duty preference programs - scce official site€¢ free trade agreements (nafta, cafta-dr, etc.) ......

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1 © 2011 Foley & Lardner LLP Global Sourcing and Regulatory Compliance in a New Era Society of Corporate Compliance and Ethics 10 th Annual Compliance & Ethics Institute Geoffrey M. Goodale Foley & Lardner LLP (202) 672-5341 [email protected] © 2011 Foley & Lardner LLP Duty Preference Programs Free Trade Agreements (NAFTA, CAFTA-DR, etc.) African Growth and Opportunity Act Andean Trade Preference Act Caribbean Basin Economic Recovery Act Caribbean Basin Trade Partnership Act of 2000 Freely Associated States Generalized System of Preferences

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Page 1: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Global Sourcing and Regulatory Compliance in a New Era

Society of Corporate Compliance and Ethics 10th Annual Compliance & Ethics Institute

Geoffrey M. Goodale

Foley & Lardner LLP(202) [email protected]

© 2011 Foley & Lardner LLP

Duty Preference Programs

• Free Trade Agreements (NAFTA, CAFTA-DR, etc.)

• African Growth and Opportunity Act

• Andean Trade Preference Act

• Caribbean Basin Economic Recovery Act

• Caribbean Basin Trade Partnership Act of 2000

• Freely Associated States

• Generalized System of Preferences

Page 2: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Foreign Trade Zones (FTZs)

• Types

– General-Purpose Zones

– Subzones

• Benefits

– Deferral of duties

– Elimination of duties

– Inverted duty savings

– Property tax

– Zone-to-zone transfer

– Defect/Damage/Waste/Scrap/Obsolescence

© 2011 Foley & Lardner LLP

Activities Permitted in an FTZ

• Assembly and processing

• Repacking and relabeling

• Destruction

• Mixing

• Manipulation

• Testing

• Sampling

• Storage

• Salvaging

• Manufacturing (Special FTZ Board approval required)

Page 3: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

CBP Audit Types

• Focused Assessments (FAs)

– Company selected based on a risk model

– Internal control review

– Transaction testing

– Risk determination (Acceptable or Unacceptable)

– Follow-up (CIP or Assessment Compliance Testing)

• Quick Response Audits (QRAs)

– Testing is generally more extensive than FAs and is designed to determine if transactions are in compliance with Customs laws

– At the end of a QRA, CBP determines if further action is needed

© 2011 Foley & Lardner LLP

CBP’s Priority Trade Issues

• Agriculture

• Antidumping/Countervailing Duty

• Import Safety

• Intellectual Property Rights

• Penalties

• Revenue

• Textiles

• Trade Agreements

Page 4: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Reasonable Care

• Pursuant to Customs Mod Act, importers must use reasonable care.

• Reasonable care must be applied to all Customs requirements.

– Classification

– Valuation

– Origin

– Preferential trade programs (e.g., NAFTA, CAFTA-DR, GSP)

© 2011 Foley & Lardner LLP

Reasonable Care (cont’d)

• Requesting advice, prior to importation from recognized Customs expert (e.g., trade attorney, customs broker, CBP personnel)

• Providing full disclosure to expert of all facts and circumstances

• Relying on expert advice to file entry

• Good faith, professional disagreement as to classification - not a violation

Page 5: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Internal Controls

• Control Environment – sets the tone

• Risk Assessment – identifies, analyzes, and determines how to

manage risks to achieving objectives

• Control Activities – specific policies and procedures to help

ensure objectives are met

• Information and Communication – necessary to support all

other control components

• Monitoring – assess the quality and effectiveness of the

system’s performance

© 2011 Foley & Lardner LLP

Customs Compliance Programs

• Tone at the top

• Organizational structure and staffing

– Supply chain, logistics, finance, tax, legal, other

– Compliance v. operations

– Geographical scope

– Authority and seniority

Page 6: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Customs Compliance Programs (Cont’d)

• Policies, internal controls and procedures

– Use Focused Assessment (FA) process as roadmap

– Must be documented

– Tools and templates

• Automation

© 2011 Foley & Lardner LLP

Customs Compliance Programs (Cont’d)

• Training

– Live sessions, webinars, on-line

– Separate training for senior management, specialized topics

– Interaction, e.g., quizzes, voting, games

– Training records and centralized database

Page 7: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Customs Compliance Programs (Cont’d)

• Audits and self-assessments

– Risk assessments

– Internal v. external resources; “peer review”

– Detailed templates/checklists – but not too detailed

– Reporting results and implementing corrective actions

• Reporting violations

– Anonymous or confidential “hotline” without retaliation

– Voluntary disclosures to government

© 2011 Foley & Lardner LLP

Ruling Requests

• Classification

• Country of Origin Marking

• Valuation

• Government Procurement (“Buy America”)

• Temporary Importation under Bond

• Bonded Warehouse

• Trade Agreements and Trade Programs

• Drawback

• FTZ

Page 8: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Types of CBP Decisions That Can Be Protested

