Tuttle Law

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U.S. Customs Targeting Undervaluation of Products Imported from China

February 23, 2010

On November 5, 2009, at a Trade Association meeting in New York, U.S. Customs and Border Protection (CBP) made a presentation to the trade about many issues that pertain to textiles, apparel and footwear.

One of the topics mentioned was that CBP is investigating the alleged undervaluation of textiles and apparel that are made in China.; We understand that this includes footwear as well. CBP had received information that many of these products imported from China are being entered at a value which is below the correct selling price. It is our understanding that in some instances, officials from the Immigration and Customs Enforcement(ICE) are participating in the investigations.

There is clearly an incentive for undervaluing textiles and apparel because of their high duty rates. Moreover, CBP indicated that the textile and apparel industry represents 21% of all importers and 42% of all duties collected.

Importers of textiles, apparel and footwear who import from China should carefully review the method by which they are entering the value of their imported products. At times, CBP may be issuing a Customs Form 28 (Request for Information), which will ask the importer to provide information about the basis of the extended value, factory invoices, and also ask the importer to provide proof of payment.If the information received by CBP demonstrates undervaluation, CBP may launch an investigation and issue penalties. Clearly, if an importer receives a Form 28 from CBP, it would be prudent to have an attorney specializing in CBP review the Form 28.

If a review of the documentation shows that there is undervaluation, it may be advisable to file a prior disclosure to protect the interests of the importer. A prior disclosure is a procedure authorized by the Customs regulations whereby an importer can disclose violations to CBP before the importer learns that a formal investigation has been launched by CBP against the importer. If the prior disclosure is deemed to be valid, then the penalties, if any, are very small. However, if no prior disclosure is filed, CBP can proceed with civil penalties, which can range from two times the loss of revenue up to the domestic value of the merchandise.

If you have any questions about these issues, please contact Steve Spraitzar at steve.spraitzar@tuttlelaw.com or (415) 288-0427, or George Tuttle at george.tuttle.sr@tuttlelaw.com or (415) 288-0425.

Steve Spraitzar and George R. Tuttle are attorneys with the Law Offices of George R. Tuttle in San Francisco.

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

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