All merchandise of foreign origin imported into the United States (U.S.) must generally be marked with its country of origin, and it is subject to a country of origin (COO) determination by CBP. The country of origin of imported goods may be used as a factor to determine eligibility for preferential trade treatment under a free trade agreement.

The country of origin of imported goods is also used to determine non-preferential trade treatment, such as admissibility, marking, and trade relief (310 duties, antidumping and countervailing duties (AD/CVD). CBP uses the “substantial transformation” standard to determine the COO of goods for non-preferential purposes. For a substantial transformation to occur, “a new and different article must emerge, `having a distinctive name, character or use.’” Anheuser-Busch Brewing Ass’n v. United States, 207 U.S. 556, 562 (1908) (quoting Hartranft v. Wiegmann, 121 U.S. 609, 615 (1887)).

CBP applies two different methods to determine if goods have been substantially transformed – even though both are intended to produce the same origin determinations:

1. Case-by-case decision based on court decision and CBP rulings (often criticized because of the varied case-specific interpretations of the basic rule that has resulted in a lack of predictability and increased uncertainty both within CBP and in the trade community). Using this method, the effect of a particular type of processing could have on impact on  origin determination.
2. Rules of Origin in 19 CFR 102 – these rules are included in the Harmonized Tariff Schedule of the U.S. (HTSUS) under General Notes and are often referred to as the “change in tariff classification” or “tariff shift” method.

Prior to the USMCA, under the NAFTA, COO marking determinations were made using the NAFTA marking rules codified in 19 CFR 102, to determine if substantial transformation existed when a good imported from Canada or Mexico (was not entirely of Canadian or Mexican origin). The 102 rules helped determine whether or not goods were substantially transformed through processes that resulted in changes in the tariff classification (i.e., tariff shifts) in Canada or Mexico. To determine the country of origin of goods imported from Canada or Mexico for other non-preferential purposes (i.e., purposes other than marking), CBP employed case-by-case adjudication to determine whether such goods were substantially transformed in those NAFTA countries. These different non-preferential country of origin-determination methods required some importers to determine and declare two different countries of origin for the same imported good!

The Current Problem with COO Determinations Under USMCA

Importers from Canada and Mexico are subject to two different non-preferential origin determinations for imported merchandise:

• One for marking; and,
• Another for determining origin for other purposes (e.g., 310 duties, AD/CVD).

Consequently, these importers must also potentially comply with requirements to declare two different countries of origin for the same imported good (e.g., Canada and China, forcing the import to also tender the additional 301 duties, but, also take advantage of the FTA not having to pay regular duties). This is not only a burden, but, also quite confusing, creating inconsistency, and vastly reduces transparency.

CBP’s Proposed Solution

CBP is proposing to amend the scope provision in 19 CFR 102 by adding new language to apply the substantial transformation standard consistently across country-of-origin determinations CBP makes for imported goods from the USMCA countries of Canada and Mexico for non-preferential purposes. With this regulatory change, all non-preferential country of origin determinations by CBP for goods imported from Canada or Mexico would be based on the tariff shift rules in 19 CFR part 102.

Since importers must exercise reasonable care in determining the country of origin of their goods and may seek advice from CBP to determine the country of origin for their goods for preferential and/or non-preferential purposes; the proposed solution means CBP will no longer need to issue CBP rulings with non-preferential origin determinations for goods imported from Canada or Mexico, and there would no longer be rulings that conclude that a good imported from Canada or Mexico has two different origins under the USMCA (i.e., one for marking and one for other, customs non-preferential purposes).

CBP is proposing these changes to simplify and standardize country of origin determinations by CBP for all non-preferential purposes for goods imported from Canada or Mexico.

Comment Opportunity

Interested persons are invited to comment on the proposed rule by submitting written data, views, or arguments on all aspects of the proposed rule. CBP is seeking comments related to the economic, environmental, or federalism effects that might result from this proposed rule.

Deadline: Comments must be received on or before September 7, 2021 (extended from August 5, 2021).

Impacted Parties

Certain Canadian and Mexican importers are directly affected by the proposed change. In fiscal year (FY) 2019, 38,832 importers made 2.6 million non-NAFTA-preference entries. All of these entries were subject to non-preferential country of origin marking requirements, and some were also subject to trade remedies, that involve case-by-case adjudication. Around the same time, in FY 2020 and the start of FY 2021, CBP issued 52 rulings determining the origin of goods imported from Canada and Mexico for non-preferential purposes. These rulings, except for those involving the importation of certain textile and apparel products, were issued on a case-by-case basis to determine whether such goods were substantially transformed in Canada or Mexico or another country.

