We wanted to take a break from Section 232/Section 301 issues (it is certainly an interesting time to be involved in international trade!) to let you know about a spike in certain types of U.S. Customs and Border Protection (“CBP”) enforcement actions we have been seeing recently.
It seems that CBP is ramping up its enforcement of the rules involving the importation of non-compliant wood packaging material (“WPM”). In the past month or so, CBP has issued sizeable penalties (i.e., hundreds of thousands of dollars) to several clients who sought to import merchandise on non-compliant WPM. Given the amount of the penalties being assessed (which are for the full domestic value of the imported merchandise; not just for the value of the WPM) and the lack of clarity around how much mitigation CBP will ultimately afforded (if any), this is an issue that all importers should take additional steps to address.
Since 2005, U.S. Department of Agriculture (“USDA”) regulations have required that WPM (e.g., crates, pallets, boxes, and pieces of wood used to support or brace cargo) being imported into the United States be heat treated, or fumigated with methyl bromide, and include a visible, legible, and permanent mark certifying treatment. These regulations implement certain international standards set forth by the International Plant Protection Convention (“IPPC”), to which the United States is a member, and are intended to protect domestic agriculture from the introduction of potentially injurious wood-boring pests (since untreated wood poses a risk of carrying such harmful pests). CBP is responsible for enforcing these requirements at the border.
These requirements have been phased in over time and enforcement has been evolving. Until recently, CBP’s position was that an importer had to have 5 documented violations before a penalty would be imposed. Starting November 1, 2017, however, to motivate WPM compliance, CBP revised its position and now issues penalties for the first documented WPM violation.
An Emergency Action Notification (“EAN”) is issued to the importer when a WPM violation is discovered. The EAN will usually demand that the WPM be re-exported within a certain period of time. If the importer does not comply with the EAN, then CBP may impose liquidated damages up to the amount of the importer’s customs bond. If the importer complies with the EAN, then liquidated damages will not be assessed. In such a case, however, CBP may impose penalties. Penalties are assessed at the domestic value of the merchandise. We draw attention to “domestic value of the merchandise” because in the cases we have seen thus far have resulted in substantial penalties for seemingly minor violations (e.g., an improperly marked WPM (valued at $50), which is compliant in all other respects, results in a penalty assessment for the domestic value of the merchandise (valued at $500,000)). Importers that receive penalty notices have the right to submit a petition for relief seeking mitigation.
Generally, CBP treats importers as the responsible party with respect to WPM compliance (regardless of whether the importer is actually responsible for the WPM). We, therefore, recommend that companies remind their foreign suppliers/carriers of these requirements and their responsibilities under your contract (i.e., your contracts with foreign suppliers should specify that the foreign supplier is required to supply IPPC-compliant WPM; your contract with the carriers should specify that they will confirm that only IPPC-compliant WPM is included in shipments to you, etc.). This way, if you get hit with a significant penalty (and that penalty is not mitigated down to a de minimis level), you have some potential recourse.
We hope that this is helpful. If you have any questions about CBP’s enforcement of this requirement, or how best to protect yourself commercially, please let us know.