Interesting Customs Enforcement Action

Dear Friends,

I recently came across a story about customs enforcement in Singapore that I thought you might find to be of interest.

The case involves a marketing manager in Singapore who was sentenced by a Singapore court to a fine of SGD$92,000 (roughly, $68,000) for counterfeiting U.S.-Singapore Free Trade Agreement Certificates of Origin provided to a U.S. customer, and for making false statements to the Singapore government when applying for the certificates.  It appears that the marketing manager was engaged in a scheme to help defraud the U.S. government of antidumping duties (i.e., passing Chinese-origin uncovered innerspring units as being of Singapore origin) and, in the process, making false statements to Singapore Customs.  A copy of the Singapore Customs press release is available here.

There are several interesting things about this case.  First, the prosecution was based on information supplied to Singapore Customs by U.S. Customs and Border Protection (CBP).  It appears that CBP may have uncovered the fraud on the U.S. side and then provided information about the exporter to the Singapore authorities.  Second, it appears that CBP may have uncovered the fraud when the U.S. importer/customer underwent a CBP audit.  See Headquarters Ruling #h270834 (March 2, 2017).

We hope you find this interesting/helpful.  If you have any questions, please let us know.

Best regards,

Ted

 

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Trump on Trade/NAFTA’s Future – Part III

Dear Friends,

On the NAFTA front, there were two further developments this past week of which we wanted to be sure you were aware.

The first was a notice from the U.S. Trade Representative’s Office published in the Federal Register on Tuesday requesting public comment and input on what the U.S. position should be in negotiations with Canada and Mexico to modernize NAFTA.  Specifically, the USTR is interested in comments addressing the following topics:

(a) General and product-specific negotiating objectives for Canada and Mexico in the context of a NAFTA modernization.
(b) Economic costs and benefits to U.S. producers and consumers of removal of any remaining tariffs and removal or reduction of non-tariff barriers on articles traded with Canada and Mexico.
(c) Treatment of specific goods (described by HTSUS numbers), including comments on (1) Product-specific import or export interests or barriers, (2) Experience with particular measures that should be addressed in negotiations, and (3) Addressing any remaining tariffs on articles traded with Canada, including ways to address export priorities and import sensitivities related to Canada and Mexico in the context of the NAFTA.
(d) Customs and trade facilitation issues that should be addressed in the negotiations.
(e) Appropriate modifications to rules of origin or origin procedures for NAFTA qualifying goods.
(f) Any unwarranted sanitary and phytosanitary measures and technical barriers to trade imposed by Canada and Mexico that should be addressed in the negotiations.
(g) Relevant barriers to trade in services between the United States and Canada and Mexico that should be addressed in the negotiations.
(h) Relevant digital trade issues that should be addressed in the negotiations.
(i) Relevant trade-related intellectual property rights issues that should be addressed in the negotiations.
(j) Relevant investment issues that should be addressed in the negotiations.
(k) Relevant competition-related matters that should be addressed in the negotiations.
(l) Relevant government procurement issues that should be addressed in the negotiations.
(m) Relevant environmental issues that should be addressed in the negotiations.
(n) Relevant labor issues that should be addressed in the negotiations.
(o) Issues of particular relevance to small and medium-sized businesses that should be addressed in the negotiations.
(p) Relevant trade remedy issues that should be addressed in the negotiations.
(q) Relevant state-owned enterprise issues that should be addressed in the negotiations.

Comments on these issues (or any others) must be submitted to USTR by June 12, 2017.  In formulating any comments, it is important to keep in mind that this Administration has a different perspective than previous ones when it comes to modernizing or liberalizing NAFTA.  We believe that this effort (at least from a US perspective) will be aimed more squarely at benefitting the United States than previous efforts (which may have looked more at benefitting the NAFTA region as a whole, or US companies with operations in Mexico or Canada).  The following quote from the summary is clear (and consistent with the Administration’s messaging on trade to date): 

“The United States intends to commence negotiations with Canada and Mexico regarding modernization of the North American Free Trade Agreement (NAFTA). The NAFTA was negotiated more than 25 years ago, and, while our economy and U.S. businesses have changed considerably over that period, NAFTA has not. The United States seeks to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities under NAFTA.”

Emphasis added.  A copy of the notice is available here.

The second development relates to a study the USTR requested the U.S. International Trade Commission undertake related to NAFTA imports.  The study, entitled “Probable Economic Effect of Providing Duty-Free Treatment for Currently Dutiable Imports,” will examine the impact of providing duty-free treatment to imports of currently dutiable imports from Canada and Mexico.  Specifically, the ITC will provide a report containing its advice as to the probable economic effect of providing such treatment on (i) industries in the United States producing like or directly competitive products, and (ii) consumers.  The ITC has been asked to look at every dutiable article in the Harmonized Tariff Schedule.  The ITC has also been asked to specifically address the probable economic effects of eliminating tariffs on any dutiable agricultural imports from Canada or Mexico.   

The report is due by August 16, 2017.  A copy of the ITC notice of initiation can be found here and the USTR’s letter to the ITC can be found here.

