Grosfillex submitted false forms to Customs and Border Protection (CBP) claiming that furniture parts made of extruded aluminum from China were not subject to AD/CVD. The company attempted to hide the aluminum extrusions by falsely packing them as sham “furniture kits.” Additionally, for a different subset of extrusions, the company failed to correct customs forms it had submitted previously, even after learning that the forms contained false information.

The investigation arose from a whistleblower lawsuit filed under the False Claims Act by a former employee of Grosfillex. Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery. In this case, the whistleblower will receive $962,662.74.

Duty Evasion is on the Rise

This case is just one example of the growing incentive to cheat that comes with higher tariffs. Whether it’s through misclassifying goods, undervaluing imports, or using deceptive transshipment routes, some companies think they are being creative, but, instead, are participating in outright illegal strategies to reduce their tariff liability.

Higher tariffs have even contributed to the emergence of a cottage industry of “tariff reduction” companies that suggest ways to cut import costs. However, many of these so-called strategies amount to evasion, putting importers at serious civil and criminal risk.

The Department of Justice (DoJ) and U.S. Customs and Border Protection (CBP) have both made clear that duty evasion is a top enforcement priority.

Now more than ever, it is critical for importers to examine their import compliance programs and ensure that adequate procedures are in place to correctly enter goods into the United States. Importers should proactively conduct extensive due diligence in their supply chains to ensure they can detect, report, and remedy any noncompliance with customs requirements. In addition, if an importer becomes aware of the fraudulent conduct of a competitor, they should contact counsel to discuss options for reporting it to the government.

Diaz Trade Law can assist importers in developing compliance plans and guide importers in the event of a customs investigation. Contact us at 305-456-3830 or info@diaztradelaw.com.

Learn more: 

• CIT Hands Down $3.4M Penalty for Duty Evasion
• DOJ Targets Trade Fraud: Importers Now on Notice as Criminal Division Ramps Up Enforcement
• Bloomberg Law: What is an Importer’s Reasonable Care Standard?
• Bloomberg Law: Voluntary Self-Disclosures: Recent Guidance From BIS, OFAC & DOJ
• Bloomberg Law:  Submitting a Prior Disclosure to CBP
• Webinar: The False Claims Act
• Webinar: Importing 101: A Crash Course in CBP Compliance and Best Practices
• Webinar: Basics on Tariff Classification
• Webinar: Building and Maintaining an Effective Import Compliance Plan

The Case

The government’s case was filed in 2023, alleging that the importers had falsely declared that Chinese-origin goods as Thai origin to evade duties. The government asserted this false declaration avoided payment of ordinary 6% duties, Section 301 duties ranging from 10% to 25%, and 234.51% antidumping duties. 

The government asked the court to impose a penalty for negligence. The penalty amount is twice the loss of revenue or the domestic value, whichever is lower. After the importer failed to answer the complaint (a huge mistake), the U.S. moved for summary judgment.

The CIT granted the government’s motion and ordered the importer to pay a nearly $3.4 million penalty as well as all unpaid duties, taxes, and cash deposits on the unliquidated entries in question.

Duty Evasion is on the Rise

This case is just one example of the growing incentive to cheat that comes with higher tariffs. Whether it’s through misclassifying goods, undervaluing imports, or using deceptive transshipment routes, some companies are turning to creative or outright illegal strategies to reduce their tariff liability.

These incentives have even contributed to the emergence of a cottage industry of “tariff reduction” companies that suggest ways to cut import costs. However, many of these so-called strategies amount to evasion, putting importers at serious civil and criminal risk.

The Department of Justice (DoJ) and U.S. Customs and Border Protection (CBP) have both made clear that duty evasion is a top enforcement priority.

Now more than ever, it is critical for importers to examine their import compliance programs and ensure that adequate procedures are in place to correctly enter goods into the United States. Importers should proactively conduct extensive due diligence in their supply chains to ensure they can detect, report, and remedy any noncompliance with customs requirements. In addition, if an importer becomes aware of the fraudulent conduct of a competitor, they should contact counsel to discuss options for reporting it to the government.

Diaz Trade Law can assist importers in developing compliance plans and guide importers in the event of a customs investigation. Contact us at 305-456-3830 or info@diaztradelaw.com.

Learn more: 

• DOJ Targets Trade Fraud: Importers Now on Notice as Criminal Division Ramps Up Enforcement
• Bloomberg Law: What is an Importer’s Reasonable Care Standard?
• Bloomberg Law: Voluntary Self-Disclosures: Recent Guidance From BIS, OFAC & DOJ
• Bloomberg Law:  Submitting a Prior Disclosure to CBP
• Webinar: The False Claims Act
• Webinar: Importing 101: A Crash Course in CBP Compliance and Best Practices
• Webinar: Basics on Tariff Classification
• Webinar: Building and Maintaining an Effective Import Compliance Plan

Importing goods into the U.S. requires navigating a web of regulations that spans 47 federal agencies. If you are the importer of record, it is your duty to exercise “reasonable care” in meeting these obligations. As part of this duty, importers must take adequate steps to properly classify and determine the value of imported goods, provide information to CBP in properly assessing duties, and determine whether other applicable legal standards and requirements have been met.

When importing drones into the U.S., importers need to be mindful of several requirements including classification, intellectual property, additional duties, and a changing U.S. trade policy.

Classification

When importing goods into the United States, importers must correctly classify their products. The Harmonized Tariff Schedule of the United States (HTSUS) is the primary resource for classifying goods and determining which tariffs apply.

The HTSUS is issued annually by the International Trade Commission (ITC). It is comprised of a 10-digit import classification system that is specific to the United States. This 10-digit code encompasses the World Customs Organization’s (WCO) six-digit uniform classification system shared among more than 200 countries.

An HTSUS is formatted to list the first 6-digits set forth by the WCO, also known as a heading and subheading and the last four digits assigned by the ITC that are specific to the U.S.

Prior to 2022, the HTSUS has lacked classifications specific to Unmanned Aircraft System (UAS). Importers had to classify under codes applicable to crewed aircraft systems. In December 2021, President Biden issued a proclamation adopting 11 new HTSUS codes for UAS. Importers are responsible for properly identifying which of these codes applies to their product.

Penalties for incorrect classification can be severe – CBP may issue penalties for negligence, gross negligence or fraud – depending on the degree of culpability CBP believes the importer had at the time of non-compliance.

Intellectual Property Rights

Importers need to be vigilant about intellectual property (IP) issues when dealing with U.S. Customs. CBP actively enforces IP rights at the border, and can seize counterfeit and infringing goods to protect trademark and copyright holders. Importing products that violate these rights—whether knowingly or unknowingly—can result in costly seizures, fines, and legal complications. To avoid these risks, importers should ensure that their goods comply with IP regulations, verify the authenticity of their suppliers, and stay informed about any trademarks or copyrights that may affect their shipments.

If you are a trademark owner, you can leverage CBP’s e-recordation program to ensure your goods are protected from infringement. The program allows trademark and copyright holders to obtain border enforcement of their IP rights. CBP will look for infringing goods and detain, seize, forfeit, or destroy them.

