OVERVIEW. Importance: FTA/TPP Factory Verification Audits. Presenter, Kelli R. Thompson LCB Founder/CEO

Transcription

1 OVERVIEW Importance: FTA/TPP Factory Verification Audits Presenter, Kelli R. Thompson LCB Founder/CEO S

2 SIGNIFICANCE The Customs Modernization Act of 1993 altered the relationship between importers and Customs and Border Protection (CBP) by shifting to importers the legal responsibility for declaring accurate value, classification, and rates of duty for imported merchandise. 2

3 DEFINITIONS Informed Compliance- an important component is the shared responsibility between CBP and Importer. CBP communicates its requirements to the importer. Reasonable Care- the importer must provide CBP with accurate and timely information pertaining to the imported merchandise. 3

4 WHY IS THIS IMPORTANT? Customs and Border Protection considers Free Trade Agreements (FTA) and Trade Preference Programs (TPP) a Priority Trade Issue (PTI) and are critical areas of enforcement. Preferential tariff treatment afforded to importers has led to serious misuse and abuse; illegal transshipment; fraudulent claims; as well as other forms of non-compliance. Textile Production Verification Teams (TPVT) takes their investigative practices to foreign factories to verify that they comply with all U.S. import regulations. 4

5 IF IT IS IMPORTANT TO CBP IT SHOULD BE IMPORTANT TO YOU TOO!!! S 5

6 WHAT YOU MAY NOT KNOW? The claimed goods may be produced by a third party country that isn t a participating country to the agreement. Factories that are unable to complete production orders timely may subcontract out a portion of the production to a sister company or close by factory without consulting the importer. Factories are not always honest about their operations and will cut corners to obtain and keep U.S. business. 6

7 2010 TPVT VISIT GUATEMALA Title: Did you know CBP Sends Teams to Get a Jump on Fraudulent Imports? In 2010, CBP traveled to the Youm Kwang Facility in Guatemala after receiving affidavits stating it produced thread. The Textile Production Verification Team found thread that was manufactured in China and was dyed at the facility. Its labeling claimed that it was 100 percent manufactured in Guatemala. Source: 7

8 2012 TPVT VISIT GUATEMALA Title: Trust, but Verify The factory owner explains that he has no records onsite. He received the contract to produce the T-shirts from another manufacturer. But there is no record when the factory received the fabric or other raw materials. Source: 8

9 YOU DON T KNOW UNTIL YOU GO!!!! S 9

10 PURPOSE OF FACTORY VISITS To determine if the imported merchandise entered qualifies for the FTA/TPP claim. To confirm that the factory is knowledgeable of the rules and requirements of the FTA/TPP. To share expectations to the factory. To identify areas of training for the factory management. To hold the factory accountable. To gather information regarding the factories operation and production capabilities. 10

11 WHO CONDUCTS FTA/TPP AUDIT? Individuals who are knowledgeable of the rules, regulations, and recordkeeping requirements governing the FTA/TPP. 1. Customs Compliance Department 2. Independent Service Provider Integrity International Trade Consulting LLC is available for services. 11

12 HOW OFTEN? Sourcing New Factories Time Frame- before production Verify factory understands the rules to FTA/TPP, recordkeeping procedures, and factory capabilities Verifying Existing Factories Time Frame- at least twice annually, minimum once annually Pro-Active- Ensure that they abide by rules to FTA/TPP, verify recordkeeping, and confirm operations are satisfactory to your company expectations. Reactive- After Negative FTA/TPP Determination by CBP 12

13 KEY AREAS TO FOCUS ON DURING A FTA/TPP VERIFICATION AUDITS Know your factory and suppliers Factory Tour Document Review-Recordkeeping Results Training 13

14 GETTING TO KNOW YOUR FACTORY AND SUPPLIERS It is critical that you spend adequate time getting to know how your factory operations are conducted. Important things you should know: How long has your factory been operating? Who are the owners? Subsidiaries? Subcontractors? Who are the fiber, yarn, fabric, sewing thread, and etc. producers? How often are they provided affidavits of origin and what is the format of these affidavits? 14