Impact on other Free Trade Agreements

While the Federal Register Notice (86 FR 35422) announcing the proposed rule and requesting comments from trade is focused on USMCA, this may be the future for all FTAs. The  Federal Register Notice makes clear that  19 CFR 102 was established to promulgate the U.S.’s responsibilities under the North American Free Trade Agreement (NAFTA); however, thereafter, 19 CFR 102 has been extended to apply to numerous other FTAs as CBP has found them to be reliable, simplified, and standardized method to determining the COO of a good. Specifically, 19 CFR §§ 102.21 through 102.25, are also to be used by CBP to determine the COO of textile and apparel products (imported from all countries except Israel).

As we learn more, we will keep you up to date on whether this change will also be adopted for FTAs that are silent as to how the country of origin should be determined for marking and other non-preferential purposes.

Contact Us

Jennifer Diaz and Denise Calle have extensive expertise on FTA’s and in preparing and submitting comments for federal rulemaking. Please reach out to our trade attorneys to prepare and submit your comments to CBP. If you would like more information on this issue, contact Diaz Trade Law at info@diaztradelaw.com and 305-456-3830.

Co-Authored by Jen Diaz & Denise Calle

Thankfully, U.S. Customs and Border Protection has been working to curb this inhumane practice.

Ending the “consumptive demand” clause; 19 U.S.C. § 1307

The relatively recent push to fight forced labor came about with revisions to Section 307 of the Tariff Act of 1930. Section 307 of the Tariff Act of 1930 codifies into law the prohibition of importing items produced -wholly or in part- by the use of forced labor.

Previously, under the “consumptive demand” clause in 19 U.S.C. § 1307, the United States effectively allowed for the importation of goods that had been partially produced by forced labor. However, since the enactment of the Trade Facilitation and Trade Enforcement Act of 2015, which eliminated the “consumptive demand” clause, United States’ federal agencies have been greatly increasing active measures to combat this practice. Since its repeal, CBP, in partnership with U.S. Immigration and Customs Enforcement (ICE), has been actively investigating allegations of forced labor around the globe, examining various supply chains in order to curb the illicit practice. According to CBP, the agency does not target whole product lines or industries, rather it focuses on information regarding specific actors and their merchandise. The Forced Labor Division, established in 2017 within CBP’s Office of Trade, leads enforcement of the prohibition against importing goods made with forced labor.

Forced Labor Process

CBP provides the public with an infographic detailing the detention process if merchandise is in any way related to forced labor, and in violation of 19 U.S.C. § 1307. Below is a chart categorizing CBP’s detention process for merchandise related forced labor:

FORCED LABOR PROCESS
Step(s)	Description
(1)  Receipt of Allegation or Self-Initiation	The provisions of 19 C.F.R § 12.42 detail who may submit information
(2)  CBP Evaluation	CBP must determine or establish reasonable suspicion to issue a Withhold Release Order (WRO) or conclusively demonstrate that merchandise is prohibited to publish a finding.
(3)  Commissioner Review of WRO Issuance	If Commissioner approves a WRO, CBP detains subject merchandise.
(4)  Issuance of WRO	Port directors instructed to withhold release of subject merchandise.
(5)  Detention of Merchandise	CBP begins to detain all shipments within WRO parameters.
(6)  Export, Contest, or Protest	Importer may export, contest, or protest; CBP may release or exclude
(7)  Finding/ Customs Bulletin and Federal Register	If a finding is published, subject merchandise that has not been released from CBP custody shall be treated as an importation prohibited by 19 U.S.C. § 1307.
(8)  Seizure – Subsequent FPF Process	CBP will seize merchandise. Violator may petition for the release of merchandise
(9)  Judicial Forfeiture	CBP will commence summary forfeiture proceedings.

Withhold Release Order(s) WRO(s)

The strategic use of Withhold Release Orders (WROs) by CBP has been especially effective at identifying certain nations, industries, and companies that employ forced labor. CBP issues WROs after receiving information that reasonably indicates the use of prison or forced labor at any point in a product’s supply chain. Prior to TFTEA, the United States had only implemented 30 WROs in the past five decades. Since 2016, however, USTR has implemented over 20 WROs.