Duties & Country of Origin

Importers must accurately determine and declare the country of origin when bringing goods into the U.S. The country of origin affects duty rates, eligibility for preferential trade programs, trade sanctions, and import quotas. Incorrect or misleading declarations can lead to penalties, shipment delays, and even the seizure of goods by U.S. Customs. To avoid these risks, importers should carefully review manufacturing processes, supply chains, and applicable rules of origin to ensure that their declarations are accurate and precise.

The importer is ultimately responsible for calculating and paying duties. Calculating duties correctly isn’t always a straightforward process, and may require the assistance of an expert. For example, Unmanned Aircraft Systems (UAS) from China are subject not only to standard import duties but also have an additional 25% section 301 duty. Section 301 refers to the section of the Trade Act that allows the United States Trade Representative to impose restrictions or tariffs on imports in response to unfair trade practices.

Some lawmakers are calling for even higher duties on Chinese imported drones.

Department of Commerce’s Bureau of Industry and Security (BIS)

On January 3, 2025, Bureau of Industry and Security (BIS) put out an advanced notice of proposed rulemaking seeking public comment on issues related to transactions involving unmanned aircraft from China and other foreign countries. It stated that “Once the President declares a national emergency, [the International Emergency Economic Powers Act] IEEPA empowers the President to, among other acts, investigate, regulate, prevent, or prohibit any ‘acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States’” (Emphasis added). While this is just an advanced notice of proposed regulations, it does give us an idea on the trajectory on future unmanned aircraft import issues down the road.

Forced Labor

Forced Labor is the third most lucrative illicit trade, behind only drugs and weapons, and has an annual trade value of roughly $150 billion. Right now, over 40 million people around the world are victims of some type of forced labor, including modern slavery, human trafficking, child labor, etc.

Section 307 of the Tariff Act of 1930 (19 U.S.C. 1307) prohibits the importation of all goods and merchandise mined, produced, or manufactured wholly or in part in any foreign country by forced labor, convict labor, and/or indentured labor under penal sanctions, including forced child labor.

U.S. Customs and Border Protection (CBP) is the only U.S. government agency, and one of the few in the world, with the legal authority to take action against goods produced with forced labor to prevent entry into domestic commerce. On June 21, 2022, the Uyghur Forced Labor Prevention Act (UFLPA) was enacted to further reinforce the United States’ prohibition against the importation of goods made with forced labor. The UFLPA establishes a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China or by an entity on the UFLPA Entity List are prohibited from importation into the United States under 19 U.S.C. § 1307.

In many ways, the UFLPA heightened the standard for forced labor compliance in comparison to its predecessor / parallel enforcement system, Withhold Release Orders. However, if an Importer of Record can demonstrate by clear and convincing evidence that the goods in question were not produced wholly or in part by forced labor the Commissioner of CBP may grant an exception to the presumption.

It is an importers responsibility to know how their goods are made, from raw materials to finished goods, by whom, where, and under what labor conditions.

CBP has made clear that they will continue to prioritize forced labor enforcement and has in the past targeted certain Chinese drone manufacturers citing forced labor concerns.

Bottom Line: Exercise Reasonable Care and Seek Help from an Expert

Exercising reasonable care in the import process is not just a best practice—it’s a necessity to ensure compliance with U.S. Customs regulations. The complexities of customs laws, from proper classification and valuation to country of origin and intellectual property considerations can be challenging to navigate alone. Partnering with an experienced customs expert can provide invaluable guidance, helping importers meet their obligations, streamline operations, and protect their business. This is vital so you don’t have your drone shipments hung up in customs. With proper due diligence, some of these headaches can be prevented.

Learn more

• Bloomberg Law: What is an Importer’s Reasonable Care Standard?
• Bloomberg Law: Tariff Classification Basics
• Bloomberg Law: S. Customs Targets the Use of Forced Labor
• Webinar: Importing 101
• Webinar: Basics on Tariff Classification
• Webinar: Navigating CBP Regulations: Essential Practices for Import Success
• Know Your Supply Chain: Forced Labor
• New Tariffs on China, Mexico, and Canada: Key Updates for Importers

CBP held a Forced Labor Technical Expo from March 14-15, comprised of experts and service providers highlighting tools to utilize for supply chain transparency to comply with The Uyghur Forced Labor Prevention Act (UFLPA) and the general “reasonable care” obligations of U.S. importers. UFLPA was signed into law December 31, 2021, and seeks to prohibit imports of certain goods from China’s Xinjiang Uyghur Autonomous Region, where it has been reported that the Chinese government is using forced labor of Uyghur Muslims and other ethnic and religious minorities in detention camps and factories. For more information about the UFLPA, please see our previous blog articles here and here.  

CBP Data Dashboard  

CBP launched a UFLPA data dashboard where the trade community can now monitor forced labor enforcement by origin, commodity, CBP Center of Excellence and Expertise, and more. See the screenshot of the new dashboard below and note that the countries of export most targeted are NOT China, contrary to popular belief. This is partly due to the fact that most UFLPA enforcement to date has been on solar panels, which may include Chinese-origin raw materials but are generally further manufactured outside of China. Notably, CBP is actively tracking many different types of products across many different industries with raw materials that originate in China and that are further manufactured in other countries for forced labor enforcement.  

Summary of Technologies Announced at the Expo 

Below is a summary of the vast array of technologies discussed at the Expo, such as artificial intelligence (AI), machine learning (ML), and big data analytics to identify goods produced using forced labor. Along with other capabilities, this technology can analyze all available public and private data to identify patterns that indicate the possible use of forced labor which will facilitate compliance with the UFLPA and general “reasonable care” obligations.  

AI – Supply Chain Mapping 

• Altana Atlas platform is a dynamic, multi-tier map of the global supply chain that continuously updates and grows by learning from public and proprietary data. It reveals product origins and supplier networks and allows companies to fuse their data with the Atlas for unprecedented visibility of their entire supply chain without sharing proprietary data.  
• Mesur.io’s Earthstream uses imaging, mapping, and science-based modeling, to help companies track the origin and movement of cotton, which is a particularly challenging product to trace because it is often further manufactured in multiple locations in multiple countries. 
• Kharon focuses on risk management solutions, backed by proprietary research and data analytics. 
• TrusTrace offers AI-based solutions for UFLPA trade compliance. They provide a digital supply chain custody system for enterprise-level companies with thousands of suppliers using an ecosystem approach to map and provide supply chain evidence. 
• Sayari Analytics, LLC offers an SAS platform that allows for instant worldwide corporate transparency and identification of supply chain risks through parsing and matching data to watchlists. 
• Exiger Government Solutions focuses on AI-powered research to provide enhanced supply chain visibility and identify and mitigate forced labor risk. 
• Everstream Analytics matches supply chains to watchlists using open source and import/export records. The platform has a live interface with client ERP data, and continuous monitoring output is delivered through the platform. 
• Assent Inc. is a data supply chain management company that provides a SaaS platform, managed services, including direct supplier engagement, enhanced screening using public domain data, and an Enhanced Supplier Screening service to fill in data gaps, using AI and human expertise. 
• Deloitte Financial Advisory Services, LLP utilizes a Magnify feature to map the supply chain. 
• FRDM maps and monitors supply chains with a focus on procurement. 
• Senergy Technical Services (USA) LLC (STS) offers a supply chain mapping in a 3-step process involving defining the product to be traced, compiling a list of suppliers, and verifying the commercial link between suppliers and traceability of input and output at each stage of the supply chain. 

