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New Miscellaneous Tariff Bill Process Signed into Law – US Companies Should Start Exploring Potential Duty-Savings Opportunities Now

Posted By Administration, Thursday, June 9, 2016
Updated: Wednesday, June 8, 2016


by Melissa Proctor, Polsinelli, P.C.


On May 20, 2016, President Obama signed into law The American Manufacturing Competitiveness Act of 2016 (H.R. 4923), which fundamentally reforms the Miscellaneous Tariff Bill ("MTB") process and provides significant duty savings opportunities for U.S. companies. The MTB process temporarily suspends or reduces the duties that are assessed on imports of certain goods into the United States for a three-year period. U.S. importers and manufacturers favor MTBs because they allow finished goods to be produced in the United States at significantly lower costs, resulting in savings that can be passed along to their customers and U.S. goods that have an increased competitive edge in international markets.

As reported in last month's RVCF Link, the MTB process has been around for decades. Under the previous rules, members of Congress introduced duty suspension bills on specific goods at the request of their constituents. The bills were then reviewed by the International Trade Commission ("ITC") and the executive branch to ensure that: (1) the imported items were non-controversial (i.e. not readily available from U.S. sources); (2) the estimated revenue loss to the U.S. government as a result of the proposed duty suspension or reduction was less than $500,000 per year; and, (3) the duty suspension could have been administered by U.S. Customs and Border Protection. If all three conditions were satisfied the individual bills were then inserted into larger miscellaneous tariff bills by the House Ways and Means and Senate Finance Committees.

The new law establishes an enhanced process whereby individual importers and manufacturers may submit written petitions directly to the ITC requesting that certain products be afforded MTB treatment. Later this year, the ITC will publish a Federal Register notice requesting petitions from the public on items that warrant duty suspensions or reductions. Petitions should provide the following information:

  • Identification of the petitioner;
  • Certification that the products will likely satisfy the three (3) conditions noted above;
  • Detailed description of the product and its tariff classification;
  • The U.S. industry or industries utilizing the product;
  • Whether the petition requests a new duty suspension or reduction, or merely requests extensions of existing preferential tariff treatment;
  • Estimated total import value of the product (by all importers) over the following five-year period; and,
  • Information regarding any domestic production of the item, if known.

Companies that may be interested in submitting petitions should first review their import data obtained through ITRAC or ACE to identify imported merchandise that is currently subject to duties and the amount of duties paid on those items on a yearly basis. For items that are currently subject to high rates of duty, companies should then assess: (a) the extent to which the items in question are currently manufactured domestically; (b) the extent to which the items are available from foreign suppliers; and, (c) whether the total duties paid on imports of the product into the United States likely exceed $500,000 annually. Petitions should describe the products as narrowly as possible in order to distinguish them from others in the market and increase the likelihood of success. Compiling this data will generally require input from various sources both within and outside the company (i.e., sourcing/purchasing departments, accounting and finance, legal, compliance, logistics and transportation, suppliers and vendors, national trade associations, etc.).

The ITC will then publish in the Federal Register all of the petitions that are received, and solicit comments from the public and input from U.S. Customs and Border Protection ("CBP"), the Commerce Department and other agencies. The ITC will then confirm whether the three above-referenced conditions are satisfied, and issue its recommendations to Congress. At that point, the House Ways and Means Committees will review the ITC's findings, draft proposed MTB legislation that will amend Chapter 99 of the Harmonized Tariff Schedule of the United States, and certify that there are no associated spending earmarks and publish a list of limited tariff benefits. The proposal would then move on to the House for consideration.

The new MTB process is intended to provide U.S. companies with greater transparency and ability to participate more directly in the process of securing temporary duty suspensions and reductions. The ITC is expected to publish instructions for participating in the new MTB process in the Federal Register in October; however, manufacturers and importers are advised to start exploring this potential duty-saving opportunity now.


Melissa Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at mproctor@polsinelli.com.

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Tags:  Customs  Tariff 

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U.S. Exporters Should Seek the Assistance of Customs and Border Protection in Resolving Disparate Tariff Classification and Customs Valuation Treatment in Foreign Markets

Posted By Administration, Thursday, July 9, 2015
Updated: Tuesday, July 7, 2015

by Melissa Proctor, Polsinelli, P.C.


