Embed Size (px)
DESCRIPTION
Citation preview
CAFTA Compliance Update
San SalvadorNovember 16, 2011Copyright © 2011 Jonathan M. Fee All Rights Reserved
ALSTON&BIRD LLP
Some context
• CAFTA has been in place long enough that importers, manufacturers and CBP should be “used to it”
• About 60 to 70 percent of all CAFTA goods are entered in Miami
• Several CAFTA manufacturers are also importers of record
More context
• CAFTA is of critical importance to the US yarn spinning and fabric manufacturing community
• China and Vietnam have not taken as large a share of apparel exports to the United States as expected
• CBP has been training import specialists; but not as frequently or effectively as either CBP or importers would like
Competition context
• Peru is in place and Colombia and Panama will probably be in place in the next year
• They have virtually identical terms with CAFTA, except for the special single transformation provisions that CAFTA got in exchange for the pocketing rule
• Mexico is getting stronger again and is not burdened with the pocketing, narrow elastic fabric or sewing thread chapter rules
More competition context
• Mexico allows elastomeric de minimus, while CAFTA, Peru, Colombia, Panama and Korea do not
• Mexico is burdened with ridiculously cumbersome short supply rules
• Everyone else in the region shares the same short supply rules, except that CAFTA still requires US spandex in short supply fabric (subject to CAFTA fixes)
More competition context
• The CAFTA fixes will take away foreign single yarn sewing thread; but Peru, Colombia and Panama will still be allowed to use it unless they are changed
• The CAFTA fixes will open up short supply for more than just the outer shell; giving CAFTA a relative advantage over Peru, Colombia and Panama
More competition context
• Haiti TPLs give that country gigantic advantages over CAFTA
• Maybe that’s a good thing because Haiti is so economically disadvantaged; but it takes business away that might otherwise go to CAFTA
• For better or worse, AGOA countries have not become significant competitors, nor have proposals for Pakistan and Afghanistan gone anywhere in this US Congress
Korea
• Korea will go into effect soon; but there are political issues in Seoul that are delaying implementation
• For apparel, Korea is mostly like NAFTA, and Korea isn’t burdened with the extra chapter rules for pocketing, sewing thread and narrow elastic
Korea short supply
• Korea short supply is fast like CAFTA
• No grandfathering of CAFTA, CBPTA and other short supply designations
• Each country keeps its own list and could have different short supply designations
• Strangely, there’s an annual cap of 100 million SME for the first five years
Expiring Nicaragua TPL
• Will expire in 2014 – three obvious choices
• First, extend it just for Nicaragua – do other CAFTA countries want this?
• Second, extend it and offer it to all of the CAFTA countries – very doubtful
• Third, let it expire• Should Nicaragua have
this benefit all to itself?• How about DR 2 for 1
deal?
And then there’s TPP
• CAFTA countries are nervous about Vietnam – and they should be
• US retail groups are asking for THC or RVC origin rules, which would give Vietnam a huge advantage over CAFTA
• But the United States looks like it’s fixated on yarn forward, for better or worse
Personnel changes in Washington
• The top two people in the CBP Textile and Enforcement Office, Janet Labuda and Bob Abels, both retired in the last several months
• The new chief of that office, John Leonard, comes to the position from his job as San Francisco port director
Miami problems
• They leave inadequately trained and unfocused personnel in Miami
• Moreover, the DC office does not have direct authority over Miami – a mistake that should be corrected
• Consequently, Miami CBP personnel act inconsistently with the best interests of the US and other CAFTA parties
Failure of training in Miami• Miami personnel have insisted
that the sewing thread rule and pocketing rule apply to apparel of short supply fabric
• Within the last month, Miami personnel have asked for values of components CAFTA apparel articles as though regional value content were relevant to CAFTA originating treatment
• Also in the last month, Miami has rejected affidavits where the fax number of the person signing the form is not shown even though Customs guidelines specifically state that fax numbers are not required
This will only get worse
• The Budget Control Act, enacted to end the US debt ceiling crisis, will require $1.2 trillion in automatic spending cuts if the bipartisan deficit reduction committee cannot agree to spending cuts by November 23
• Result? Ten percent cuts at the Department of Homeland Security, virtually insuring no improvement in training in Miami any time soon
Miami gone wild
• Without warning or reason, last month, CBP in Miami has declared that all yarn and fabric affidavits that say “sold or to be sold” are invalid
• These are affidavits of Burlington, Milliken, Insinca, A&E, Coats – reputable suppliers whose affidavits have never been misused in the entire history of CAFTA – that have used these words for several years
Reasonable Miami concerns
• Affidavits about formation of fabric that are not accompanied by affidavits about formation of yarn
• Inconsistencies between documents: such as CAFTA certificate naming one fabric producer and affidavits from a different producer
Compliance lessons
• CBP Headquarters assurances over the years that affidavits from “reputable” yarn and fabric companies would be respected are not true – all affidavits are being challenged in Miami
• Inconsistencies between documents are intolerable – CAFTA participants must use a zero tolerance policy
Compliance lessons
• Scrutinize and challenge all affidavits from yarn and fabric suppliers, no matter how long they have been in use
• All affidavits must meet every requirement of:
• TBT-07-019, and• TBT-11-004• If you think affidavits
are correct, be prepared to defend them
How Miami will challenge you
• CBP Form 28, Request for Information
• Requires response in 30 days
• Miami rarely allows extensions
• Responsible request: Asks for relevant documentation for two or three good examples of styles in the entry
Example
• In support of the DR-CAFTA claim for styles ___, ___ and ___, please submit affidavits of origin from the producers of the yarn, fabric and thread
• Each affidavit must provide a complete description of the item produced, including fiber content, purchaser, date of sale, telephone numbers of persons executing affidavits for verification purposes, etc.
