The ABC's of Doing Business In The Caribbean
By Harvey B. Fox (1941 -- 2010)
I. Customs Law And Regulations
What I am going to do today is to provide you with information concerning:
· Certain provisions of the Caribbean basin trade partnership act (CBTPA), which I will refer to as the CBI Partnership;
· Customs laws and regulations; in particular:
- Informed compliance.
- Reasonable care.
- Audit and recordkeeping.
- Certificates of origin.
- Country of origin marking.
- I will then attempt to answer any questions you may have.
· It's my understanding that you're interested in information about U.S. textile mills that produce fabric from United States yarn.
· The fabric is then exported to a CBI Partnership country to a CMT contractor who makes the fabric into finished garments.
· The finished garments are then imported into the United States by the U.S. textile mills where they're sold or have been sold to retailers or brand sellers.
III. CBTPA Program
· I'll begin with the changes to the CBI Partnership that affect you:
· The first change:
a. What is referred to as "807a" (9802.00.80.15)
- Apparel articles assembled in one or more CBI Partnership country that are made from woven or knit fabrics, wholly formed and cut in the United States, from yarns that are wholly formed in the United States will be allowed duty-free and quota-free access to the United States market.
- This provision permits embroidery, stone-washing, enzyme-washing, acid washing; perma-pressing, oven-baking, bleaching, garment dyeing, screen printing, or other similar processes.
· The second change:
b. What is referred to as "809"
- Apparel articles that are cut and assembled in one or more CBI Partnership country from woven or knit fabrics, wholly formed in the United States from yarns, wholly formed in the United States, will also enjoy duty-free and quota-free access to the United States as long as they have been assembled with thread made in the United States.
· The third change:
c. CBI – "regional knit fabric"
· Apparel articles knit to shape (other than socks) in a CBI Partnership country from yarns wholly formed in the United States, and knit apparel articles (excluding outerwear t-shirts) cut and wholly assembled in one or more CBI Partnership country from fabric formed in one or more partnership country or the United States from yarns wholly formed in the United States are eligible for duty-free/quota-free treatment, but are capped.
· For the first year, the amounts are capped at 250 million square meter equivalents beginning on October 1, 2000, increased by 16 percent, compounded annually, in each succeeding 1-year period through September 30, 2004; and in each 1-year period thereafter through September 30, 2008, the amount in effect for the 1-year period ending on September 30, 2004, or such other amount as may be provided by law.
d. CBI t-shirts
· T-shirts other than underwear made in one or more CBI Partnership country from cotton or man-made fiber fabric formed in one or more CBI Partnership country from yarn wholly formed in the United States are also eligible for duty-free and quota-free treatment.
· But are capped at 4.2 million dozen during the 1-year period beginning on October 1, 2000, increased by 16 percent, compounded annually, in each succeeding 1-year period through September 30, 2004; and in each 1-year period thereafter, the amount in effect for the 1-year period ending on September 30, 2004, or such other amount as may be provided by law.
A. Short supply
· Apparel articles that are both cut (or knit-to-shape) and sewn or otherwise assembled in one or more CBI Partnership country, from fabric or yarn that is not formed in the United States or in one or more CBI Partnership country, because the fabric or yarn is not widely available in commercial quantities, may also be free of duty and quota provided that the apparel articles would be eligible for preferential treatment, without regard to the source of the fabric or yarn, under annex 401 of the NAFTA.
· There is a petition and approval process that must be followed under this exception.
B. Findings and trimmings
· An article eligible for preferential treatment will not be ineligible because the article contains findings or trimmings of foreign origin, if the findings and trimmings do not exceed 25 percent of the cost of the components of the assembled product.
· Examples of findings and trimmings are sewing thread, hooks and eyes, snaps, buttons, bow buds, decorative lace, trim, elastic strips, zippers, including zipper tapes and labels, and other similar products.
· Elastic strips are considered findings or trimmings only if they are each less than 1 inch in width and are used in the production of brassieres.
· Sewing thread would not be considered under this exception for apparel that is cut and assembled in one or more CBI Partnership country from woven or knit fabrics, wholly formed in the United States.