On June 18, 2015, U.S. Customs and Border Protection ("CBP") published a General Notice in the Federal Register announcing a new process that will allow U.S. exporters to request CBP's assistance in resolving disputes with foreign government authorities involving tariff classification and customs valuation issues. See 80 Fed. Reg. 34924. This new avenue should prove to be an important tool for U.S. companies that may, from time to time, receive pushback from foreign markets on the classifications and values that are being used for their products. Exporters are encouraged to seek assistance from CBP when they encounter differing interpretations on classification and valuation in foreign markets, as they can lead to the disparate treatment of their goods resulting in additional costs and potential liability for foreign customers. In addition, U.S. exporters may experience a competitive disadvantage due to these varying interpretations and costly delays in the clearance of their goods in the countries of importation. The following describes the mechanics of CBP's new process as well as provides tips for preparing and submitting effective requests to CBP.

By way of background, when imported goods are entered into the United States, they require a ten-digit tariff classification code under the Harmonized Tariff Schedule of the United States ("HTSUS"). The HTSUS provides detailed commodity descriptions of more than 5,000 items in various chapters, sections and headings. The assigned classification codes are what drive the duty rates that are applied to the imported goods at the time of entry. The HTSUS reflects the classification rules established under the international Harmonized Commodity Description Coding System (or "Harmonized System") developed by the World Customs Organization ("WCO"). The Harmonized System was designed to ensure a uniform approach for the worldwide tariff classification of products. The United States, European Union and more than 100 other countries around the world are parties to the Harmonized System and utilize it as the basis of determining the tariff classification. The Harmonized System Committee ("HSC"), comprised of the various WCO members, meets twice annually to discuss tariff classification issues, settle disputes, and update the Harmonized System nomenclature and Explanatory Notes. Disputes between WCO members regarding proper interpretations of the Harmonized System rules are generally settled by negotiation between the parties. If these issues cannot be resolved, the parties may refer the dispute to the HSC for consideration and recommendations. CBP leads the U.S. delegation at meetings of the HSC.

Similarly, the U.S. rules for appraising imported merchandise reflects those of the international Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (i.e., the "WTO Valuation Agreement"). For example, the primary basis of appraisement for imported goods is transaction value, which is defined as the price actually paid or payable for merchandise when sold for exportation to the United States plus certain statutorily required additions. There are times when transaction value cannot be used as the proper basis of appraisement – in those cases, the value of the imported goods must be based on other approved valuation methods. Proper valuation of imported merchandise will ensure the accurate calculation of duties, fees and taxes in the country of importation. All members of the WTO are expected to have implemented this common set of valuation rules. The WTO's Technical Committee on Customs Valuation ("TCCV") meets twice annually and is responsible for reviewing valuation issues, resolving disputes amongst WTO member countries, and issuing advisory opinions. Disputes arising under the WTO Valuation Agreement may be referred to the TCCV for consideration and recommendations. The United States currently chairs the TCCV, and CBP represents the United States at meetings of the TCCV.

In theory, based upon an item's commodity description, the tariff classification of a good imported into countries that adhere to the Harmonized System is supposed to be identical up to the first six digits; however, as noted above, many products that would normally be expected to be uniformly classified can be assigned widely varying codes by foreign government authorities because of different interpretations of the rules themselves. The same holds true for the valuation of imported merchandise – where the rules may be arbitrarily applied from jurisdiction to jurisdiction. Foreign customers or their brokers may reject product tariff classifications or product values used by U.S. companies, which are reflected on the commercial invoices and other shipping documents. U.S. companies may even be requested to modify the classifications and values reflected on their documentation in order to comply with the mandates of foreign customs authorities – mandates that may conflict with the requirements under U.S. law.

When such situations occur, CBP invites U.S. exporters to submit formal requests for assistance. The requests should be in the form of a narrative letter that is prepared in essentially the same manner as binding ruling requests. For example, requests involving tariff classification issues should include:

  • A detailed description of the merchandise;
  • Clear explanation of the disparate treatment received in the foreign country;
  • Samples, photographs or diagrams of the goods;
  • Primary use and composition of the goods;
  • Purchase price and selling price of the goods; and,
  • Other technical and commercial specifications of the items.

Requests for valuation assistance should be supported by:

  • A detailed description of the goods;
  • Clear explanation of the disparate treatment received in the foreign country;
  • Any assists, commissions, royalties, license fees, discounts, and special packing requirements;
  • The sales terms applicable to the transaction;
  • The relationship between the exporter and foreign customer;
  • Whether the sale for export was made at arm's length;
  • Whether any agents are used in the sales transaction; and,
  • Samples, photographs or diagrams of the goods.

