CUSTOMS PLANNING FOR A CUSTOMS PLANNING FOR A RECESSIONRECESSION

John M. PetersonJohn M. Peterson

NEVILLE PETERSON LLPNEVILLE PETERSON LLP

New York Washington D.C.New York Washington D.C.

Superior Brokerage Services Inc.Eagan, MinnesotaNovember 6, 2008

Customs and Supply Chain Customs and Supply Chain Planning in a RecessionPlanning in a Recession

How Bad is It?How Bad is It?– Retailers strugglingRetailers struggling– Smaller orders, Smaller orders,

placed laterplaced later– Continuous price-Continuous price-

point pressurepoint pressure– Weak dollar makes Weak dollar makes

imports more imports more expensiveexpensive

– Credit spending Credit spending downdown

What does CBP Do in a What does CBP Do in a Recession?Recession?

Increased emphasis Increased emphasis on commercial on commercial enforcement;enforcement;Legal mandates to Legal mandates to enforce – 10+2, enforce – 10+2, Consumer Product Consumer Product Safety Improvement Safety Improvement Act, Lacey Act Act, Lacey Act AmendmentsAmendmentsMore audits;More audits;More intellectual More intellectual property enforcementproperty enforcement

“We’re not going anywhere”

Can You Squeeze Savings Out of Can You Squeeze Savings Out of Your Supply Chain?Your Supply Chain?

Review Customs Review Customs compliance compliance proceduresprocedures

Interaction With Interaction With Corporate Internal Corporate Internal AuditAudit

Interaction with Interaction with Sarbanes-Oxley Sarbanes-Oxley programsprograms

Don’t depend on the Don’t depend on the “Merchandise Fairy” “Merchandise Fairy” “Sorry, the Merchandise Fairy

is strictly retail.”

Toolbox Item # 1: Documented Toolbox Item # 1: Documented Procedures and PoliciesProcedures and Policies

Company should Company should have documented have documented policies for policies for Customs matters;Customs matters;Companies without Companies without such policies such policies cannot be scored cannot be scored “highly compliant”“highly compliant”Interactive intranet Interactive intranet resources should resources should be consideredbe considered “The right tools for the right job”

Toolbox Item #2: Recordkeeping Toolbox Item #2: Recordkeeping ProgramProgram

Tariff Act requires Tariff Act requires import records be import records be retained at least 5 retained at least 5 years;years;““(a)(1)(A)” list items (a)(1)(A)” list items must be kept 5 years must be kept 5 years under pain of penalty;under pain of penalty;Customs will approve Customs will approve electronic electronic recordkeeping formatsrecordkeeping formatsAgree with brokers on Agree with brokers on document ownership document ownership and rightsand rights

“You’re keeping the records;that’s a start. Now, it wouldhelp to organize them”

Toolbox Item #3 – Tariff Toolbox Item #3 – Tariff Classification ProgramClassification Program

Review your Review your products’ products’ classification;classification;

Question old Question old rulings;rulings;

Examine way you Examine way you design products;design products;

Examine way you Examine way you ship products; ship products;

Composite good – See GRI 3(B)

Toolbox Item #3 – Classification Toolbox Item #3 – Classification ProgramProgram

Suppose you reduce a Suppose you reduce a product’s duty rate product’s duty rate from 5% to 1%;from 5% to 1%;That’s a 4% reduction That’s a 4% reduction in landed cost;in landed cost;Falls right to the Falls right to the bottom line; orbottom line; orReduces your price Reduces your price point, drives salespoint, drives salesNo engineering cost, No engineering cost, no compromise of no compromise of product qualityproduct quality

Exercise Equipment – or Toy?

Toolbox Item # 3 – Classification Toolbox Item # 3 – Classification ProgramProgram

Monitoring Monitoring classification issuesclassification issues

Customs rulings;Customs rulings;

CIT decisions;CIT decisions;

Decisions of foreign Decisions of foreign courts and agenciescourts and agencies

(e.g., European BTIs);(e.g., European BTIs);

World Customs World Customs Organization decisions Organization decisions and HS changesand HS changes

Best of its kind ---Now, what is it, exactly?

Toolbox Item #4 – Put Your Toolbox Item #4 – Put Your Customs Value on a DietCustoms Value on a Diet

Is there “fat” in Is there “fat” in your Customs your Customs values?values?Are you “bundling” Are you “bundling” non-dutiable items non-dutiable items into the price paid into the price paid for your goods?for your goods?Can you Can you restructure restructure transactions to transactions to save on duties?save on duties?

Customs valuation – followthe money!

Toolbox Item #4 – Put Your Toolbox Item #4 – Put Your Customs Values on a DietCustoms Values on a Diet

Diet tips:Diet tips:Unbundle buying Unbundle buying commissions, non-commissions, non-dutiable royalties, etc. dutiable royalties, etc. from price;from price;Examine use of “first Examine use of “first sale” valuation rule;sale” valuation rule;Turn middlemen into Turn middlemen into buying agentsbuying agentsUse “American Goods Use “American Goods Returned”, Returned”, 9802.00.80, other 9802.00.80, other programsprograms

Toolbox Item # 5 (A,B,C, etc.);Toolbox Item # 5 (A,B,C, etc.);Special Trade ProgramsSpecial Trade Programs

Which special trade Which special trade programs does programs does your company use?your company use?Which programs Which programs shouldshould you use? you use?A separate A separate compliance module compliance module should be should be established for established for each such programeach such program

Another load of NAFTA goodsarriving – assuming you canprove it!