*     *     *

These efforts to modernize NAFTA/trade with Canada and Mexico represent a ‘once in a generation’ opportunity.  Every company that produces articles in the NAFTA territory, sources articles in the NAFTA territory or competes with articles produced or sourced in the NAFTA territory has a strong incentive to participate in this process.  Given how quickly it is moving, companies need to assess their opportunities/challenges and decide how best to engage now.  Those who do not do so will likely find themselves at a competitive disadvantage once this process is over. 

We are helping numerous clients perform this assessment, as well as develop and implement strategies (offensive or defensive) to maximize the potential benefits.  If you have any questions about how to go about this, please let us know.

Best regards,
Ted

 

International Trade-Related Executive Orders

Dear Friends,

What an interesting time to be working in international trade! 

We are writing to make sure you saw the Executive Orders President Trump issued over the past few days on international trade issues.  All of the Executive Orders are available here.

The Presidential Executive Order Addressing Trade Agreement Violations and Abuses was signed on April 29, 2017.  It directs the Secretary of Commerce and the United States Trade Representative to conduct “comprehensive performance reviews” of all international trade and investment agreements the United States is a party to, as well as trade relations with those WTO member countries with which the United States does not have a trade agreement, but does have a significant trade deficit in goods. The goal of these reviews is to (i) identify violations or abuses by our trading partners, (ii) trade or investment agreements that have not created new U.S. jobs, had favorable effects on our trade balance, increased U.S. exports, etc., and (iii) make recommendations to address the issues identified in (i) and (ii). 

Based on statements President Trump has made to date, we expect that NAFTA as it relates to trade with Mexico, the Korea-U.S. Free Trade Agreement, the WTO Government Procurement Agreement and others to receive negative marks under the standards to be used in the performance reviews.  What will be more interesting are the recommendations that are made to address those perceived shortcomings (e.g., revising rules of origin, withdrawing from agreements, etc.).  The performance reviews must be submitted to the President by October 26, 2017.

The Presidential Executive Order on Establishment of Office of Trade and Manufacturing Policy was also signed on April 29, 2017.  It creates a new Office of Trade and Manufacturing Policy (OTMP) within the White House.  The stated mission of the OTMP “is to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.”

These Executive Orders encapsulate much of the President’s trade policy, which is focused on (1) seeking to identify and remedy unfair trading practices, and (2) reducing the trade-in-goods deficits the United States has with other countries.  Companies should be viewing these Executive Orders as a creating an opportunity to engage with the Administration to help shape the recommendations for addressing the problems that they perceive exist with trade.

We are assisting numerous clients navigate these issues.  If you would like to discuss your specific situation and what you should be doing further, just let us know.

Best regards,
Ted

Buy American, Hire American

Dear Friends,

President Trump is expected to sign an Executive Order today in furtherance of his “Buy American, Hire American” agenda.  The agenda, which includes pushing Congress for a $1 trillion infrastructure spending bill to help fix roads, bridges, tunnels, airports, etc. (which has not materialized, thus far), seeks to ensure that government procurement dollars are spent in accordance with existing ‘Buy America’ legislation (i.e., legislation that requires, or gives preference to, U.S.-qualified products in U.S. government-funded procurements).  It also seeks to ensure that this legislation is properly enforced.

As any company who participates directly or indirectly in the government procurement market knows, this can be a confusing area.  There is no one “Buy America” standard across the federal government.  Often, just figuring out which standard (e.g., the Buy American Act of 1933, the Trade Agreements Act of 1979, the Surface Transportation Assistance Act of 1982, etc.) applies can be quite an ordeal, particularly if you are further down the chain – you supply a customer who supplies the government.  The good news is that, for those companies that have invested in figuring this out (or at least figuring out the piece that impacts them), there is quite an opportunity here.  As today’s Executive Order demonstrates there is going to be a renewed focus on acquiring qualifying articles, which means people can expect more scrutiny of their certifications.  That is also the potential bad news – this is an area where procurement officers have historically had a great deal of discretion and audits are relatively rare.  Given the Trump Administration’s interest in this issue, we expect that to change (i.e., a lot more scrutiny of the certifications).

If you are selling directly or indirectly to the government, then we recommend that you review your processes for ensuring that your “Buy America” certifications are accurate and auditable (i.e., make sure you are retaining the right supporting documentation).  Companies that are confident in their programs are expected to have a distinct advantage in this space for the foreseeable future.

We hope this is helpful.  If you have any questions about these issues, please let us know.  We have a great deal of experience in this area helping companies set up compliance programs, advising on compliance, obtaining final determinations of origin and defending enforcement actions.  We’d be happy to answer any questions you may have.

Best regards,
Ted

 

Customs Fraud May Lead to a €2 Billion Bill for the UK

Dear Friends,

We are writing to let you know about an interesting story involving potential customs valuation fraud in the UK that could have meaningful implications for importers, as well as for Brexit.