U.S. companies' requests should be addressed to the Commerce and Trade Facilitation Division of the Office of International Trade, Regulations and Rulings. If it agrees with the exporter, CBP will consider the appropriate course of action which may include discussions with the foreign customs administration or dispute settlement before the HSC or TCCV. CBP notes that it will strive to provide an initial response to the exporter within 60 days of the receipt of a formal request and will keep the exporter updated on its progress in resolving the conflict.

CBP notes that, in 2014, a company informally requested its assistance in a situation in which a foreign country was apparently misclassifying its products. The company asked CBP to try to resolve the issue with the foreign customs authorities and refer the matter to the HSC, if necessary. Within 30 days of receiving the company's request, CBP attorneys and import specialists reviewed the issue, agreed that the foreign administration's interpretation was in error, and raised the issue bilaterally with the country in question. In the end, the foreign customs authorities agreed with CBP's position and reclassified the goods accordingly. Thus, the new request process outlined by CBP should be very useful for U.S. companies that find themselves at a commercial and competitive disadvantage as a result of unequal classification and valuation treatment of their products in foreign markets.


Melissa Miller Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at mproctor@polsinelli.com.

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Tags:  CBP  Customs  HTSUS  Tariff 

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Personal Liability for Customs Violations? How the Trek Leather Case May Impact Board Members, Officers and Compliance Professionals

Posted By Administration, Thursday, April 9, 2015
Updated: Wednesday, April 8, 2015

by Melissa A. Miller Proctor, Polsinelli, P.C.


Many a board member, officer and compliance professional have begun to lose a little more sleep than usual as a result of the U.S. v. Trek Leather case.1 In September 2014, the Court of Appeals of the Federal Circuit ("Federal Circuit") held that individuals "introducing" imported goods into the United States may be held personally liable for violations of the U.S. customs laws and regulations. The following provides a detailed analysis of U.S. v. Trek Leather for those wanting a greater understanding of how this case may impact importers and the individuals that serve them.

The story began in 2004, when Trek Leather, Inc. began importing men's suits into the United States. Harish Shadadpuri was the President and sole shareholder of the company at the time. Mr. Shadadpuri, through Trek Leather and other companies that he owned, supplied fabrics to the foreign manufacturers which were used in the production of the suits. However, the cost of the fabrics and their transportation to the foreign manufacturers were not added to the dutiable value of the suits. The provision of the fabrics to the foreign manufacturers free of charge or at a reduced cost constituted an assist under the U.S. customs valuation rules. Assists are one of the statutory additions that must be included in the dutiable value of imported goods. The failure to include such costs in the invoice value of the goods generally results in their undervaluation and the underpayment of duties owing to U.S. Customs and Border Protection ("CBP"). There were a total of seventy-two shipments of suits imported by Trek Leather into the United States that were undervalued in this manner.

The shipments were originally invoiced to Mercantile Electronics, a company that was 40% owned by Mr. Shadadpuri. He also served as the company's President. While the shipments were en route to the United States, Mr. Shadadpuri transferred ownership of the goods to Trek Leather. Trek Leather became the importer of record and the entry summaries (Customs Forms 7501) for the shipments were prepared and submitted by the customs broker based on information contained in the manufacturers' invoices, bills of lading, and other information provided by Mr. Shadadpuri or his employees. Because the invoice values failed to include the assists, Trek Leather underpaid the duties owing by more than $133,000. Mr. Shadadpuri apparently knew that assists were required to be added to the dutiable value of the suits as he had been informed of this fact by CBP officials during a previous investigation of his shipments two years earlier.

CBP issued a penalty notice to Trek Leather alleging fraud, gross negligence and negligence for the undervaluation and underpayment of duties. The company, however, failed to respond to that penalty notice. As a result, CBP filed a complaint in the U.S. Court of International Trade ("CIT"). CBP alleged that both Trek Leather and Mr. Shadadpuri violated Section 1592(a) of the Customs Regulations because they had "entered or introduced, or attempted to enter or introduce, men's suits into the commerce of the United States by means of false acts, statements and/or omissions that understated the dutiable value of the merchandise and resulted in the underpayment of duties."2 CBP argued that Mr. Shadadpuri could be held individually liable since he was Trek Leather's President, directed its operations at the time that the import violations occurred, and was a "person" for purposes of the Section 1592(a) violations. Although the facts surrounding the charge of fraud were in dispute, both Trek Leather and Mr. Shadadpuri were held liable for gross negligence. The CIT noted that any person who engages in activities that are prohibited by Section 1592(a) can be held liable regardless of whether or not that person is the importer of record. The CIT stated that Mr. Shadadpuri was responsible for reviewing documentation, including assists, within the entry records, and for forwarding assist information to the custom broker. The CIT entered judgment against both defendants. Mr. Shadadpuri appealed to the Federal Circuit.

