CBP Enforcement Update – WPM

Dear Friends,

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.

Background

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. 

Enforcement Actions

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. 

Recommendations

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.

Best regards,

Ted

 

Advertisements

CBP FY2012 Enforcement Statistics

Dear Friends:

US Customs and Border Protection (“CBP”) recently released some enforcement statistics for FY2012 that I thought you might find to be of interest.

The statistics cover two of CBP’s primary enforcement priorities: (1) antidumping & countervailing duties; and (2) textiles & apparel.

According to the ADD/CVD enforcement statistics:

• CBP initiated over 50 commercial penalty cases against importers of ADD/CVD merchandise in FY2012; these 50 cases involved penalty assessments of $24.3 million;

• CBP completed over 50 audits of importers of ADD/CVD merchandise and identified discrepancies valued at approximately $41 million (and so far collected over $13 million); and

• CBP and ICE/HSI seized 57 shipments with a domestic value of $13.7 million; and.

According to the textile/apparel enforcement statistics:

• CBP initiated 21 commercial penalty cases against textile/apparel importers in FY2012; these 21 cases involved penalty assessments totaling $23.4 million;

• CBP initiated 39 audits of textile/apparel importers and identified $1.36 million in unpaid duties;

• CBP conducted laboratory analysis of 1,014 textile/apparel shipments and found that 572, or 56.4%, were discrepant (i.e., were not what they represented to be, which usually leads to tariff classification and/or preference claim issues); and

• CBP Textile Product Verification Teams visited 174 factories in 9 countries and found evidence of illegal transshipment in 26% of the cases and discrepancies with 39% of the preference claims that were made (which also leads to tariff classification and/or preference claim issues).

The statistics can be found here.

* * *

These statistics demonstrate that CBP is actively pursuing commercial penalties against importers, particularly in areas involving a potential loss of revenue to the government. They also indicate that compliance in these areas is pretty low, so further enforcement can be expected.

Given how difficult in can be to determine whether an article falls within the scope of an antidumping or countervailing duty order (e.g., see the scope of the ADD order on aluminum extrusions), or in classifying or validating preference claims for textiles and/or apparel, it is critical that importers of these articles tailor their internal controls to their specific risk areas. Doing so will help avoid issues like those involved above, or, if an issue does occur, help demonstrate that, notwithstanding the issue, the company exercised reasonable care.

We hope that this is helpful. If you have any questions, or if you would like to discuss what additional steps you can take to help improve your internal controls (and help ensure you do not show up in these statistics in the future), please let us know.

Best regards,

Ted