Marking and Tagging 

• Oritain developed a unique method of identifying the origin of products based on the naturally occurring chemical and physical properties in raw materials, such as minerals, fibers, and water. This method allows Oritain to determine the authenticity of products and ensure that they have been ethically sourced and produced without forced labor. 
• TailorLux GmbH provides industrial marking solutions to ensure material authenticity for recycling, product protection, and digitization of bulk materials.  
• Covisus offers a revolutionary tag-less track and trace solution called Vtag, which uses the intrinsic surface features of an item to uniquely identify it without any modifications. This provides covert and true item-level traceability and authentication without requiring any alterations to the item. 
• Sourcemap Inc. provides a digital platform to trace products using GPS points and transaction tracking. 

DNA Tracing 

• Haelixa provides solutions to physically mark, trace, and authenticate textiles along the supply chain for transparency. Haelixa’s unique DNA marker is spread on the fiber at each stage, and a forensic test is conducted using yarn or fabric to verify the final garment. Well-known fashion brands and suppliers have implemented their solutions and sell “marked and traced by Haelixa” garments in retail stores. 
• Applied DNA Sciences, Inc. (ADNAS) provides innovative supply chain traceability solutions for forced labor compliance, using DNA tagging, DNA genotyping, and isotope testing. They focus on nucleic acids and have developed a complete tracking system through their three pillars, with a particular emphasis on cotton supply chains. 
• Flora Trade Inc. provides risk management solutions using forensic chemistry and data science. Flora Trace analyzes isotopes from soil and fertilizer to create an “origin fingerprint” of materials. 

Risk Assessment and Training 

• Verité is a nonprofit that has a risk assessment tool based on the International Labour Organization’s indicators of forced labor and includes a range of questions that are designed to identify potential risks at various stages of the worker recruitment process, from the initial recruitment to the placement of workers. In addition to its risk assessment tool, Verité provides training and capacity-building programs and supply chain mapping to help organizations identify and mitigate forced labor risks in their supply chains. 

Future Outlook 

It is clear that all companies that import goods into the U.S. will have to be more pragmatic about their supply chains, but, what is not clear, is at what cost? Will solutions be available to companies of all sizes and budgets? 

Forced labor compliance is NOT just about UFLPA compliance. The U.S. Department of Labor’s sweat and toil app makes clear that forced labor is a concern in MANY countries, not just China, and CBP similarly has made it clear that forced labor enforcement is going to be a priority trade initiative.  

We will see increased scrutiny and enforcement of the UFLPA and forced labor prohibitions generally both for products imported into the United States and globally. Advanced technology like AI and machine learning are helpful to identify potential instances of forced labor in supply chains, but alone are not enough. Proactive supply chain vetting, due diligence, DNA tracking/tracing, and insistence upon a supply chain free of forced labor are our future – will your SME make it to this future?  Diaz Trade Law can help you identify which, if any, technical products would be helpful to use to meet your “reasonable care” forced labor compliance obligations. Of course, no technical product, in and of itself, is sufficient to meet all an importer’s due diligence obligations – human resources will also be necessary to implement and interpret any technical tools.  

Contact Us 

Diaz Trade Law has significant experience in a broad range of import compliance matters including forced labor issues. For assistance with importer due diligence in relation to forced labor requirements; or for assistance in submitting documents to dispute the use of forced labor, contact our Customs and International trade law attorneys at info@diaztradelaw.com or call us at 305-456-3830.

UFLPA

The Uyghur Forced Labor Prevention Act (UFLPA) establishes a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in the Xinjiang Province of China or by an entity on the UFLPA Entity List are prohibited from importation into the United States under 19 U.S.C. § 1307. However, if an Importer of Record can demonstrate by clear and convincing evidence that the goods in question were not produced wholly or in part by forced labor, fully respond to all CBP requests for information about goods under CBP review and demonstrate that it has fully complied with the guidance outlined in this strategy, the Commissioner of CBP may grant an exception to the presumption.

Clear and convincing evidence is a higher standard of proof than a preponderance of the evidence, and generally means that a claim or contention is highly probable. See e.g., Colorado v. New Mexico, 467 U.S. 310 (1984) (a forced labor case holding that complainant did not meet “clear and convincing” burden of proof because it failed to show that the evidence is highly and substantially more likely to be true than untrue; rather, the fact finder must be convinced that the contention is highly probable).

CBP will employ a risk-based approach, dynamic in nature, that prioritizes the highest-risk goods based on current data and intelligence. Currently the highest-risk goods include those imported directly from Xinjiang into the United States and from entities on the UFLPA Entity List. CBP will also prioritize illegally transshipped goods with inputs from Xinjiang, as well as goods imported into the United States by entities that, although not located in Xinjiang, are related to an entity in Xinjiang (whether as a parent, subsidiary, or affiliate) and likely to contain inputs from that region.

Below is a list of high-priority sectors for enforcement:

1. Apparel
2. Cotton and Cotton products
3. Silica-Based Products (including polysilicon)

• Silica is a raw material that is used to make aluminum alloys, silicon, and polysilicon, which is then used in buildings, automobiles, petroleum, concrete, glass, ceramics, sealants, electronics, solar panels, and other goods.

4. Tomatoes and downstream products

In addition for general guidance on how CBP will be implementing the UFLPA, please refer to our prior article “Uyghur Forced Labor Prevention Act (UFLPA): What You Need To Know.”

DHS Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the PRC.

On June 17, 2022, per statutory requirement , the U.S. Department of Homeland Security (DHS) published the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China. The purpose of this publication is to provide guidance as to how the UFLPA will be implemented, and how it plans to prevent the importation of goods made with forced labor to enter into the United States. Below is a summarized guidance for importers with recommendations and guidance as to what evidence importers may provide to rebut the presumption that the goods were made with forced labor under the UFLPA as mentioned by DHS’ June 17, 2022 and earlier guidance published on June, 13, 2022 by CBP  of evidence required. The guidance for importers provided information on three topics:

1) Due Diligence,

2) Supply Chain Tracing, and

3) Supply Chain Management

What does due diligence mean?

DHS stated that for purposes of the guidance, due diligence includes assessing, preventing, and mitigating forced labor risk in the production of goods imported into the United States. An example of effective due diligence, may include the following elements:

• Engage stakeholders and partners
• Conduct a Forced Labor Risk Assessment
• Develop a written code of conduct

To perform a forced labor risk assessment, importers map their supply chains to identify any steps within the chain at risk of using Forced Labor. Such factors used to determine whether a risk exists are, but not limited to:

• Origin of imported goods or any raw materials or components in the imported good.
• Transactions among entities along the supply chain tied to the specific imported goods.
• Locations and identities of entities in the supply chain.