In 2013, the Federal Circuit panel that heard the appeal reversed the CIT's decision, holding that Mr. Shadadpuri was not liable for ordinary or gross negligence because he was not the importer of record or an agent authorized to make entry.3 In order for him to be held liable, CBP would have had to have pierced the corporate veil, shown that he was liable for fraud, or shown that he had aided or abetted Trek Leather's fraudulent activities. CBP requested a rehearing of the panel's decision.

An en banc rehearing of the appeal was granted. On September 14, 2014, the Federal Circuit reversed the panel decision and held that Mr. Shadadpuri could indeed be held individually liable for the customs violations. First, there was no basis for narrowing the term "person" in the statute to exclude Mr. Shadadpuri. Rather, the language covered owners, importers, consignees, agents and other persons. The legislative history, even after a revision of the law in 1978, showed that there was no Congressional intent to narrow the meaning of that word.

The court then disregarded the entry of the merchandise into the United States. Instead, the court looked closely at the introduction of merchandise into U.S. commerce. The court found that the term "introduce" was broad enough to capture acts that bring goods to the point of entry, such as moving goods into CBP custody, and providing documents (such as invoices indicating value) for use in the entry process. Thus, the court found that Mr. Shadadpuri "introduced" the suits into the United States. CBP was therefore not required to pierce the corporate veil since Mr. Shadadpuri personally introduced merchandise into the United States in violation of Section 1592(a). While only importers of record or their authorized agents may be held liable for entry violations, the term "introduce" covers acts by other persons.

This case offers several key takeaways for the import community:

  • Board members, officers, and employees who are actively involved in or have a hand in directing the company's day-to-day operations could be held liable for errors or omissions that occur with regard to imported shipments up to the point of entry of the goods into the United States. A solid compliance program, oversight by knowledgeable and experienced compliance personnel, and routine internal auditing mechanisms are key for reducing the likelihood of import errors.
  • A thorough understanding of both the customs valuation rules and the potential consequences for non-compliance is critical for importers and their employees. Even though Mr. Shadadpuri purportedly knew that the assists should have been included in the dutiable value of the suits, he may not have understood or appreciated the potential penalties for these errors. Regular training and internal auditing is crucial for reducing the likelihood of errors and allowing for the timely correction of any errors that are discovered.
  • Had Trek Leather timely responded to the original penalty notice that was issued, CBP would not have resorted to filing a complaint with the CIT. Upon receipt of penalty notices, importers are generally given sixty days to file a written petition responding to the allegations and presenting additional information that may be considered mitigating factors. In most cases, upon request, CBP will agree to grant extensions of time in which to submit the petitions. The CIT and Federal Circuit cases make no mention of the reasons why Trek Leather failed to respond to the original penalty notice; however, importers should view this case as a cautionary tale and establish formal processes for handling receipts of and submitting responses to penalty notices and other requests from CBP.

In February 2014, Mr. Shadadpuri filed a writ of certiorari requesting that the U.S. Supreme Court hear his case. It remains to be seen whether the Court will actually agree to hear it. Customs law cases are not frequently taken up by the Supreme Court. If the Supreme Court chooses not to hear the case, the import community will have to adopt a "wait-and-see" approach as to whether CBP will begin targeting individuals for their companies' customs violations. As the old cliché goes, the best offense is a good defense. Prudent importers should solidify their compliance programs, train their employees, establish robust auditing mechanisms, and erect swift escalation measures so that the appropriate corrective actions can be taken when and if issues arise.

[1] United States v. Trek Leather, Inc., No. 2011-1527 (Fed. Cir. 2014).
[2] United States v. Trek Leather, Inc., Slip Op. 11-68, 781 F. Supp.2d 1306 (Ct. Int'l Trade 2011).
[3] United States v. Trek Leather, Inc., 724 F.3d 1330 (Fed. Cir. 2013).