It is being widely-reported this week that the European Union Anti-Fraud Office (commonly known as “OLAF” for the French — Office Européen de Lutte Antifraude) claims that the United Kingdom owes the European Commission €2 billion (~$2.1 billion) in lost customs revenue.  The claim is based on an allegation that HM Revenue & Customs failed to adequately address the widespread and deliberate undervaluation of imported apparel and footwear (i.e., articles with high duty rates) during the period 2013-2016.  OLAF’s investigation found that the fraud was committed by organized crime groups, who used false/undervalued invoices to enter goods through the UK for wider distribution throughout the EU.  The claim alleges that, while other member states took action to combat the fraud, HMRC did not, despite several warnings from OLAF.  The HMRC’s failure to stop this intentional undervaluation at the border resulted in a loss of €2 billion in customs duties, as well as several billion more in uncollected VAT in various member states.  OLAF has also claimed that the fraud is likely to be continuing, HMRC has still not done enough to address the problem.  OLAF has reportedly recommended that the European Commission use its powers to recover the €2 billion in lost customs duties from the UK.   HMRC is contesting the allegations.  More information about this story can be found here, here and here.

This story will have implications for anyone importing apparel, footwear or other dutiable items into the UK.  One would expect that the OLAF claim will lead to increased scrutiny of such imports by HMRC.  Importers of these articles can also likely expect increased audit activity.  This issue will also likely complicate the UK’s withdrawal from the EU (i.e., Brexit).  The UK is hoping to negotiate a favorable trading arrangement with the EU post-withdrawal, and the claim that the UK has not tackled blatant customs fraud, to the detriment of other EU member states, will not help that effort. 

We hope you find this helpful.  If you have any questions about these issues, or what you can do to prepare for greater scrutiny of your imports into the UK, please let us know.

Best regards,
Ted

 

Recent FTC “Made in USA” Enforcement Actions

Dear Friends,

We are writing to let you know about increased enforcement activity at the federal level related to “Made in USA” claims.

In the past few weeks, the Federal Trade Commission (FTC) has resolved two administrative complaints filed against U.S. companies for allegedly making false U.S.-origin claims. 

In February, the FTC published an agreement containing a consent order involving a water filtration company based in Georgia.  The FTC’s complaint alleged that the company deceived its consumers with claims that its systems and parts are “Built in USA”, “Proudly Built in the USA” and “Built in USA Legendary brand of water filter” when in fact the company either imported its products or built them using significant imported components. 

Similarly, earlier this week, the FTC published an agreement containing a consent order involving a Texas company that sells metal pulleys for industrial use.  The complaint alleges that the company advertises its products online, in stores, at trade shows, through social media, etc. and uses unqualified U.S. origin claims, such as “Made in USA”, “Made in the USA American Product” and graphical depictions of the American flag, on the product and in its advertising.  The FTC alleged that many of the company’s products contained significant imported components (and some of the parts were imported from abroad already stamped “Made in USA”).

Without admitting wrong-doing, both companies agreed to enter into consent orders with the FTC to resolve the matters. These orders mandate compliance with the FTC’s Enforcement Policy Statement on U.S. Origin Claims going forward, and include certain reporting and recording requirements.  Each consent order remains in effect for 20 years.  Violations of the consent orders lead to significant monetary fines.  Additional information about each case can be found here and here.

These actions are important, as they may signal increased enforcement of this issue at the federal level.  As you know, the FTC has adopted strict guidelines for making unqualified U.S.-origin claims – the ‘all or virtually all’ U.S. content standard.  In recent years, however, there has not been a great deal of enforcement at the federal level.  These actions may signal that this will be changing.  Accordingly, every company should review its product markings, as well as its advertising (including social media), to make sure that any U.S.-origin claims (unqualified or qualified) comply with the FTC’s guidelines.  If your claims are in compliance, you should also consider reviewing the types of claims your competitors are making to help ensure there is a level playing field for everyone.

We regularly advise clients on these issues (and have represented companies in FTC enforcement actions) and would be happy to discuss this with you further.  If such a discussion would be helpful, just let us know.

We hope this is helpful.

Best regards,
Ted

Post-Entry Preference Program Claims II

Dear Friends,

We wrote to you back in November about a development which was expected to expand the number of preferential duty claims that could be asserted for the first time via protest. 

U.S. Customs and Border Protection (CBP) has now issued updated guidance specifying that all preferential trade agreements for which post-importation refund claims were previously limited to post-entry amendments (PEAs) or post-summary correction (PSCs) may now also be raised for the first time via protest.  This includes preferential claims under GSP, AGOA, the Australia, Bahrain, Israel, Jordon, Morocco and Singapore FTAs, and the Pharmaceutical Products Agreement, among others.

As noted below, this is a significant development since it expands the period in which post-entry refund claims may be made under certain preference programs.  It also breathes new life into protests filed for such claims that were previously rejected as “non-protestable”.  We have been helping clients secure refunds from CBP on such protests and would be happy to discuss this with you further, if relevant.

We hope this is helpful.  If you have any questions about this issue, please let us know.

Best regards,
Ted