A written code of conduct should provide a framework on how you address the risk of forced labor in you supply chain. In addition, DHS recommends the written code of conduct be incorporated into supplier contracts. We separately recommend that you include your conditions on your purchase order as well.

Importantly, DHS noted that for supply chains that touch the Xinjiang or involve entities that use labor transferred from Xinjiang, the code of conduct MUST explicitly forbid the use of forced labor. Furthermore, as mentioned in our prior DTL post “U.S. Customs Targets Use of Forced Labor ,” importers should review the DOL’s Comply Chain  principles and create a compliance system as a business practice.

What Does it Mean to have an Effective Supply Chain Tracing System?

DHS has defined supply chain tracing, as the ability to demonstrate chain of custody of goods and materials from the beginning of the supply chain to the buyer of the finished product. An effective Supply Chain Tracing system is one that identifies who their suppliers are and labor sources at all levels of the supply chain system. Generally, there are three common practices importers may engage in for effective supply chain tracing:

1. Mapping: Importers should be able to map out their entire supply chain, including suppliers of raw materials used in the production of the imported good or material. Mapping allows the importers to identify who is doing the work at each step in the process of the supply chain and under which conditions the work is being done.
2. Identity preservation: This requires importers to preserve each product input to be packaged, processed, and traced separately from other product inputs or modifications throughout the supply chain. However, under this method product inputs are not allowed to be commingled at any point in the supply chain.
3. Segregation: This approach allows importers to commingle inputs, as long as each input to be commingled is fully traced and documented. It is essential to demonstrate that the inputs are free of forced labor prior to commingling. As an example, importers should have readily available evidence that indicates the source of each component of the good and documents showing how the imported goods was made from raw materials to finished good, by what entity, and where.

Supply Chain Management Measures

Importers should also have Supply Chain Management Measures in place, that reflects the measures taken to prevent and mitigate identified risks of forced labor. DHS identified that effective measures include:

1. Having a process to vet potential suppliers for forced labor prior to entering a contract with them; requiring that supplier contracts necessitate corrective action by the supplier if forced labor is identified in the supply chain; and
2. Outlining the consequences if corrective action is not taken, such as termination of the contractual relationship.
3. Having access to documentation, personnel, and workers for verification of the absence of forced labor indicators, including at the recruitment stage.

DHS noted as well that, under 18 U.S.C. Section 1589 (b), failure to take appropriate remedial action could expose an importer to potential criminal liability if the importer continues to benefit, financially or by receiving anything of value, from participating in a venture engaged in forced labor, while knowing of or recklessly disregarding the forced labor.

For additional guidance as to the type and nature of evidence that CBP will require if the goods are subject to the UFLPA, please refer to the following:

• Xinjiang Supply Chain Business Advisory
• DTL Article: “Importers: If you Can’t Answer these 12 Questions on Forced Labor You’re In Trouble”
• U.S. Department of Labor Sweat & Toil App 

Contact Us

Diaz Trade Law has significant experience in a broad range of import compliance matters including forced labor issues. For assistance with importer due diligence in relation to forced labor requirements; or for assistance in submitting documents to dispute the use of forced labor, contact our Customs and International trade law attorneys at info@diaztradelaw.com or call us at 305-456-3830.

Diaz Trade Law’s President, Jennifer Diaz is enthusiastic to announce International Trade Today featured her perspective in their recent article, “CBP Policy Change Makes Extensions for Prior Disclosures More Difficult, Lawyer Says“! Below is the article reproduced for your reading pleasure. You can read the article here (where you’ll have the ability to access the link to the CBP guidance).

A previous article written by Jen and Sharath focuses on how to successfully submit a prior disclosure (PD) to Customs and Border Protection, along with details known of CBP’s new timing requirements, which had not been circulated publicly (prior to our FOIA request). We truly feel CBP’s new deadlines place a burden on importers that must be considered PRIOR to filing a PD. If you are considering filing a Prior Disclosure – PLEASE communicate with counsel first.

Please note you cannot click on the hyperlink below. We’d love to hear your feedback!

Meanwhile, importations into Puerto Rico are additionally subject to the territory’s own entry tax administered by the Departmento de Hacienda (“Hacienda”), a Puerto Rican governmental agency that serves the function of a territory treasury department. Puerto Rico’s unique entry tax is a component of a two-pronged tax system for goods, known as the Impuesto sobre Ventas y Uso (“IVU”) (in English, “Sales and Use Tax”). As the name suggests, the IVU is comprised of (1) sales tax, and (2) a use tax.

The sales tax functions similar to sales taxes elsewhere in the United States. In Puerto Rico, the Hacienda requires that sales taxes on goods and services be collected by goods and services providers and paid to the Hacienda on a monthly basis. On the other hand, the use tax is the amount that a party must pay when introducing an item to Puerto Rico for use and consumption in Puerto Rico. Generally, the use tax is 11.5 percent.

Goods which are being imported into Puerto Rico for consumption or use in the territory are subject to the use tax except for particular exceptions such as school supplies acquired during the back-to-school tax-free holiday, supplies used to render health services by hospital facilities, and supplies acquired by government agencies. Importers of goods into Puerto Rico are comprised of two categories: (1) secured importers, and (2) unsecured importers. Secured importers are those importers that have obtained authorization from the Director del Negociado de Impuesto al Consumo (in English, Director of the Consumption Tax Bureau) and has secured a bond for payment of the use tax. Meanwhile, unsecured importers are those importers who have not sought prior authorization from the Director of the Consumption Tax Bureau and/or have not secured a bond for payment of the use tax.

Both secured and unsecured importers must submit a detailed declaration of all imported merchandise, regardless of whether the merchandise is exempt from the use tax. This declaration is made via the Además de la Declaración de Importaciones (in English, “Import Declaration Form”) (see Model Form SC 2970). Furthermore, a Planilla Mensual de Impuesto sobre Importaciones (in English, “Monthly Tax Form”) must be submitted to the Hacienda (See Model Form SC 2915 D). The forms must be transmitted to the Hacienda via a portal known as SURI. The payment process differs for secured versus unsecured importers. While secured importers may pay the use taxes in a consolidated manner on a periodic basis, unsecured importers must pay the use tax at the time of filing the Import Declaration Form (unless the goods are exempt from the use tax).

What You Can Do

There is a lot you can do to be proactive about compliance when importing, such as:

• Knowing your product, supplier, and which U.S. federal government agencies regulate you.
• Ensure your product is not subject to antidumping and/or countervailing duties.
• Request samples of the merchandise ahead of exportation.
• Protect your intellectual property rights by recording your trademark with CBP.
• Keep records providing you used reasonable care.
• Confirm you’re using the correct Harmonized Tariff Schedule of the United States (“HTSUS”) code
• Confirm you’re using the correct value for your product.
• Confirm you’re using the correct Country of Origin for your product. Request a binding ruling to confirm the Country of Origin if necessary.
• Ensure you have a formal written import compliance program.