· Remember under this provision the thread must be made in the United States.
An article eligible for preferential treatment will not be ineligible because the article contains certain interlinings of foreign origin, if the value of the interlinings (and any findings and trimmings) does not exceed 25 percent of the cost of the components of the assembled article.
· Interlinings eligible for the treatment include only a chest type plate, 'hymo' piece, or 'sleeve header', of woven or weft-inserted warp knit construction and of coarse animal hair or man-made filaments.
· The treatment described will terminate if the president makes a determination that United States manufacturers are producing such interlinings in the United States in commercial quantities.
D. De-Minimis Rule
· An article that would be ineligible for preferential treatment because the article contains fibers or yarns not wholly formed in the United States or in one or more CBI Partnership country will not be ineligible if the total weight of all such fibers or yarns is not more than 7 percent of the total weight of the good.
· An exception to the exception. Elastomeric yarns must be wholly formed in the United States.
· All of the provisions I've discussed are contained in the law (public law 106-200).
· Hopefully, customs implementing regulations, which are being drafted (as we speak), will provide guidance on how the provisions will be interpreted and applied.
V. Customs Laws and Regulations
What I'd like to do at this point is talk about U.S. customs laws and regulations.
The United States customs service issued a press release last year concerning a $14 million settlement it had reached with a private corporation.
The settlement resolved penalties owed by the corporation stemming from civil and criminal charges brought against it by customs for, among other things, country of origin mismarking and the undervaluation of imports. In the press release commissioner Kelly is quoted as saying:
"Importers are required to take 'reasonable care' to ensure that they comply with U.S. import laws" and "this case shows that penalties can be steep if they fail to do so."
VI. Basic Principles of the Customs Modernization Act (MOD Act Effective December 8, 1993)
I believe that the customs modernization act (the "MOD Act") is one of the most important pieces of customs legislation to be enacted during this century.
· On December 8, 1993, Title VI of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat. 2057) which is also known as the Customs Modernization Act or "MOD Act" became effective.
· The MOD Act amended many sections of the tariff and related laws.
· Two new concepts that emerged from the MOD Act are "informed compliance" and "shared responsibility".
· These concepts are premised on the idea that in order to maximize voluntary compliance with customs laws and regulations the trade community must be clearly and completely informed of its legal obligations.
· The MOD Act imposed greater obligations on customs to provide the public with improved information concerning the trade community's responsibilities and rights under customs and related laws.
· In this respect customs has: issued a series of informed compliance publications; prepared several videotapes; issued numerous interpretive rulings; and provided information to the trade community in various other formats.
· Both customs and the trade community share responsibility for carrying out import requirements.
· For example, the importer of record is now responsible for using reasonable care to enter, classify and value imported merchandise and provide any other information necessary to enable customs to properly assess duties, collect accurate statistics and determine whether any other applicable legal requirement is met.
· The customs service is then responsible for fixing the final classification and value of the merchandise. The failure of an importer of record to exercise reasonable care may lead to delay in the release of merchandise or the imposition of penalties.
· I always like going through an outline of certain terms that importers should be familiar with.
· What is informed compliance, shared responsibility and reasonable care.
VII. Informed Compliance
A. Due to the complexities of customs laws, regulations and practices, congress believed that customs had failed to provide the public with adequate and timely information concerning importers' legal obligations and rights.
B. Consequently, they adopted the "informed compliance" concept and imposed many publications, consultations and notice of obligations on customs.
C. Importers need to be clearly and completely informed of their legal obligations in order to comply with the customs laws.
VIII. Shared Responsibility
A. Customs and importers each have a responsibility to ensure compliance with the trade and customs laws.
B. The importing community is responsible for providing customs not only with accurate and timely information, but also with the proper value, classification and rate of duty applicable to their merchandise.
C. Customs retains the ultimate responsibility to "fix" the value, classification and rate of duty.
IX. Reasonable Care
A. Before enactment of the MOD Act, an importer was required to accurately describe merchandise and tell customs how much it cost. It was customs' responsibility to classify the goods and determine their value.