CBP provides the public with a list of all WROs and the findings of the investigations. The chart below details the WROs imposed since the abolition of the “consumptive demand” clause by country, alphabetically:

What Can You Do to Address Forced Labor?

Have you taken reliable measures to ensure that you are not inadvertently using forced labor at any point in your supply chain? Ask yourself these 12 questions.

According to CBP, importers must exercise reasonable care and due diligence to ensure that forced labor is not included in any aspect of their supply chain. To effectively do this, importers must include forced labor into their internal risk assessment. CBP recommends referencing the International Labour Organization’s eleven (11) Indicators of forced labor, which are:

1. Abuse of Vulnerability
2. Restriction of Movement
3. Withholding Wages
4. Deception
5. Isolation
6. Physical & Sexual Violence
7. Intimidation & Threats
8. Retention of Identity Documents
9. Debt Bondage
10. Abusive Working & Living Conditions
11. Excessive Overtime

Additionally, to further its strategic goal of stopping the importation of goods produced with forced labor, CBP recommends reviewing the Department of Labor Comply Chain principles to create a social compliance system as a best business practice:

Comprehensive Supply Chain Profile

• Does the importer have a complete understanding of the supply chain from the sourcing of raw materials (manufacturing factory, farm, mines, etc.) to packaging and shipping, to ensure that none of the production uses forced labor?

Written Code of Conduct

• Has the importer ‘developed and applied for a written code of conduct for all international interactions associated with the sourcing of foreign goods?
• Is the code of conduct shared with all suppliers in the global supply chain as a stand-alone document or as addendums to purchase orders, contracts, or letters of credit?
• Does the code of conduct include specific language as to minimum labor standards as specified by the United Nations International Labor Organization, other intergovernmental organizations, or multi-stakeholder initiatives?

Robust Internal Control Process

• Are the internal controls established according to professionally recognized objective audit standards?
• Does the US importer have sufficient internal controls in place to effectively deter and detect instances of noncompliance with the code of conduct and other best-practices?
• Does the U.S. importer conduct periodic compliance audits using in-house personnel or external audit professionals?
• Does the U.S. importer’s internal control process cover every level of the product supply chain including relevant business documents?
• Does the U.S. importer have adequate corrective action plans to address non-compliance and deter weak business practices?

Tips for importers whose shipment(s) has been detained under a WRO:

• Merchandise Subject to a WRO: If your product has been detained by CBP due to a WRO, you may export your shipment to another country within three (3) months of the initial importation.
• Merchandise Subject to a Finding: Within three (3) months of importation, the importer must submit “a certificate of origin and a detailed statement demonstrating that the subject merchandise was not produced with forced labor. If the proof submitted does not establish the admissibility of the merchandise, or if none is provided, the merchandise is subject to seizure for a violation of 19 U.S.C. § 1307”.
• Amendment or Revocation of a WRO/Finding: WROs have no expiration date and stay in effect until they are revoked. WROs may be revoked if CPB is presented with sufficient evidence that substantially proves that the “subject merchandise was not made with forced labor, is no longer being produced with forced labor, or is no longer being, or likely to be, imported into the U.S”.

For assistance with importer due diligence in relation to forced labor requirements; or for assistance re-exporting your detained merchandise, in submitting documents to dispute the use of forced labor, or for assistance with the revocation request process, contact our Customs and International Law attorneys at info@diaztradelaw.com or 305-456-3830.

From September 8-11, U.S. Customs and Border Protection (CBP) held its first virtual trade week. Over the course of the event, CBP held an action-packed series of webinars on the following topics:

• United States-Mexico-Canada-Agreement (USMCA)
• Forced Labor
• Customs-Trade Partnership Against Terrorism (CTPAT)
• E-Commerce
• 21^st Century Customs Framework (21CCF)

In the midst of this global pandemic and the vast challenges that (we are all navigating) the trade community faces, by us coming together in this way collective commitment to continue our persistent and ongoing dialogue about the most pressing issue facing.  CBP believes that improving and delivering effective transparency is an essential element to enhancing trust, and trust is essential to strengthening partnerships and getting things done for your business to thrive and trade community to succeed.

Below are summaries of each of the sessions. Have questions on them? Contact DTL at info@diaztradelaw.com.

USMCA

Whether you choose to refer to it as USCMA, T-MEC, or CUSMA, it continues to work towards economic prosperity and security for North America, and not just a replacement to NAFTA. USCMA provisions are cross-cutting in nature and affect multiple sectors of the economy. This agreement will facilitate mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America. The USMCA seeks to re-balance trading relationships in North America through having changed the legacy NAFTA provisions on investment protection, government procurement, and rules of origin for key manufacturing sectors, especially automobiles.