For a full list of our Top 10 Tips When Importing to Ensure Compliance, click here.

Contact Us

Diaz Trade Law has significant experience in a broad range of import compliance matters. To learn more about the services we offer, contact us at info@diaztradelaw.com or call us at 305-456-3830.

Below we share some of our top 2021 success stories with you.

Successfully Mitigated Liquidated Damages Claims 

• For failure to timely refile rejected entries subject to AD/CV duties:
  • After DTL’s strategic involvement CBP substantially mitigated approximately $5 MILLION in claims down to $26,365.00, successfully saving our client over $4.7 MILLION dollars
  • Our client received 36 liquidated damages notices from CBP totaling over $567,000. After Diaz Trade Law’s successful negotiation with CBP, all 36 cases were canceled by CBP, saving our client $over $567,000!!
• CBP sent our client a liquidated damages claim in the amount of $150,000. As a result of Diaz Trade Law’s successful petition, CBP mitigated the liquidated damages claim down to $1,500!
• CBP issued a liquidated damages claim in the amount of $50,000.00. After DTL successfully petitioned CBP, the claim was cancelled!
• CBP issued a liquidated damages claim in the amount of $36,033.00. After DTL successfully petitioned CBP, the claim was mitigated to $360.33 (the best potential mitigation!).

CBP Detention Assistance 

• Mere days after being retained, Diaz Trade Law successfully assisted in negotiating with CBP and numerous trademark owners proving that our clients detained goods (collectively valued over $1,000,000.00) were legitimate, receiving either consent TM holder, and/or convincing CBP to release legitimate merchandise that should not have been detained.
• After CBP detained our client’s electronic merchandise to verify admissibility with the Department of Transportation (DOT)
  • CBP released the electronic goods after DTL proved the merchandise, LED driving lights, were eligible for an “off road” use exception and DOT providing such confirmation.
• After CBP detained our client’s electronic merchandise to verify the validity of a trademark on the product packaging.
  • Diaz Trade Law proactively communicated with the trademark holder and CBP, who, with the authorization of the trademark holder, permitted the importer to manipulate the merchandise and import the goods saving our client from a costly and lengthy seizure case that potentially exposed our client to CBP penalties.
• After CBP detained our client’s electronic merchandise to verify the validity of a trademark on the product packaging.
  • After Diaz Trade Law’s immediate involvement in arguing the product was “confusingly similar” and not counterfeit, DTL persuaded CBP to apply the relief afforded to “confusingly similar” seized merchandise and ultimately CBP permitted the exportation – which is relief that is rarely granted for detained products. DTL saved our client from a seizure case and potential penalties.
• CBP detained 28 containers of our client’s cargo.
  • Diaz Trade Law successfully negotiated with CBP to permit the goods to be reexported and avoid substantial demurrage expenses.

4647 Responses 

• CBP issued our client a CBP Form 4647 – Notice to Mark, because its electronic car accessories labels had both a country of origin marking and a “Designed in the USA” claim (in separate locations on the label).
  • After 48 hours of Diaz Trade Law’s successful escalation and negotiation with the Electronic Center of Excellence and Expertise, CBP granted a rarely used marking waiver permitting the merchandise to be imported as is, saving our client both money and time.
• CBP issued our client a CBP Form 4647 – Notice to Mark, because over 1,000 electronic car accessory units did not bear a country of origin marking.
  • Diaz Trade Law successfully and efficiently guided our client through the marking process. Ultimately, the goods were marked and authorized for distribution within recording timing – less than 10 days from the issuance of the 4647, saving our client both money and time.
• CBPO’s at Port Everglades detained two of our client’s shipments and issued two separate CBP Form 4647s – Notices to Mark because the imported merchandise valued at $98,744.00 did not bear a country of origin marking.
  • Diaz Trade Law successfully and efficiently guided our client through the marking process. Ultimately, the goods were marked and authorized for distribution with record timing – within 7 days from the issuance of the 4647, saving our client both money and time.
• Diaz Trade Law successfully assisted our client in responding to CBP’s Notice to Redeliver (CBP Form 4647) and provided CBP confirmation that the intellectual property rights displayed on the goods was authorized and our client’s merchandise was released in record timing!

Successfully Assisted Numerous Importers Battle Alleged Intellectual Property Rights Violations

• Our client’s merchandise was seized by CBP due to an alleged trademark violation.
  • After Diaz Trade Law’s successful petition, CBP issued a decision authorizing our client to relabel and export its legitimate merchandise.
• CBP detained several shipments of our client’s cargo for both Country of Origin (COO) and Intellectual Property Rights (IPR) reasons.
  • Diaz Trade Law advocated for our client and within less than one week convinced CBP to release our client’s legitimate merchandise detained at numerous ports of entry nationwide.
• Our client’s designer handbags were seized by CBP due to an alleged counterfeit violation.
  • After Diaz Trade Law’s successful petition, proving that the handbags were legitimate, CBP released our client’s legitimate merchandise.
• CBP detained our client’s goods valued at $98,744.00 for an alleged IPR validation.
  • Our firm immediately communicated with the appropriate CBP CEE and submitted evidence supporting the legitimacy of the imported goods requesting their immediate release. The CBP CEE agreed with our request and recommended the local port release the shipment, saving our client from a costly and lengthy seizure case.
• Diaz Trade Law successfully negotiated with CBP on behalf of an aftermarket car part importer to permit the exportation of goods detained for alleged IPR violations, saving the importer from a costly and lengthy seizure and potential penalty.
• Our client imported electronic merchandise which contained a trademark-violating processing system.
  • After Diaz Trade Law’s successful intervention, Diaz Trade Law received authorization from the trademark holder to permit the violative components to be removed and destroyed, and the larger shell merchandise to be imported in its current form. CBP agreed to these terms, and issued a disposition order authorizing the manipulation and release of the goods as Diaz Trade Law had requested.

Successfully Mitigated Penalty Actions Issued by CBP to our Clients 

• For importing noncompliant Wood Packaging Material:
  • $91,714 mitigated to 3% of penalty to $2,751.42, saving our client $88,962
  • $69,900 mitigated to 3% of penalty to $6,990, saving our client $60,000
  • $28,478 mitigated to 10% of penalty to $2,847, saving our client $25,631
  • $27,857 mitigated to 10% of penalty to $2,786, saving our client $25,071
  • $19,980.00 mitigated to 10% of penalty to $1,998, saving our client $17,982
• For filing incorrect Electronic Export Information (EEI)
  • $14,194 mitigated down to $500 (the best possible relief)!
  • $14,194 mitigated to 10% of penalty to $1500, saving our client $12,694

CBP 28 / CBP 29 Responses / CBP Investigations and Rejections

• Our client received a CBP 28 for a U.S. Australia Free Trade Agreement verification.
  • After Diaz Trade Law filed a successful response proving the imported goods were eligible for preferential duty-free treatment, CBP closed the 28 with a positive CBP 29 (Notice of Action).
• Our client received a CBP 28 Request for Information from U.S. Customs to verify GSP eligibility.
  • After Diaz Trade Law submitted a substantive response proving the GSP claim was valid, CBP issued a CBP 29 determining that the merchandise qualifies for GSP and no duties are owed to CBP!
• Our client received a Request for Information (CBP 28) from CBP.
  • Diaz Trade Law filed a 28 response which included a Prior Disclosure. The 28 was closed out, and the disclosure was accepted by CBP resulting in no 1592 penalties being issued to our client.
• CBP physically inspected our client’s cargo at the time of entry and identified that the commercial invoice and packing slip submitted to CBP did not include one model number included in the cargo. Diaz Trade Law immediately negotiated with CBP to accept an updated invoice and packing list. CBP accepted and released the complete cargo with no further enforcement action taken, saving our client costly demerge fees and other expenses.
• CBP rejected and refused an importation of tires because CBP alleged the importer did not have a right to make entry. After three uphill battles with CBP and DTL’s strategic recommendation to change the import transaction model, the importer was successfully able to act as IOR and its merchandise was admitted into the US.