B. Under the MOD Act, it's now the responsibility of the importer to use "reasonable care" to enter, classify and value the goods and provide information necessary to enable customs to properly assess duties, collect accurate statistics, and determine whether all other applicable legal requirements are met.
C. In other words, the importer now has to be proactive when he or she brings merchandise into this country.
D. Failure to use "reasonable care" when discharging this responsibility is tantamount, at a minimum to negligence.
E. For example, contracting with a company in a partnership country to produce garments but making no attempt to verify that the company has the capacity to produce them.
X. Penalties for Not Using Reasonable Care
· Customs can assess significant civil penalties depending upon the culpability of the violator.
· There are three levels of culpability: negligence, gross negligence and fraud.
· If the violation arises to the level of negligence, the violator can be assessed a maximum penalty equal to 200 percent of the duties, taxes and fees owed. If no duty is involved the penalty can be 20 percent of the dutiable value.
· Gross negligence – fines of up to 400 percent of the duties, taxes and fees can be assessed. If no duties are imposed, fines of up to 40 percent of the dutiable value can be assessed.
· Fraud – the penalty can equal (at a maximum) the domestic value of the merchandise.
A. "Negligence" is defined as an act or omission done through the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances in:
· Ascertaining the facts or in drawing inferences therefrom;
· In ascertaining the offender's obligations under the statute; or
· In communicating information so that it may be understood by the recipient.
"Gross negligence" is defined as a violation that results from an act or omission done with actual knowledge of, or wanton disregard for, the relevant facts and with indifference to or disregard for the offender's obligations under the statute.
"Fraud" is defined as a violation that encompasses a material false statement or act, made in connection with the transaction, that was committed or omitted knowingly, i.e., was done voluntarily and intentionally, as established by clear and convincing evidence.
XI. Audit Recordkeeping
A. Congress enacted provisions of the MOD Act to permit customs to reduce entry documentation requirements.
B. At the same time, congress required importers to maintain and produce in a reasonable time "core" entry documentation.
C. To ensure compliance, customs has the authority to issue substantial penalties for failure to maintain and produce these entry records if customs asks for them.
D. These penalties may be assessed for failing to produce records pertaining to each release of merchandise. In other words, records pertaining to different releases may incur separate penalties.
E. The penalty for negligence in producing records shall not exceed the lesser of $10,000 or 40 percent of the value of the merchandise. The penalty for the willful failure to produce records shall not exceed the lesser of $100,000 or 75 percent of the value of the merchandise.
F. Records must be retained in the United States for a period of 5 years.
XII. Certificate of Origin
Although the customs service is still in the process of drafting regulations, importers claiming preferential treatment will probably be required to obtain some sort of certification from the exporter or producer in the CBI country certifying that the goods were produced there in accordance with the duty-free provisions we previously discussed.
The exporter or producer will be required to maintain records pertaining to the exportation. The importer will be required to make the certification available upon request by customs and the certificate will have to be in the importer's possession at the time the preferential claim is made.
XIII. Origin Verifications
I also believe that the customs regulations will provide that the customs service can conduct verifications of the exporter or producer in the CBI country to determine whether the goods qualify for preferential treatment as asserted by the certification.
XIV. Country of Origin Marking
· The United States customs laws require that all articles imported into the United States "be marked in a conspicuous place as legibly, indelibly, and permanently [as possible [ . . . To indicate to the ultimate purchaser in the United States the English name of the country of origin of the article."
· In other words, the purpose of the country of origin marking requirements is to inform the "ultimate U.S. purchaser" of the country in which the imported article was made. The "ultimate purchaser" is generally the last person in the united state who will receive the article in the form in which it was imported. If the article is to be sold at retail, the "ultimate purchaser" will be the retail buyer.
How should the marking read?
The country of origin statement should say either that the article is "made in _______________," is a "product of ____________" or, where assembly confers origin, was "assembled in ______________."
Well, I've discussed the duty free provisions of the Caribbean Basin Trade Partnership Act, informed compliance, reasonable care, audit and record keeping, certificates of origin and country of origin marking. Are there any questions?