This Agreement also provides strong effective protection and enforcement through enhanced enforcement capabilities and unprecedented incorporation of the three customs administration best practices, in areas such as trusted trader and authorized economic operator, single window, risk-based analysis, targeting, trade advisory committees, and post-clearance audit. Additionally, it also addresses a new competition policy provision, expending on provisions of legacy NAFTA, to ensure fair competition by requiring parties to adopt and maintain laws against anti competitive business conduct. As for Rules of Origin, the USMCA will be more liberal for some products and stricter for others. Overall, the rules of origin promote production in North America, streamlining certification and verification rules of origin and strengthen enforcement.

USMCA, just as NAFTA once was, is extremely important to the economic recovery of Mexico, and North America as a region. The Mexican President came to Washington DC to convey exactly that when meeting with President Trump. USMCA signifies, or can even be the driver, for productivity working towards attracting investments for job creation, and ultimately for more welfare. That being said, customs authorities are fully engaged and committed to a successful implementation of this agreement. Knowing that such an implementation is paramount to this end. Customs authorities view themselves as partners to companies involved in the trade community, helping you comply with the agreement.

CBSA is responsible for Customs administration in Canada ranging from the risking and processing of commercial goods, per the assessment and reassessment of duties and taxes as well as enforcement of compliance directed by international commitments, domestic law, and security policy procedures. With regards to DGF trade and Dumping program in Canada, CBSA plays a key role in implementing Canada’s commitment in three areas:

1. Origin procedures.
2. New chapter on customs and trade facilitation Chapter 7; and
3. Trade remedies (e.g. anti-dumping)

When it comes to the Agreement and its implementation to Customs, it is safe to say there’s a dual process to the improvements being brought to bear. The first being, the drive to modernize and streamline customs experience, through the adoption of E-solution by reducing unnecessary and unjustified red tape, simplifying procedures, and standardizing how customs works. That thrives to modernize is backstopped by a clear focus on ensuring that the rules are enforced effectively and appropriately by each party. The compliance enforcement is grounded, transparent, predictable expectation in procedures, but due regard to privacy and confidentiality, and close collaboration across customs authorities.

Importers and producers can be a certifier and whoever certifies must have the records to show proof upon request. However, as such, they will have full appeal rights as well. Must provide clear facts establishing origin.

Diaz Trade Law’s President, Jennifer Diaz, and Associate Attorney, Denise Calle provided a thorough review of the agreement in their article published in Bloomberg Law, titled USMCA Import Considerations for Practitioners.

FORCED LABOR 

Unfortunately, the use of forced labor worldwide is extremely prevalent. Currently, roughly 40 million people are victims of modern slavery; over half, approximately 25 million, are victims of forced labor, specifically. Furthermore, over 150 million children around the world are laborers, rather than students. The use of forced labor is not only common but exceptionally profitable. In fact, behind drugs and weapons, Human Trafficking (which encompasses forced labor) is the third most profitable illicit trade, with an annual trade value of more than $144 Billion. According to the Global Slavery Index, the US imports the following items produced by forced labor:

• Electronics ~ $91 Million
• Clothing/Textiles ~$47 Million
• Cocoa ~ $1 Million

Thankfully, U.S. Customs and Border Protection has been working to curb this inhumane practice. The relatively recent push to fight forced labor came about with revisions to Section 307 of the Tariff Act of 1930. Section 307 of the Tariff Act of 1930 codifies into law the prohibition of importing items produced -wholly or in part- by the use of forced labor.

The Trade Facilitation and Trade Enforcement Act of 2015  ended the “consumptive demand” clause in 19 U.S.C. § 1307, which had previously allowed for the importation of goods that had been partially produced by forced labor. Since its repeal, CBP, in partnership with U.S. Immigration and Customs Enforcement, has been actively investigating allegations of forced labor around the globe, examining various supply chains in order to curb the illicit practice. According to CBP, the agency does not target whole product lines or industries, rather it focuses on information regarding specific actors and their merchandise.

The strategic use of Withhold Release Orders (WROs) on certain industries and nations has had a notable effect on mitigating this practice. Since May 2016, the US has implemented 19 WROs, which has had ripples world-wide. Another integral aspect aiding in this effort is Executive Order 13923 and the broad authority it grants to the newly established Forced Labor Enforcement Task Force. This EO aims to strengthen the task force monitoring the prohibition on the importation of goods produced by (or with) forced labor. Today, there is a joint effort between Non-profits, government agencies, as well as private industries to cooperate in quelling this international crisis.