Irresponsible requests
• Requests for documents for all styles in the entry where there are several styles
• Requests for unnecessary documents and information (e.g., thread affidavits for single transformation goods, component value information)
• Response? Either complain by phone or prepare answer as though questions are reasonable
Next step
• CBP in Miami is likely to be unhappy with your Form 28 Response
• Next step is the Form 29; CBP will check the box that says, “This action is proposed”
• CBP will also issue the Form 29 if you fail to answer the Form 28
• You have 20 days to provide your response
Reasonable Forms 29
• Failure to answer Form 28• Fabric affidavit, but no
yarn affidavit• Inconsistency between
persons named on the CAFTA certificate and persons named on affidavits
• Date discrepancies (affidavit dated 2011 for fabric supplied in 2010, for example)
• Missing information on affidavit (address, contact person, etc.)
Unreasonable Forms 29
• “Sold or to be sold”• Naming purchaser• Requiring finisher to
be identified as “manufacturer”
• Rejecting alternative use form affidavits (i.e., affidavits intended for either single transaction or blanket use
• You either have to defend affidavits or get new ones
Next step
• If Miami CBP is unsatisfied with the response to the first Form 29, it will issue a second, checking the box that says, “This action has been taken”
• This results in liquidation, without CAFTA treatment
• Only recourse is to protest
Protest
• Must be filed within 180 days after liquidation
• It will be initially reviewed, and approved or denied, by the same import specialists who issued the Forms 28 and 29
• Gives the opportunity to make new arguments or to provide additional documents
• Always ask for further review with adequate justification
Next step – litigation
• If the protest is denied, the only recourse is litigation
• You have 180 days from the date of denial to file an appeal in the US Court of International Trade
• This is an Article III court, just like a US Federal District Court
• Either party can then appeal to the US Court of Appeals for the Federal Circuit
• Denials of FTA treatment for alleged document failures are rarely litigated
Short supply problems
• “Dead fish” designations of materials, like rayon sewing thread, that can’t be used to make the outer shell – this will be addressed in the CAFTA fixes
• Too rigid designations (e.g., 50 percent polyester, 25 percent rayon, 25 percent acrylic)
• Erroneous designations (The yarn number for several designations was calculated incorrectly, using grams per square meter rather than linear meter)
The “recipe” problem
• CBP import specialists request sample short supply garments and send them to CBP labs
• The labs test the finished garments and find discrepancies
• Finishing and napping can effect the characteristics of yarn in the finished garment; but CBP as not accepted this “recipe” argument, although it has been protested and a protest is pending on the issue
Some conclusions and proposals
• Better training for import specialists and importers; maybe a joint effort or “town hall” to air concerns
• Domestic groups might refine their complaints and concerns so that attention focuses on fraud, not on picky details about affidavits from reputable companies
Some conclusions and proposals
• For short supply, lab tests should not be the “be all and end all;” as long as lab tests are reasonably consistent with designations after allowing for finishing effects, short supply claims should “pass”
• The DC CBP textile office should have more direct authority to intervene or to accept appeals of disallowed CAFTA claims
The bottom line
• CBP activity in Miami and elsewhere should continue to monitor and address fraud and transshipment – we all support that
• But CAFTA should be interpreted as it was intended – to enhance trade between Central America the United States – not to frustrate trade
