
Documents showing the factories were actually operating during the
period of production (i.e., utility bills, rent checks, etc.)
All of the above-referenced records for subcontractors used for
production
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Successful Jump/Verification Team Visits:
Preparing Your Agents/Vendors/Producers
 Be Prepared: Factories should be maintaining production
documents for all styles of merchandise shipped to the United
States (including all cutting and sewing tickets).
 ALWAYS Let Them In! – Factories should never refuse to let a
Jump/Verification Team in their doors, unless they want to have
their goods detained.
 Avoid Communication Problems: Factories should designate
someone in Senior Management with excellent English language
skills to act as the main contact with the Jump/Verification Team
 Speak up! There Is No Harm In Asking! Factories should never
be afraid to ask the Team questions about their concerns and
impressions of the factory, and should give explanations when the
Jump Team does not understand something.
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Successful Jump/Verification Team Visits:
Preparing Your Agents/Vendors/Producers
After the Visit
 Notify the Importer: Factories should immediately notify the
Importer that a Visit of its facilities (or one of its subcontractors) has
occurred.
 Address Issues: Factories should immediately address any issues
identified by the Jump Team and implement the necessary internal
controls.
 Get the Report: Importers can obtain a copy of the Jump Team’s
Report via FOIA.
 Recordkeeping: Confirm that the factories are maintaining production
records for upcoming shipments or shipments that are on the water
(readiness to respond to detentions).
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Update on Other Product Compliance
Efforts
Both the US Congress and the Administration are
focusing great attention on food and other product
imports.
• Recent problems with food imports (pet food,
toothpaste)
• Recalls of dangerous products (lead tainted children’s
toys, toys with detachable magnets, etc.)
• Domestic problems with foods (spinach, salad mix,
frozen hamburgers)
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Potential actions
 President created interagency working group – 1st report
out already, 2nd report due by Mid-November
 The Consumer Product Safety Commission is seeking
greater authority in inspections, ability to penalize and
greater resources
 Congress is considering mandating 3rd party testing of all
children’s products
 Congress is considering increasing food testing abroad
 States taking own action (California bans sale of children’s
jewelry – after March 2008, must meet certain criteria
 Domestic actions in countries
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Who will conduct additional
inspections/verifications?
 Customs will be the first line of defense for
imports
 Consumer Product Safety Commission
 Food and Drug Administration
 US Department of Agriculture
• APHIS – Animal Plant Health Inspection
Service
• FSIS – Food Safety Inspection Service
 Other agencies
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How Does This Impact Me?
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Cost for 3rd party testing
Increased inspection by buyers
Increased inspection by US entities
Increased inspection by Domestic entities
New product compliance requirements
Costs for additional personnel to handle
compliance
 Costs associated with any problems with
merchandise or delays
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Keep Up to Date
It is essential that manufacturers and exporters
to the United States closely monitor
developments by government agencies and
US Congress that may impede trade, add
costs, impact directly ability to compete.
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Thank you!
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