What Can You Do to Address Forced Labor?

According to CBP, importers must exercise reasonable care and due diligence to ensure that forced labor is not included in any aspect of their supply chain. To effectively do this, importers must include forced labor into their internal risk assessment. CBP recommends referencing the International Labour Organization’s eleven (11) Indicators of forced labor, which are:

1. Abuse of Vulnerability
2. Restriction of Movement
3. Withholding Wages
4. Deception
5. Isolation
6. Physical & Sexual Violence
7. Intimidation & Threats
8. Retention of Identity Documents
9. Debt Bondage
10. Abusive Working & Living Conditions
11. Excessive Overtime

Have you taken reliable measures to ensure that you are not inadvertently using forced labor at any point of your supply chain? Ask yourself these 12 questions.

CTPAT

Customs-Trade Partnership Against Terrorism (CTPAT) is a voluntary partnership program between CBP and industry to protect supply chains, identity security gaps, implement specific security and trade compliance best practices, and maintain the integrity of low-risk cargo entering the US. CTPAT has about 11,400 members in the program and 350 trade compliance members. Due to COVID-19 companies have been withdrawing from the program. Out of 100+ Companies that have withdrawn from the program stems from financial reason or change of habits of supply, and not necessarily due to the minimum-security requirement. Pandemic or not, this program is something that companies in the industry need to adhere to.

Companies were given multiple opportunities during the pandemic to provide the information they needed for minimum security criteria that were due in 2018- 2019. Companies were given an ample amount of time to get to what they need to be with the validation report and responses to them but unfortunately plenty of companies have not been responding. Those companies represented about 53% of the total cargo coming into the US by value. Overall, 52 companies have been suspended this fiscal year and 14 of them since January 1. Those 14 companies were suspended not because of what they did in 2020 but what they did not do in 2019, and for some that were due to failure to respond within 30 days. Suspension leads to removal.

CBP is in the process of updating its bulletin on suspensions, removals, appeals, and the reinstatement process. (within the coming weeks). CBP recognizes that seizures have been affecting CTPAT partners. However, with staggering data relating to Narcotics seizure in the South West borders (e.g. methamphetamine and fentanyl) in the commercial environment. CBP is seeking help from partners and CTPAT members to do the right thing by training their employees and giving notice that something may be wrong with shipments. Seizures of Meth have doubled this fiscal year. Have had a number of companies notifying their supply chain specialist telling CBP things they are finding within their supply chain, leading to seizures in the border.

With regards to forced labor, CBP ensured that forced labor was a part of the new minimum-security criteria and was included as a “should”. Companies should have a social compliance policy in place and be transparent as to any discrepancy going on in the supply chain (e.g. drug smuggling from suppliers).

All scheduled in-person validations were postponed indefinitely, on Friday, March 13. At that time, it became clear that CTPAT needed a new approach to its validation process and the ability to validate members without traveling. So far, a few test cases have been conducted with members, while others are in the process of being conducted as well, which is helping how they will develop their internal policy moving forward. The program is working on finalizing its internal policy model along with conducting several more validation tests. CTPAT is tracking data of virtual validation tests to be assessed and compared to the in-person validation process. Once that has been finalized, that process will be scaled through training of SCS’s and most importantly to provide documentation to members on the updated process as well. CTPAT is planning on starting the virtual validation process at the start of fiscal year 20201. Regarding additional validation updates, those scheduled for 2020 (which they are unable to conduct) will be pushed to 2021. If a company is selected for virtual validation, it will always be a requirement of membership that they must uphold. However, CTPAT will work with companies to make reasonable accommodations on an as-needed basis. While finale decision is still forthcoming it is most likely that the 2021 validation cycle will be pushed to 2022. There is a potential for “self-certification”. Still in discussion, but any company considered for this would be based on their demonstration of being very low risk. CTPAT is also working on a long term validation process (e.g. Enhancement and Capability to conduct live facility tours, as well as Interviews with secure tool).

This enhanced platform for members and SCS’s is to conduct live interviews and upload facility tours and additional videos, to enhance proof of compliance with MSC and to reduce reliance on visiting member facility in person. This will help reduce administrative burning and generate additional time for SCS’s to tailor their assessment to focus further on critical areas of member risk and compliance.