• Appraised value of merchandise

• Classification and rate and amount of duties

• All charges or exactions (including accrual of interest)

• Exclusion of merchandise from entry or delivery

• Liquidation or reliquidation of entry

• Refusal to reliquidate an entry under 19 U.S.C. 1520(c)

[19 U.S.C. § 1514; 19 C.F.R. § 174.11]

© 2011 Foley & Lardner LLP

Parties That Can Protest CBP Decisions

• Importer or Consignee

• Any person paying any charge or exaction

(Or seeking a refund of any charge or exaction)

• Any person seeking entry or delivery

• Any person filing a claim for drawback

• Any exporter or producer of merchandise challenging a CBP NAFTA verification or determination

• Any authorized agent of any of the above kinds of aggrieved parties

Page 9: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Substantive Requirements for Protests

• Name, address, and importer number of protestant

• Numbers and dates of entries

• Dates of liquidation of entries (or dates of decisions in cases not involving liquidation)

• Specific description of merchandise involved

• Reasons for protest

• Declaration regarding drawback

• Date of receipt and protest number of any previously filed protest that is the subject of an AFR (if applicable)

© 2011 Foley & Lardner LLP

Application for Further Review

• An Application for Further Review (AFR) may be made on the same CBP Form 19 used for the protest or on a separate CBP Form 19

• The AFR must provide information that clearly identifies the protest to which it applies and the protestant

• In the AFR, the protestant must state that:

– It has not previously received an adverse decision from CBP and does not have a presently pending application for an administrative decision on the same claim

– It has not received an adverse court decision on the same claim

• Additional legal arguments can be made in the AFR

Page 10: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Processing of Protests

• Generally, CBP must rule on protests within 2 years from the date on which the protest was filed

– If several timely filed protests are treated as part of a single protest, the 2-year period runs from the date of the last protest

– In cases relating to the exclusion of merchandise, CBP must issue a ruling within 30 days from the date of the protest

• Accelerated disposition of a protest may be requested at any time after 90 days from the filing of the protest

– Such a request must be submitted by registered or certified mail

– If CBP does not issue a ruling within 30 days from receipt of a request for accelerated disposition, the protest is deemed denied

© 2011 Foley & Lardner LLP

Appeals of Denied Protests

• A protestant can seek judicial review of a denied protest by the U.S. Court of International Trade (CIT)

• An appeal must be filed with the CIT within 180 days of:

– The date of mailing of the notice of denial of a protest

– The date that a protest for which accelerated disposition was requested was deemed to have been denied

– The date that a protest involving the exclusion of merchandise was deemed to have been denied

• The CIT reviews CBP’s decision on a de novo basis

• CIT rulings can be appealed to the U.S. Court of Appeals for the Federal Circuit (CAFC)

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© 2011 Foley & Lardner LLP

Discovery of Violations

• Determine and implement corrective action if the violation is on-going.

• Conduct an internal investigation to determine cause, scope and effect of violation.

• Consider whether a prior disclosure should be filed.

© 2011 Foley & Lardner LLP

Prior Disclosures

• Disclose the circumstances of the violation: (1) identify class/kind of goods; (2) identify import; (3) specify material falsities; and (4) provide true, accurate information and data.

• Prior disclosure must be made before or without knowledge of the commencement of formal investigation of violation (commencement document) by CBP.

• Tender actual loss of duties at time of prior disclosure or within 30 days after written notification of loss calculation by CBP.

Page 12: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Prior Disclosures (Cont’d)

• Issuance of CBP Form 28 or 29 may serve as commencement of a “formal investigation,” depending on contents.

– Did import specialist have a reason to believe there has been a violation?

– Does language communicate to importer that CBP suspects a violation?

– Communicate that CBP is looking beyond the cited entry?

• If content of CF 28/29 initiates a “formal investigation,” importer’s receipt creates presumption of knowledge.

© 2011 Foley & Lardner LLP

Key Court Cases Involving Prior Disclosures

• Yuchius Morality Co. [26 CIT 1224 (2002)]

• Tikal Distributing Corp. [970 F. Supp 1056 (CIT 1997)]

• Brotherhood Int’l Corp. [294 F. Supp. 2d 1373 (CIT 2003)]

• Nat’l Semiconductor Corp. [Slip Op. 2008-1195 (Fed. Cir. Nov. 13, 2008)]

• Ford Motor Co. I [435 F. Supp. 2d 1324 (CIT 2006)]

• Ford Motor Co. II [463 F.3d 1267 (Fed. Cir. 2006)]

• Bridalane Fashions, Inc. [32 F. Supp. 2d 466 (CIT 1998)]

• Pentax Corp. [125 F.3d 1457 (Fed. Cir. 1997)]

Page 13: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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© 2011 Foley & Lardner LLP

Contact Information

•••• Geoffrey M. Goodale

Foley & Lardner LLP(202) [email protected]

