August 24, 2004
In light of the upcoming WTO integration and increased domestic political pressure, Customs in March 2004, and June of 2003, has been initiating comprehensive "document accuracy tests" to protect against the transshipment of textile imports from certain Asian countries (including Thailand, Hong Kong, Taiwan, etc.)
Vietnamese textile trade (which will not become quota free in 2005), has been targeted by the American Textile Manufacturers Institute (ATMI), with allegations of wide-spread illegal transshipments of textiles during the last quota-monitoring period for the purpose of increasing Vietnam's export volume and obtaining larger quota-restraint limits in the next quota period. Accordingly, after investigations the ITA has reduced Vietnam's quota levels by approximately 1 million dozen.
Because Customs relies primarily on production records as to evidence of origin, many innocent importers have been subjected to repeated requests for documentation, redelivery requests, detentions of incoming shipments, and exclusions of merchandise.
These problems with textile violations can be quite costly, as such shipments are often large, seasonal, and require long lead-times in the supply-chain. Further, Customs' liquidated damages, which are assessed on items that are not redelivered, are generally be assessed against the declared value of the merchandise.
Importers Should Take Measures to Guaranty Factory Documentation
Importers should take measures to ensure that factories are able to quickly provide complete origin-related documentation, should Customs request it. Often, contractual language can be drafted that provides for such documentation and Customs clearance as prerequisites to payment. Another more cumbersome strategy might be to require documentation in advance of the merchandise, as a requirement of payment, possibly through a letter-of-credit transaction.
Importers Need to Respond to CBP Requests For Information With Care
If the importer fails to respond to a request for information, or if Customs deems the importer's response to be inadequate, then Customs may routinely begin to detain all of the importer's textile imports for further document verification. This kind of targeting can lead to severe supply-chain delays, cancelled orders, and further exclusions of merchandise. Some importers attempt to divert shipments through other importing companies, and unwittingly run the risk of Customs bringing a civil or criminal fraud case.
An exclusion of merchandise may also lead Customs to issue Redelivery Notices with regard to entries filed back approximately 6 months. In these cases, importers are usually not able to provide the merchandise back to Customs, and will face liquidated damages equal to the value of the entered merchandise. At this point, Counsel may assist the importer by helping to obtain mitigation and in protecting the importer's rights in terms of Customs' untimely claims, and/or Customs overreaching.
Importers who are only just receiving requests for production documents should work with experienced counsel to thoroughly organize a response to Customs' information request. Unorganized responses require longer processing time by Customs, and provide more opportunities for a Customs finding of inadequacy. Often, counsel can help an importer identify and correct discrepant documentation before it is submitted to Customs, and to suggest compliance solutions in the supply chain to make future submissions more effective. Because Customs has cited "inadequate documentation" or "incomplete documentation" as a basis for entry exclusion, the submission should be presented in as comprehensive a fashion as possible, and explanations should always be provided as to why a factory may not have certain documents on hand.
Customs Assessment of the Country of Origin Documentation
TBT-03-027 states that Customs may exclude the goods if the importer fails to provide requested documents and that failure precludes Customs from verification of the claimed country of origin. However, the Customs Guidelines of TBT-98-018 also clearly state that Customs is to refuse admission "only if there is a preponderance of information" to indicate transshipment.
In many instances importers are simply unable to obtain documentation from the foreign factories, and accordingly, re-export the merchandise back to the factory.
However, in other instances, importers have obtained documentation for each of Customs document requests, but have found that the Import Specialist teams rejected such documentation for reason of minor discrepancies/omissions in the production records. Our recommendation is that, in such cases where the importer feels that the preponderance of the documentation has correctly designated the country of origin, the importer should consider retaining an attorney to file a protest, in order to preserve the importer's right to judicial review.
Legal Filings May Protect Importers from Merchandise Exclusions and Liquidated Damages
Importers should be aware that there still are many legal procedures and options available to them through experienced counsel, including the filing of legal arguments in the form of:
- Protests against Customs erroneous exclusion or redelivery requests;
- Petitions for mitigation of the liquidated damages amounts based on Customs' Guidelines for mitigation, and
- Court summons and complaints which cause the further review of Customs' merchandise exclusions or Customs' redelivery notices.
Since the facts of each case will vary, and because filings may be subject to statutory time deadlines, textile importers with such issues should be sure to immediately consult with an experienced Customs attorney.
Importer's May Bring Court Actions
We anticipate that soon many importers may be bringing individual actions to the Court of International Trade in order to contest Customs' restriction of legitimate goods and its failure to follow its own standards.
As compared to other types of complex litigation, obtaining judicial review of Customs decision on production documentation is relatively straightforward. First, the importer is required to "exhaust" the administrative remedies made available under the statutory right of protest, 19 U.S.C. §1514 (2004). The protest must be filed within 90 days of Customs liquidation, redelivery order, exclusion of merchandise, or other decision. An attorney should be retained to timely preserve these legal rights. Thereafter, the attorney should file a summons to begin the litigation process before the Federal Court of International Trade (CIT) in New York.
Once the case is filed to the court calendar, the legal issues are brought to the attention of the government attorneys at the U.S. Department of Justice, and, after their review, it is often possible to establish a dialogue as to the merits of the case, and obtain mediation or settlement of the issue, without actually resorting to costly trial proceedings.
If factual issues can be resolved, but legal differences exist, it may also be possible to avoid a costly trial by requesting the court to rule only the legal issues. We understand that many importers caught in the recent transshipment inquiries may have presented sufficient production documents to Customs, and, if represented by counsel, they will be able to take advantage of these court procedures to contest liquidated damages, or to obtain entry release.
If you have any questions on any of the issues raised in this newsletter, please contact George R. Tuttle, III at (415) 288-0428 or via email at email@example.com.
George R. Tuttle, III is an attorney 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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