Included below are helpful tips to navigate this process:

• First step: identify activity to automate and streamline the virtual validation process
  • Data
  • Document for member upload
  • Pre-validation information
  • Electronic communication
  • Secure data exchange with members, government, and MRA partners.
• Cognitive analytics and anomaly detection for virtual validation, research analytics tools that can help CTPAT assess member risk and flag threats based on validation, to inform risk-based validation actions in training and mass aggregated view of member supply chain risk trends.
• This process came about, similar to cybersecurity, was to navigate through this world of the virtual platform and actually see what the government (e.g. CBP and CHS) had in their repertoire to go through this new process.
  • Supply chain specialists will be able to establish their own private room (i.e. private connections) and invite important members or points of contact, subject matter experts – to the virtual validation, knowing that this link is as secure as it can be from a federal point of view.
  • CTPAT will always be a boot on the ground program. That is the methodology of this entire process, which is to physically go and view supply chains. SCS’s will visit facilities and every member at that facility will gain the knowledge and experience about the supply chain that is sorely needed.
  • CTPAT continues to learn from this process. Developing a risk-based approach (SOP) to make sure that candidates for virtual validation are recognized. A low risk-based operation, not a one size fits all. Not everyone eligible for virtual validation.
• Virtual Validation is another tool in CTPAT’s toolbox. Although it continues to learn from the process, CTPAT will always be a boot on the ground program.

Diaz Trade Law’s President, Jennifer Diaz, and Associate Attorney, Denise Calle provided an in-depth discussion of the relevant changes in their article, CTPAT Minimum Security Criteria Changes, published by Bloomberg Law.

E-COMMERCE

E-Commerce is one of the fastest-growing sectors of the US economy. Although E-Commerce has become increasingly more common over the past several decades, since the onset of the pandemic in early 2020, the prevalence of E-commerce has propelled by 3-5 years. Not only did the value of e-commerce in the second quarter of 2020 (Q2) see a 45% increase from the same time last year, but also, currently, more than 1 out of every $5 (28%) spent in the United States is related to e-commerce! Below are some e-commerce statistics CBP presented:

• $2.29 trillion in sales (globally)
• 80% of American use at least 1 e-commerce platform
• Nearly 2 Million mail and express shipments enter the US each day; FY 2019 volumes exceeded 600 million shipments
• Over 90% of all IPR seizures occur in the mail and express environments

E-commerce’s share of the market had been growing for years prior to the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).  In TFTEA, CBP raised the De Minimis value, i.e., the value of a shipment of merchandise imported by one person in one day that generally may be imported free of duties and taxes, from $200 to $800 per shipment. The Section 321 Program provides admission of articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed $800.

The increased definition of “low valued” shipments has seen an accompanying growth in the use of the Section 321 Program. This substantial increase, coupled with a reactive, rather than a proactive federal government has worsened CBP’s ability to efficiency enforcement the required measures. Today, some of the major challenges posed by the growth of E-commerce are:

• As volumes of small e-commerce packages grow rapidly, the inspection challenges intensify
• Transitional criminals ship illicit goods via small packages due to perceived lower interdiction risks and less severe consequences
• High volumes of small packages make it difficult to scale processes and procedures
• Domestic buyers are vulnerable to substandard products

The central message of the e-commerce webinar is modernization. The exponential growth of this eclectic industry has left a gap between private actors and the government agencies tasked with its regulation.  To begin to close the gap between regulations and innovations CBP has laid out four (4) concrete goals:

1. Enhance legal and regulatory authorities to better address emerging threats
2. Adapt all affected CBP operations to respond to emerging supply chain dynamics
3. Drive private sector compliance through incentives and enforcement resources
4. Facilitate international standards for e-commerce to support economic prosperity

Today, the US government partners, the trade community, and foreign customs agencies are cooperating to modernize e-commerce in an efficient and effective manner. The key tenets of bolstering e-commerce enforcement and facilitation are:

• Coordinating on actions set forth in the DHS Report on Combatting Trafficking in Counterfeit and Pirated Goods.
• Coordinating on actions set forth in the Executive Order Ensuring Safe & Lawful E-commerce.
• Establishing an international Framework of Standards for e-commerce through the World Customs Organization
• Applying enhanced Section 321 Data Pilot and Entry Type 88 Test Data (125 Million+ shipments to date) to identify and segment risk
• Leveraging data collection efforts to drive enforcement, enhance trade facilitation, and inform updated regulations
• Creating a predictable enforcement environment and addressing duty evasion by issuing an administrative ruling clarifying Section 321 eligibility.