USTR/China Tariffs

• Diaz Trade Law assisted over 100 importers in filing complaints with the Court of International Trade challenging Section 301 tariffs imposed for imported goods under for List 3 and List 4a, requesting full refunds.
• Diaz Trade Law filed numerous exclusions for goods subject to the Section 301 List 3 and List 4. USTR agreed and granted our client’s exclusion!
• Numerous clients that were subject to 301 duties used Diaz Trade Law to actively monitor 301 exclusions to ensure they were notified when refunds were a possibility. Diaz Trade Law assisted with not only actively monitoring the relevant exclusions, but also interpreting the applicability, and fighting for refunds via the Protest or PSC process. CBP has accepted numerous Protests, and hundreds of thousands of dollars of refunds were sent to our clients!
• As a result of Diaz Trade Law’s closely monitoring Section 301 China tariff exclusions, Diaz Trade Law found an applicable exclusion for our client to use and filed two Protests with CBP requesting that CBP refund the China tariffs paid. Our client’s protests were approved by CBP, resulting in a refund of $64,678.00.

Export Compliance and Enforcement Mitigation Assistance

• Diaz Trade Law is actively assisting exporters:
  • Vetting proposed export transactions
  • Providing voluntary self-disclosures to Census and OFAC
  • Developing an effective export compliance plan
  • Developing export compliance training
  • Mitigation and corrective action
  • Presenting export report cards to clients based upon an analysis of ACE data
  • Analyze export trade data
  • With mitigation of export seizures and penalties
• Our client needed urgent assistance to ensure it understood the requirements to properly export hazardous materials. Diaz Trade Law successfully and expeditiously secured Competent Authority Approvals for the hazardous material from the U.S. DEPARTMENT OF TRANSPORTATION Pipeline and Hazardous Materials Safety Administration (PHMSA) as well as the Competent Authority of Turkey and Finland.

OFAC/FAA/HSI 

• Our client’s incoming wire payments of $842,918.92 from Venezuela were blocked by its U.S. bank for possible violations of U.S. sanctions laws.
  • After Diaz Trade Law filed a specific license application with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), OFAC issued a specific license authorizing the legitimate funds to be unblocked and returned to our client.
• Our client was being investigated by FAA as a result of a hazardous materials incident.
  • As a result of Diaz Trade Law’s successful involvement, the FAA closed the matter with an informal action!
• Our client was being investigated by HSI for possible criminal liability.
  • After Diaz Trade Law’s intervention, HSI closed its investigation into our client.

 Protests

• Diaz Trade Law successfully assisted our client in filing two Protests with CBP. These approvals saved our client over $600,000!!
• After Diaz Trade Law’s successful Protest of CBP’s AD/CVD bills, our client’s protest was approved by CBP, saving our client over $200,000!!

Binding Rulings

• Diaz Trade Law successfully requested and received binding rulings for numerous clients confirming:
  • the correct country of origin for its prospective imported merchandise.
  • the correct harmonized tariff schedule (HTSUS) for its imported merchandise.
  • both the origin of their merchandise and appropriate CBP country of origin marking
  • the applicability of a free trade agreement.

Assisted Numerous Importers in Filing Prior Disclosures and Voluntary Self-Disclosures Accepted by CBP 

• Diaz Trade Law successfully submitted a perfected prior disclosure for underlying classification, valuation, quantity, and 301/China tariff errors. While reviewing ACE data, we identified offsets for the duties owed to CBP. Ultimately, CBP agreed with our assessment and accepted our prior disclosure and tender, resulting in a refund of over $25,000 to our client and ensuring no future penalties would be assessed for our client’s past importing errors.
• After discovering Electronic Export Information (EEI) filing errors made by one of our clients, Diaz Trade Law assisted our client in proactively filing a Voluntary Self-Disclosure (VSD) with the U.S. Census Bureau and assisting our client in fixing all past errors. The VSD filing was accepted and resulted in the U.S. Census Bureau closing out the matter without penalties being assessed.
• On behalf of a client, Diaz Trade Law filed a voluntary disclosure with the Office of Foreign Assets Control (OFAC), disclosing potential sanctions violations.
  • Diaz Trade Law worked proactively with OFAC and received this “No Action letter” with no penalties assessed to our client.
• Diaz Trade Law successfully assisted our client in filing a Voluntary Self-Disclosure (VSD) with the U.S. Census Bureau for violations of the Foreign Trade Regulations.
  • Diaz Trade Law proactively worked with the Census Bureau and corrected past filing errors. The VSD was successfully closed out with no penalties assessed.
• Diaz Trade Law successfully assisted our client in filing a Prior Disclosure. CBP accepted the prior disclosure with no 1592 penalties being assessed!

Bonded Warehouse

• After Diaz Trade Law’s successful application, our client’s Bonded Warehouse Application was approved!
• After its bonded warehouse was activated by CBP, our client realized it wanted to change the total square footage. Diaz Trade Law successfully assisted our client alter its customs bonded warehouse space.

Successfully Assisted Numerous Importers in Various Seizure Cases 

• CBP seized our client’s vehicle after believing it could have been used to import illegal substances. After Diaz Trade Law’s successful petition proving our client’s innocence, CBP released the vehicle with no penalty assessed
• $20,868.81 of our client’s currency was seized by CBP. After Diaz Trade Law’s successful petition, $19,868.81 was returned to our client!
• $15,795 of our client’s currency was seized by CBP. After Diaz Trade Law’s successful petition, $14,795 was returned to our client!
• $12,157.95 worth of jewelry was seized by Customs after our client failed to declare it. After Diaz Trade Law’s successful Petition, CBP released the jewelry within 22 days.