Toolbox Item 5 (A,B,C etc.)Toolbox Item 5 (A,B,C etc.)Special Trade ProgramsSpecial Trade Programs

U.S. ProgramsU.S. ProgramsGeneralized System of Generalized System of Preferences (GSP);Preferences (GSP);Caribbean Basin Initiative (CBI);Caribbean Basin Initiative (CBI);Andean Trade Promotion Act Andean Trade Promotion Act (ATPA);(ATPA);African Growth & Opportunity Act African Growth & Opportunity Act (AGOA); (AGOA); American Goods Returned (HTS American Goods Returned (HTS 9801.00.10)9801.00.10)““Repairs and Alterations” (HTS Repairs and Alterations” (HTS 9802.00.40/50)9802.00.40/50)Offshore Metals Processing (HTS Offshore Metals Processing (HTS 9802.00.60)9802.00.60)Offshore Assembly (HTS Offshore Assembly (HTS 9802.00.80);9802.00.80);Temporary Importation Bonds Temporary Importation Bonds (TIB)(TIB)Nairobi Protocol, etc. Nairobi Protocol, etc.

Bilateral/Multilateral Bilateral/Multilateral ProgramsProgramsNAFTANAFTADR-CAFTADR-CAFTABilateral Free Trade Agreements:Bilateral Free Trade Agreements:– AustraliaAustralia– BahrainBahrain– ChileChile– Israel Israel – JordanJordan– MoroccoMorocco– SingaporeSingapore

– Other agreements currently being Other agreements currently being negotiated with S. Korea, Peru and negotiated with S. Korea, Peru and other countriesother countries

Toolbox Item #6 – Special Duties Toolbox Item #6 – Special Duties and Quotas/TRQsand Quotas/TRQs

Defensive Tools:Defensive Tools:Antidumping or Antidumping or Countervailing Duties – do Countervailing Duties – do they affect your imports?they affect your imports?Are you aware of scope Are you aware of scope issues?issues?Are you aware of how Are you aware of how duties are imposed?duties are imposed?Do you obligate vendors to Do you obligate vendors to cooperate with AD/CVD cooperate with AD/CVD investigations?investigations?Do you have an “escape Do you have an “escape clause” in your contract?clause” in your contract?

DANGER: Could lead to a “Brush” with AntidumpingDuties

Toolbox Item #6 – Special Duties Toolbox Item #6 – Special Duties and Quotas/TRQsand Quotas/TRQs

Quotas/TRQs:Quotas/TRQs:Do you import any Do you import any products subject to products subject to absolute quotas (e.g., absolute quotas (e.g., textiles or apparel)?textiles or apparel)?Do you import goods Do you import goods subject to TRQ (mostly subject to TRQ (mostly agricultural)?agricultural)?Are you certain of Are you certain of classification?classification?Are you certain you Are you certain you have proper have proper documents?documents?

Lucky Charms – MagicallyExpensive, Duty-Wise

Toolbox Item # 7: Duty Drawback Toolbox Item # 7: Duty Drawback and FTZsand FTZs

Do you have Do you have drawback-eligible drawback-eligible export activity?export activity?Is it manufacturing or Is it manufacturing or unused merchandise unused merchandise drawback?drawback?MPFs, HMTs now MPFs, HMTs now eligible for unused eligible for unused merchandise merchandise drawback;drawback;3 years from date of 3 years from date of export to claimexport to claim Drawback can turn you around

A bit – but can be worth it

Toolbox Item # 8: FTZs, Bonded Toolbox Item # 8: FTZs, Bonded WarehousesWarehouses

Allow deferral of duty Allow deferral of duty payments;payments;

Avoidance of duty Avoidance of duty payments for exported payments for exported goods;goods;

““Inverted tariff” Inverted tariff” benefits for benefits for manufactured goods;manufactured goods;

Merchandise Merchandise processing fee savingsprocessing fee savings

Toolbox Item #9: Protect Your Toolbox Item #9: Protect Your Intellectual PropertyIntellectual Property

Counterfeits, knock-Counterfeits, knock-offs and gray market offs and gray market goods increase in goods increase in recessions;recessions;You can record your You can record your trademark with trademark with Customs for import Customs for import protection from protection from infringing goods;infringing goods;Customs will seize, Customs will seize, forefeit and destroy forefeit and destroy counterfeits – and counterfeits – and penalize the importerspenalize the importers

Toolbox Item #8 – Protecting Toolbox Item #8 – Protecting Intellectual PropertyIntellectual Property

Section 337 of the Section 337 of the Tariff Act – the Tariff Act – the nuclear weapon of nuclear weapon of International TradeInternational TradeFollowing ITC Following ITC investigation, investigation, Customs will Customs will exclude goods exclude goods which infringe which infringe patents and other patents and other IP rights.IP rights.

Funny hat. Serious business.

Toolbox Item 9: ExportsToolbox Item 9: ExportsWeak US dollar makes Weak US dollar makes US goods attractive US goods attractive overseas;overseas;

Most foreign countries Most foreign countries use Customs laws use Customs laws similar to those in US;similar to those in US;

You can leverage your You can leverage your US knowledge base US knowledge base overseasoverseas

Recessions Stink: Use the Time Recessions Stink: Use the Time Well Well

Examine all aspects of the supply Examine all aspects of the supply chain critically;chain critically;

Look for savings in Customs duties;Look for savings in Customs duties;

Protect your Intellectual Property;Protect your Intellectual Property;

Look to the past for savings, while Look to the past for savings, while planning for the future.planning for the future.

Chill – it’ll get betterChill – it’ll get better