Melissa Miller Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at mproctor@polsinelli.com.

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Tags:  Customs  Inc.  United States v. Trek Leather 

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No Strike Necessary: Just the Threat of Labor Stoppage at Ports Causes Supply Chain Headaches for Retailers

Posted By Administration, Thursday, July 10, 2014
Updated: Tuesday, July 8, 2014

by Leela Rao, GT Nexus


On July 1st, the fate of many retailers remained in the balance, pending labor negotiations affecting the 20,000 workers at West Coast ports. Remember in 2002, when a breakdown in negotiations resulted in a 10 day lock-out at the West Coast ports? That stoppage was estimated to "have cost the U.S. economy $1 billion a day, and disrupted supply chains for six months" according to Jonathon Gold, Vice President of NRF's Supply Chain and Customs Policy. Reuters published a great article on this very topic "Retailers nervous as West Coast port labor talks running out of time" and the impact it would have if another strike was to occur. The National Retail Federation estimates another 10-day stoppage would result in a loss of 169,000 jobs and cost the U.S. economy $2.1 billion dollars a day. Not only would retailers have to face out-of-stock during crucial summer inventory assortments, but they would also lose out on back to school sales where major retailers like Target and Wal-Mart will account for a large portion of their annual revenues.1

Forced to Sacrifice the Bottom Line

Most retailers took measures in the past few months to prepare for any disruptions due to the strike. While this eased some of the strain, it may have backfired. Rerouting measures have actually created congestion problems at non-West Coast union ports like Vancouver, Mexico, Gulf and East Coast due to their lack of capacity to easily handle the West Coast volume. LA and Long Beach ports are #1 and #2 in terms of capacity. In the retailer's race to continue product delivery, it only takes the threat of a strike to create a bottleneck due to alternate ports' inability to handle volume. Contingency plans involving increased air ship caused retailers to sacrifice profits in order to make goods available. Drewry's Air Freight index of spot rates in April was $3.38 per kilogram, its highest level so far in 2014. Brandon Fried, Executive Director of the Airforwarders Association says, "The amount of time and the opportunity costs associated with maritime shipping to other ports or locals can almost equal out to the extra money it takes to transport cargo via air."2

Solution Needed to a Bigger Problem

Retailers are finding that options to reroute through other ports or air ship are extremely expensive. Many seek answers to avoid disruption without sacrificing profit. But the risk of a port strike is perpetual. How are retailers expected to make effective decisions in an unpredictable environment? Supply chain experts suggest the answer is not controlling the environment, but being able to react to circumstances quickly and having an agile supply chain that allows them to make adjustments seamlessly. Real time visibility in a networked supply chain can allow retailers to make quick real time inventory decisions and manipulations that are instantly communicated across the supply chain. In other examples, when disaster does strike,3 retailers with networked supply chains are the ones that are able to move forward without skipping a beat or sacrifice their bottom line.

Planning for a port strike isn't a one-time challenge. And there's no quick fix answer. The solution lies in the way retailers connect their networks for trading partners. Traditional solutions with hard-wired connections are built more for the inner structure of the business – inside the four walls. The supply chains of the future will be built as networks, similar to social media models, where all parties are connected and everyone in the network has visibility to the data, orders and inventory that they need. This opens the door to a more resilient, agile and fluid supply chain built to handle port strikes and other supply chain hiccups that occur each week.

[1]  http://www.reuters.com/article/2014/06/27/us-usa-ports-labor-idUSKBN0F22FG20140627
[2]  http://www.oecgroup.ca/en/industry_news.php 13 June 2014
[3]  http://mktforms.gtnexus.com/WPWhenDisasterStrikes_Reg.html


Leela Rao is Retail Marketing Manager for GT Nexus. She has more than 10 years of experience working with fashion brands/labels including Levi Strauss & Co., Sephora, Estee Lauder, and L'Oreal Companies focusing on global product development, international channel execution and luxury products. Leela helped integrate Sephora's loyalty program, Beauty Insider, into Sephora in JCPenney stores. She later joined Levi Strauss and Co. where she partnered with wholesale and retail partners such as Dillard's, Macy's, and Kohl's to deliver heritage programs to Levi's enthusiasts. She has also developed marketing strategies for new market entrants Yellow Brick Coffee and Amyris. Leela received an MBA in Marketing and Finance from New York University's Stern School of Business.

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Tags:  Customs  Inventory Management  Labor Stoppage  Ports 

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