•••• Thomas J. Jesukiewicz

U.S. Customs and Border Protection(562) 980-3220 ext. [email protected]

Latest Trends in Regulatory Audit

Tom Jesukiewicz, Field Director, Houston Field Office

Society of Corporate Compliance and Ethics

10th Annual Compliance & Ethics Institute

September 12th, 2011

Page 14: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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Objectives

●Focused Assessment (FA)

●Other Types of Audits

�Supply Chain Security Observation

�Specialization/Subject Matter Expert

�Other Government Agency (OGA)

�Importer Self Assessment (ISA)

Charlotte

New Orleans

Atlanta

Houston

Dal las El Paso

Memphis Nashville

Ft. Mitchell

McA llen

Denver

San Diego

San Francisco

Long Beach

San Jose

Seattle

St. Louis

Chicago

Detroit

Minneapolis

Baltimore

New York

Boston

Laredo

Buffalo

Regulatory Audit Field Offices

Regulatory Audit Sub-offices

Newark JFK

Regulatory Audit Headquarters

Philadelphia

Headquarters

Miami

Laguna Niguel

Regulatory Audit Locations

Headquarters D.C., 10 Field Offices

Page 15: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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Caridad & Tom Forever

30

FA Statistics

●Over a 1,250 FA Audits

● 90% of FAs Took Less Than One Year to Complete

Page 16: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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31

FA Statistics

●Over $100 Million in Loss of Revenue (excludes PD & Penalties)

●60% of FA Audits Concluded Unacceptable Compliance

●Top 3 Areas with Unacceptable Compliance

�Value

�Duty Free Provisions

�Classification

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Common Internal Control

Deficiencies…●No Internal Control Procedures In Place

●Not Monitoring/Verifying Broker’s Work

●Not Maintaining or Updating Classification Database

●Not Requesting CBP Assistance/Input with New or Complex Issues

●Other Departments Not Communicating Potential CBP Related Information to the Import Department

●No Testing of Entries for Accuracy

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33

Common Compliance Errors…

● Lack of Documentation to Substantiate Various Claims

● Price Paid or Payable Is Not Fully Reported

● Inaccurate or Incomplete Description of Articles as a Basis for Classification.

What TRADE Can Do (Best Practices)

1. Management Commitment

2. Establish Compliance Goals

3. Develop Formal Policies & Procedures

4. Establish Training Programs

5. Conduct Internal Control Reviews

6. Create a CBP Compliance Group

7. Access to Executives for Needed Resources

8. Develop Compliance Requirements for Suppliers

9. Establish a Record Keeping Program

10. Partner with Customs & Border Protection

Page 18: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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35

Examples of QRA Subjects

● Improper Valuation

●Anti Dumping Duty Violations

●FTZ – Inventory Discrepancies

●Bonded Warehouse

● IPR Infringements

● ICE Fraud Support

●Health & Safety

●Container Exam Station (CES)

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QRA Statistics

●Almost 700 Audits

●Percent with findings (unacceptable compliance): 50%

●Total Loss of Revenue: More Than $140 Million

Page 19: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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37

Specialization

●Complex and diverse trade issues (Priority Trade Issues-PTI) call for more centralized areas of expertise and development of Subject Matter Experts within Regulatory Audit

●Assignment of areas of specialization by Field Offices (FO)

●Alignment of offices in conjunction with National Targeting and Analysis Group (NTAG)

●FO can work closely with NTAG to promote development of high level of expertise by PTI

38

Importer Self Assessment (ISA)

● ISA

● ISA - Product Safety

Page 20: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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39

Information Sharing and Other

Government Agencies (OGA)

●Increased interagency interaction with other Government Agencies (CPSC, Agriculture, FDA, DOT, etc.)

40

Health & Safety Audits

●Agriculture

●Consumer Product Safety Commission

●DOT

●EPA

Page 21: Duty Preference Programs - SCCE Official Site€¢ Free Trade Agreements (NAFTA, CAFTA-DR, etc.) ... CBP’s Priority Trade Issues • Agriculture ... Complex and diverse trade issues

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4141

Labeling indicates “amino acid”

Agriculture Audit

4242

Inspection reveals meat

Agriculture Audit

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4343

Instant Noodle: HTS 1902.19.4000

Agriculture Audit

4444

Overall Impact

●40,700 units of prohibited merchandise were attempted to be entered into the United States (21 entry summaries);

�21,622 units entered the United States commerce

�19,078 units were seized and destroyed

Agriculture Audit

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4545

Agriculture Audit

4646

Importer Self-Assessment/Product Safety

●Benefits to the Importer

� Reduced product safety tests on goods

� Front of the line testing at CPSC laboratories

� Destruction of products in lieu of redelivery

� Fast Track Product Recall Program

� Special training on compliance, internal controls, and audit trails

●Benefits to CPSC

� Concentration of limited resources on non-compliant importers while protecting the American consumer from harm

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THANKS!THANKS!

www.CBP.govwww.CBP.gov