21^st CENTURY CUSTOMS FRAMEWORK (21CCF)

CBP is a diverse agency and their responsibilities are not limited to just border security, instead, they act as a national security agency. With the ever-changing market conditions within the trade community, as they face new and unforeseeable challenges increasing the urgency to adapt, the U.S. government has been required to act now and set the stage for sustainable success.  Now more than ever, the trade community needs to adapt to cutting off trade rather than increasing trade and maintaining that kind of effect further down the line in case of a force majeure. In today’s world the market condition of the trade community and the challenges they face pertain to.

• The Expansion of the global marketplace
• The rapidly changing technology
• The Emergence of e-commerce
• Forced labor and unethical trade practices
• IPR infringement; and
• Product quality and safety concerns.

CBP’s 21^st Century Customs Framework (21CCF) stems from such unprecedented obstacles in an effort to tackle challenges, leverage emerging opportunities, and achieve transformational long-term changes. With collaboration amongst government agencies, the trade community (e.g. partners and trade agreement members), and Congress the five pillars of the 21CCF as they move towards modernization is,

• To enhance facilitation and security through 21 Century processes
• To define customs and trade responsibilities for emerging and traditional actors
• To ensure seamless data sharing and access
• To employed intelligent enforcement; and
• To protect and enhance Customs infrastructure through secure funding.

As such, these five pillars will be a game-changer for trade centers and government agencies and will further enable them to transform how they facilitate and effectively enforce trade. The 21CCF vision is to drive change by achieving end-to-end supply chain transparency, driving and facilitation data-centric decision making, and decentralizing and diversifying reasonable care standards. As a result, the U.S. government seeks to ensure that legitimate goods are never subject to unexpected delays at the border; that forced labor continues to be reduced within the supply chains; that seamless data sharing enables the same day order fulfillment around the globe; that trade capabilities can scale indefinitely with volume; and lastly, that security and speed no longer remain competing priorities. Through its 21CCF the U.S. government lead the world with innovative trade policy. As companies continue to divert their supply chain across the globe, e-commerce grows more and more as a crucial aspect of the trade community. CBP must look closely at what the future trade landscape is, especially with companies located globally. CBP seeking to evolve in this changing time, through partnership with another governmental agency (e.g.  US of Chamber of Commerce) to help each other adapt to new technology and ensure the on-time sharing of information. CBP asserts that this new initiative will have an extreme impact with all sectors having an equal share of the end game to ensure complete and accurate data collection. This data information is intended to be gathered from the right people, by the right people, and at the right time to properly enforce compliant trade. Today’s Technology is available for the use of proof of origin, proof of concept, IPR proof of concept, and the same for steal and pipeline exports. The U.S. government continues to take advantage of verifiable credential technology, which creates an underlying sense of trust, reduces fraud, and drives efficiency. The steps to such verification of data comprise of:

• Issuer created data credential
• A holder who stores the data credential; and
• Verifier who assure everything is correct.

Data will be made available to all parties. The owner of the data is responsible for what can be shared. They may also choose what data to share and with whom they are being shared. While it is all secured, there is a possibility that bad data be shared. With 21CCF, if bad data is given then the party responsible can be held accountable, as it helps identify discrepancies and anomalies. While Blockchain, which is most simply defined as a decentralized, distributed ledger that records the provenance of a digital asset, is not the only technology out there but was recommended by COAC. Proof of concept is proving very worthwhile and CBP along with other governmental agencies have had some positive feedback. That being said, some of the most important things to overcome across CBP are identifying the responsible parties and holding them accountable (starts and usually ends with importers), but they hope that they will be able to expend to others in the supply chain. The data discussion (i.e. what is being collected, who should be collected, and who already is providing data). Technology is here, but with that biggest challenges would be the legal aspect to it such as statutes and regulations in place for data being capture and who it is being captured from, along with funding. Taking modernization work and extending it for there to be one governmental control for imports and exports.

Have questions about the above topics or any CBP matter generally? Contact our Customs and International Law attorneys at 305-456-3830 or info@diaztradelaw.com.

You can read the article here, by clicking USMCA Import Considerations for Practitioners (where you’ll have the ability to access all of the great hyperlinks) you cannot click on below.