Awards

• In 2021, Diaz Trade Law founder Jennifer Diaz was again Chambers ranked in International Trade: Customs – USA – Nationwide

Publications

Key publications written by Diaz Trade Law in 2021 were:

• Bloomberg Law, Introduction to U.S. Export Controls: Part 2, November, 2021.
• Bloomberg Law, Protecting Intellectual Property Rights in China, October 2021.
• Bloomberg Law, Incoterms 2020, May 2021.
• Bloomberg Law, Submitting Voluntary Self-Disclosures to Bureau of Industry & Security, May 2021.
• Bloomberg Law, Submitting a Voluntary Self-Disclosure to Census, April 2021.
• Bloomberg Law, Submitting a Voluntary Self-Disclosure to OFAC, April 2021.
• Bloomberg Law, U.S. Customs Targets Use of Forced Labor, January 2021.
• Customs and International Trade Bar Association, An Overview of China’s New Export Controls Regime,
• Customs and International Trade Bar Association, COVID-19’s Impact on 2020 Trade Flows,

Customized Training Programs & Webinars

Key compliance programs taught by Diaz Trade Law in 2021 were:

• Intellectual Property Rights and Customs – Amazon Brand Registry
• CTPAT Program: Is CTPAT a Right Fit
• Successfully Navigating the U.S. Customs Detention and Seizure Process
• How to Navigate FDA Enforcement Action: Detentions, Warning Letters, and Import Alerts
• Requests For Information (CBP Form 28) and Prior Disclosures
• How to Build and Maintain an Effective Import Compliance Plan
• How to Build and Maintain an Effective Export Compliance Plan
• Importing Food in Compliance With U.S. FDA and Surviving A FSVP Audit
• Importing Medical Devices in Compliance With U.S. FDA
• 6 Months In – Insights on Biden & Congress on Trade
• Is it a Cosmetic, a Drug, or Both? FDA Enforcement Actions
• ACE: Auditing Your Export History
• ACE: Auditing Your Import History
• Introduction to Export Controls
• Importing 101 – Introduction to U.S. Customs
• Anti-Circumvention / EAPA / Dumping Duties & the Spreadability of Cases (Coated Paper)
• Other Trade Remedies 101 – Every Administration has a Favorite!
• Basics on AD/CVD
• Cleaning for Covid-19 – Importing Cleaning Products: Who Regulates You?
• Forecasting the Next 4 Years of Biden on Trade

Diaz Trade Law values you and appreciates your trust in us to be your Customs and International Trade Law Expert! Contact us at info@diaztradelaw.com to schedule your consultation or customized training today.

Ever hear of U.S. goods returned and wondered what it really meant? The Harmonized Tariff Schedule of the United States (“HTSUS”) subheading 9801.00.10 is used for re-importing U.S. made products back into the United States, duty-free. Previously, this classification only covered merchandise originally made in the United States and now reentering the country (hence “US Goods Returned”). In order to qualify for classification under subheading 9801.00.10 and duty-free treatment, these products entering the United States had to be unimproved in condition or value. In other words, the products had to not be subject to further processing abroad. For example, subheading 9801.00.10 may be used when goods are being re-imported as returned product to the seller or for repair. Under subheading 9801.00.10, the importer has the burden to prove their claim for duty-free treatment.

CBP Issues Updated Guidance

On August 20, 2021, subheading 9801.00.10 was expanded to include products which originated from foreign countries. HTSUS subheading 9801.00.10 now states: “Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.” In other words, non-U.S. origin products that are returned to the United States will ALSO qualify for duty-free treatment under subheading 9801.00.10. However, the timing requirements for U.S.-origin and foreign-origin products are different. U.S.-origin products currently have no time limit to file a claim for duty-free treatment. However, claims for foreign-origin products must be filed within three years.

Duty-Free Treatment

To prove you are eligible to rightfully claim duty free treatment under subheading 9801 the foreign shipper/importer must declare that the products reentering the United States were not advanced in value or improved in condition by any manufacturing process or other means while abroad. However, if the customs broker obliges themselves as the importer, the customs broker will now have the legal responsibility to provide the required documents to substantiate the subheading 9801.00.10 claim (p.s. – if you are a broker, think 50 times, maybe 100, before taking on this responsibility).

Specifically, the changes resulted in:

1. For either U.S. manufactured goods or foreign origin goods:
   •  A declaration by Foreign Shipper should be included as it will indicate that the goods were not advanced in value or improved in condition while outside the United States.
   • A certificate from the master of a vessel may be accepted with the Declaration by the Foreign Shipper if it states that the product have not been un-laden from the exporting vessel.
   • Declaration by the owner, importer, consignee, or agent indicating that they have knowledge of the facts regarding the duty-free claim.
2. For goods reentering the U.S. after three years and are valued over $2500, CBP may request additional documentations if the name and address of the U.S. manufacturer are not clearly stated. An example of the documentation is a statement from the U.S. manufacturer verifying that the articles were made in the United States.
3. The documents which are sufficient to establish proof of export are Electronic Export Information (EEI)/the Automated Export System (AES) filing exemption, copy of the entry into the foreign country, or U.S. export invoice or bill of lading/airway bill.
4. For aircrafts, aircraft parts and equipments reentering the U.S, a CBP Form 3311 or its equivalent as stated in 19 CFR 10.1 may be used. The entrants which should be included are:
   • The name of the importing vessel or conveyance
   • The date of its arrival
   • A description of the articles
   • The value of the articles, and
   • That the articles are intended for use by the aircraft owner or operator in his own aircraft operations
5. For U.S. origin goods reentering the U.S. that were originally exported under a Department of State license are required to be imported through formal entry and the value of the goods doesn’t matter.
6. For U.S. manufactured aircraft reentering the U.S which were sold t0 a foreign government under the Foreign Military Sales program, formal entry is required if any maintenance is being performed on the aircraft while in the United States. Also, at the time of export of the aircraft, the EEI has to be filed for the maintenance of the aircraft.
7. For U.S. manufactured aircraft reentering the U.S which were sold t0 a foreign government under the Foreign Military Sales program and modification or enhancement will occur, to be imported and exported formal entry is required and the EEI submission citing the Directorate of Defense Trade Controls export license (DSP-5) is required.

Below is your checklist of necessary documents when claiming 9801.00.100/duty-free treatment:

• Declaration by Foreign Shipper,
• Declaration by the Owner, importer, consignee or agent,
• Proof of export documentation, and
• A statement from the U.S. manufacturer verifying that the merchandise was made in the United States (for products valued over $2,500 USD).

What You Can Do

The HTSUS is the primary resource for determining tariff classifications and deciphering customs duties owed for goods imported into the United States. Experts use the HTS, in conjunction with explanatory notes, general notes, general rules of interpretation, and Customs Binding Rulings to help determine the correct HTS. Correct classification is a part of the importer of records “reasonable care” requirement. Penalties for non-compliance can be severe. 19 U.S.C. 1592 is the statute CBP references when issuing penalties for negligence, gross negligence or fraud – depending on the degree of culpability CBP believes you had at the time of your non-compliance.