15 GETTING TO KNOW YOUR FACTORY AND SUPPLIERS (CONTINUED) If requested, what is the response time for the affidavits and records substantiating production of the merchandise? How long does the factory retain records of production? Who is the person responsible for recordkeeping? How often does factory personnel receive training on the requirements of the FTA/TPP? Has the factory ever been visited by a CBP Textile Production Verification Team? What was the result? Has the factory ever been denied FTA/TPP claims for other clients? If so, why? 15

16 FACTORY TOUR As an Importer, it is very important that you are knowledgeable of the factories' capabilities and facilities. Visit the following areas: Storage area for originating raw materials- fibers, yarn, fabric, and etc. (Rules of Origin for specific FTA/TPP) Cutting area Sewing area Trimmings area- sewing thread Finishing and Packing area 16

17 FACTORY TOUR (CONTINUED) Determine if the factory subcontracts any services (embroidery, printing, cutting, sewing, dying, and etc.) Look for Anomalies- for example stored inventory or short production lines for sewing in tags only. Most likely you will observe production of garments. This is a good time to look at the construction of the garments during production phase as well as verify the labels and country of origin marking. 17

18 COUNTRY OF ORIGIN MARKING 19 CFR 134 All Imported articles must be marked with the country of origin: Conspicuously - easy to find Indelible - cannot be easily smudged or blurred Legible-easy to read Permanently - must be permanent to withstand normal handling until reaches end consumer Is the country of origin marking in English? Have you discussed with your foreign manufacturer the country of origin marking requirements prior to importation? **Exceptions: J List items are exempt from country of origin marking 18

19 DOCUMENT REVIEW: FTA/TPP VERIFICATION Meticulous review of documentation from the receipt of originating components to the manufacture of the finished product. Verify that the FTA/TPP claim qualifies as originating and confirming recordkeeping procedures. Verification of other compliance issues: Classification Intellectual Property Rights Valuation 19

20 RESULTS After the FTA/TPP verification audit concludes: Gather and document information collected from verification audit Share results with factory management Identify areas of training 20

21 TRAINING After the audit, identify FTA/TPP training needs of factory personnel such as: FTA/TPP rules and requirements Recordkeeping procedures and requirements Importer requirements and expectations 21

22 FTA/TPP RULES AND REQUIREMENTS The importer must ensure compliance with the rules and regulations of the claimed FTA/TPP. It is also the importer's responsibility to ensure that the producer of the merchandise is knowledgeable of the FTA/TPP rules and abides by these rules. 22

23 RECORDKEEPING 19 CFR 163 As defined in 19 CFR (a)- Records the term includes any information needed for the entry of goods (the (a)(1)(a) list in 163 Appendix) and other information about, or from which is derived, any information element in collect of information required by Tariff Act of Records should be kept for at least 5 years after the date of entry and it is recommended that importers ensure that the factories understand this! Training on the documentation that is needed to substantiate each claim. Express time frame and that documentation should be made readily available upon the request of CBP. 23

24 IMPORTERS REQUIREMENTS & EXPECTATIONS Training on your companies specific policies and procedures 24

25 BENEFITS: FTA/TPP VERIFICATION AUDIT Saves money and eliminates risk of penalty action for the importer Allows importer to focus on daily operations instead of timeconsuming and unwanted additional FTA/TPP verification and penalty actions Positive Determinations- Viewed as a Compliant and able to substantiate your claims by CBP Prepares factory for potential unannounced TPVT visit Peace of Mind! 25

26 RISK OF NOT CONDUCTING FTA/TPP VERIFICATION AUDIT Failure to comply can result in mild to severe consequences. Higher Duty Bills (Negative Determinations) If same mistakes made on previous claims, CBP will issue verifications that can result in additional Negative Determinations Penalties 19 USC Recordkeeping Penalty 19 USC Commercial Fraud and Negligence Enforcement by CBP Importer now targeted on future shipments for noncompliance 26

27 RESOURCES With a view toward promoting transparency, CBP also makes available to the public various other guidance including the following:

28 Summary DO THE RIGHT THING WHEN NO ONE IS WATCHING OR YOU WILL BE FOUND OUT AND FINED! 28

29 QUESTIONS???? 29

30 Thank you! KELLI THOMPSON, LCB FOUNDER/CEO INTEGRITY INTERNATIONAL TRADE CONSULTING LLC S