Answering these questions is not always so simple, and are often subject to interpretation.  An importer could assume that their own guesses are correct, but, taking that leap places in jeopardy the profitability of the venture, especially as profit margins become ever so tight.  What’s worse is that a wrong guess could potentially subject the company to fines if Customs and Border Protection (CBP) simply does not agree with the interpretation you have used in the past. CBP statute of limitations is five years – that translates into a multitude of entries potentially subjected to CBP fines if you have been guessing wrong.

How do you eliminate the guesswork? Submit a Binding Ruling Request!  Put simply, a Binding Ruling Request is an official request to CBP that includes relevant information, and often a sample of the product, for CBP to review and respond as to the following:

(1)          HTS Classification
(2)          Marking/Labels Ruling
(3)          Country of Origin Determination
(4)          Valuation Rulings
(5)          Applicability of trade program or agreement rulings

A Binding Ruling Request must be responded to within 30 days from receipt, meaning that the process is generally very quick.  One has to remember, however, that if the results of a Binding Ruling are not favorable, while there is an appeal process, clearly at that point, it becomes much more difficult to obtain a favorable result.

It is essential that the initial Binding Ruling Request provide CBP with the rational and authority to support your position.  There are literally hundreds of Rulings that are posted by CBP in a database referred to as Customs Rulings Online Search System (CROSS).  The Rulings can often be confusing, and determinations can turn on the slightest of nuisances.

The moral of this story is get rid of the guesswork and create certainty, but, make sure you have a professional help when doing so.

Helpful Link: http://rulings.cbp.gov/

The problems are (1) the U.S. exporter falsely completed the NAFTA Certificate of origin either intentionally or by ignorance, (2) the U.S. exporter relied on the U.S. producer who provided misleading information to the U.S. exporter, or (3) the records establishing that the merchandise originated in the United States are not available.

I usually recommend the U.S. exporter who received a letter from the SAT of the Mexican Government to respond. Moreover, it is best to seek the assistance of the supplier of the merchandise to the U.S. exporter and the Mexican importer. If the questionnaire is not answered properly and timely, the SAT will deny the NAFTA preferential treatment, and demand payment of customs duties, late fees, interest, and penalties from the Mexican importer, plus perhaps antidumping duties.  The Mexican importer may end up paying those charges to the Mexican Government agency and then seek full reimbursement, plus legal fees, from the U.S. exporter.

The chronology of the case is somewhat familiar.  In 2002, Tip Top Pants, Inc., imported from Mexico 954 dozen men’s pants, and claimed NAFTA duty free treatment.  Customs issued a Request for Information (CBP form 28), and then a Notice of Action (CBP Form 29) denying the NAFTA claim.  Customs then issued a Pre-Penalty Notice against both Tip Top Pants and its CEO, Mr. Nigri, alleging negligence, and assessing a penalty of $55,000.  Tip Top filed a response to the Pre-Penalty Notice.  Customs then issued a final Penalty Notice. Tip Top Pants filed with Customs another petition seeking cancellation or mitigation of the penalty.  Customs never responded to that Petition filed by Tip Top Pant’s attorney.

Even though the disputed customs duties were subsequently paid by Tip Top Pants, Customs sued both Tip Top Pants, Inc. and its Chairman and CEO, Mr. Saad Nigri, for violating 19 U.S.C. 1592, by allegedly making material false statements or acts, or material omissions, in connection with the entry of the men’s pants from Mexico.

The Court took the unusual action of dismissing Mr. Nigri as a defendant in the case for two reasons.  The first reason is that Customs failed to respond to Tip Top Pant’s Petition, as required by 19 U.S.C. 1592(b)(2).  The second reason is that the Complaint filed with the Court by Customs did not specifically allege that Mr. Nigri personally committed any act or omission in violation of 19 U.S.C. 1592. As the Court stated, “[T]he complaint does not allege that Nigri did, or failed to do, anything whatsoever.” So, even if Tip Top Pants was negligent, its negligence could not be imputed to Mr. Nigri just because he was CEO of the company when the negligence occurred.

In a sentence that is certain to be cited by customs attorneys in petitions and court briefs, Judge Stanceu stated:

The [Priority Products] case does not hold that a party’s serving as an officer of a corporation at the time the corporation imports merchandise is, by itself, sufficient to establish that officer’s liability for acts committed by the corporation that are found to be in violation of Section 592.

The Court then issued an Order dismissing all claims by Customs against Mr. Nigri, personally.

A future blog post will let you know what happened with the negligence penalty case against Tip Top Pants, Inc.