Fortunately, there is a lot you can do to be proactive about your HTSUS classification:

CLASSIFICATION CHECKLIST

1. Obtain as much information about the product subject to classification PRIOR to importation (if you can, get a sample, if not, photographs of the item and its packaging (exactly as it will look when being imported) are essential).
2. Refer to brochures, catalogs, product datasheets, or websites, etc., to truly understand the products intended use.
3. Review HTSUS chapters and look for the most relevant chapter/heading (first four digits) that best describes your product (i.e., and apple is an apple).
4. Review the Chapter and Section Notes to ensure the product is not kicked out of the HTS.
5. Review the General Rules of Interpretations (GRI’s) in the order.
6. Read the Explanatory Notes for the relevant headings.
7. Check CBP CROSS Rulings for classification of items of the same class/kind.
8. Consult Internal and/or external experts such as trade lawyers or engineers.
9. Request a CBP Binding Ruling.
10. Consult CBP Informed Compliance Publications

Contact Us

If you have questions or require assistance on U.S. And Foreign Goods Returned, contact Diaz Trade Law today at info@diaztradelaw.com or 305-456-3830.

U.S. Commercial Wildlife Trade Enforcement & Licensing

The United States is a signatory to CITES and has ratified CITES into U.S. law via the Endangered Species Act (50 CFR Part 23). The U.S. Department of the Interior’s Fish & Wildlife Service (“FWS”) is responsible for enforcing and licensing U.S. commercial wildlife trade pursuant to the Endangered Species Act.

In order to engage in international trade in any specimen covered within the scope of CITES, you must have either a valid CITES document or qualify for an exemption. CITES documents are issued by national CITES management authorities. In the United States, the FWS issues CITES documents. CITES documents must contain certain standardized information and include either a purpose code or a written description of the purpose in addition to a source code indicating the source of the specimen. Current CITES exemptions are detailed on FWS’ website.

Below is an example of a CITES document looks. Standardized information generally required includes:

• Appendix – i.e. what species, subspecies, or population is listed
• Applicant’s signature
• Bill of lading, air waybill, or flight number
• Dates of issue and expiration
• Description of the specimen
• Document number (unique control number)
• Statement that live wildlife will be transported in a humane manner
• Name and address of the exporter and importer
• Purpose of the transaction
• Quantity
• Scientific name
• Source of the specimen

CITES documents must contain certain standardized information and include either a purpose code or a written description of the purpose in addition to a source code indicating the source of the specimen. You can search your specimen on the CITES appendix to determine whether a CITES permit is necessary.

Purpose codes are standard identifiers of the purpose of a transaction. A CITES document must comprise of one of the following codes:

• B – Breeding in captivity or artificial propagation
• E – Education
• G – Botanical garden
• H – Hunting trophy
• L – Law enforcement / judicial / forensic
• M – Medical research (including biomedical research)
• N – Reintroduction or introduction into the wild
• P – Person
• Q – Circus or traveling exhibition
• S – Scientific
• T – Commercial
• Z – Zoo

Similarly, a source code must be listed indicating the source of the specimen. Common source codes include:

• A – Artificially propagated plant
• C – Bred-in-captivity wildlife
• D – Bred-in-captivity or artificially propagated for commercial purposes
• F – Captive-bred wildlife
• I – Confiscated or seized specimen
• O – Pre-convention specimen
• R – Ranched wildlife
• U – Source unknown (must be justified on the face of the CITES document
• W – Specimen taken from the wild

Exemptions to a CITES document often require CITES exemption documents. Below is a listing of common exemptions and their corresponding CITES exemption document:

IMPORT/EXPORT LICENSES

Separate and apart from the CITES licensing described above, companies or individuals engaged in commercial importation or exportation of shipments containing certain wildlife (including products made from wildlife) must obtain an Import/Export License (“I/E License”) from FWS. IE Licenses are issued via FWS’ Office of Law Enforcement. I/E Licenses must be obtained before commercially importing or exporting covered wildlife.

It is important to note that while the CITES licensing mechanism is narrowly tailored to only certain endangered species covered by the CITES appendices, the scope of the I/E licensing requirement is much broader and covers “wildlife [or fish] shipments for commercial purposes” generally. Fish or wildlife, according to the Endangered Species Act, is defined as:

• “Any member of the animal kingdom, including without limitation any mammal, fish, bird (including any migratory, nonmigratory, or endangered bird for which protection is also afforded by treaty or other international agreement), amphibian, reptile, mollusk, crustacean, arthropod or other invertebrate, and includes any part, product, egg, or offspring thereof, or the dead body or parts thereof.”

Certain animals are exempt from I/E licensing requirements. These include:

• Certain domesticated animals listed on the table found in 50 CFR 14.4
• Shellfish and nonliving fishery products including certain products for human or animal consumption
• Live farm-raised fish and farm-raised fish eggs

If an I/E License is issued to you or your company, you will ensure that a copy of the I/E License is provided with each Declaration for Importation or Exportation of Fish or Wildlife (Form 3-177) document package submitted to FWS at the time of shipment.

What You Can Do

If you are importing or export wildlife or fish, or products made with wildlife or fish, you should:

• Understand your Supply Chain – Violations of the Endangered Species Act or Lacey Act for failing to obtain a CITES document or an I/E License if necessary or otherwise engaging in the illicit trade of endangered species carries heavy civil penalties and criminal sanctions. One reason that U.S. importers and exporters inadvertently get caught up in the illicit trade of endangered species is their failure to properly understand their supply chain. Diaz Trade Law works with a global team of due diligence investigators and supply chain transparency researchers. If you require assistance understanding your supply chain, contact us today.
• Vet Proposed Transactions – If you’re unsure whether a proposed import or export sale is subject to FWS enforcement or requires a CITES document or I/E License, reach out to us today. We can review and vet your proposed transaction to determine what actions you need to take.
• Developed a Wildlife Trade Compliance Plan – A key foundation of proactive and effective wildlife trade compliance requires the development of a wildlife trade compliance plan. A wildlife trade compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. Diaz Trade Law can assist you in developing or enhancing your wildlife trade compliance plan.
• Train Your Employees – Violations of the Endangered Species Act carry heavy civil penalties and criminal sanctions. You can be proactive to ensure that your employees are aware of FWS licensing requirements by holding a training session. Diaz Trade Law has significant experience in training employees on a range of import and export compliance matters. If you would like to hold a wildlife trade compliance training, reach out to us today.
• Obtain a CITES document if necessary – If your import or export contains product that is listed on CITES’ appendices, a CITES document obtained from an issuing authority such as FWS is likely required.
• Obtain an Import-Export License if necessary – If your import or export contains commercial wildlife product, an I/E License may be necessary.

The duty to prevent the illicit trade in endangered species is everyone’s responsibility. As an importer or exporter of commercial wildlife or wildlife-derived product, you are on the forefront of the issue and may have the ability to identify parties engaged in illicit trade. If you would like to report a wildlife crime, you can do so at fws_tips@fws.gov. FWS is authorized to pay rewards for information or assistance that leads to an arrest, a criminal conviction, civil penalty, or forfeiture of seized property.

Contact Us

If you have questions about trade in wildlife and wildlife-derived product, including FWS enforcement and licensing, training, developing a compliance program, or vetting proposed transactions, contact Jennifer Diaz or Sharath Patil today at 305-456-3830 or info@diaztradelaw.com.