United States Association of Importers of Textiles and Apparel

By Janet Labuda, Vice President of Global Compliance, Vandegrift

On October 12th, the 519th anniversary of Christopher Columbus’s accidental bump into the “new world,” Congress enacted three new Free Trade Agreements (FTAs) with Korea, Colombia, and Panama.  Although some pundits predict that these new agreements will increase the trade deficit and cause an increase in U.S. job loss, others predict that exports will increase and the market expansion will develop new engines for domestic jobs. Whichever way this “new chapter” in international trade turns out, one thing is certain: the U.S. regulatory agencies will be on the hook to ensure that transactions claiming conditional duty-free benefits under these and other trade preference programs will be in compliance with the requirements.

There is nothing in these agreements that will happen by accident.

An analysis of the vote shows that 44 members of the House Textile Caucus—or slightly less than two-thirds of the caucus—voted against the U.S.-Korea FTA, as did eight additional House members with textile interests in their districts.  These 52 members—consisting of 18 Republicans and 34 Democrats—accounted for roughly one-third of the 151 members who voted against the Korea FTA.  A larger share of House Democrats voted against a Democratic president on trade than ever before.

The day following the passage of the FTAs, Senators Kay Hagan and Lindsey Graham introduced the Textile Enforcement Security Act (TESA), aimed at saving textile jobs and enhancing enforcement of the trade preference programs as it relates specifically to textile imports. The House version of the bill was introduced in August 2011 and has 19 co-sponsors.

Congressional textile caucus members and the domestic textile industry are concerned about the abuse and misuse of these preferences by countries not party to the agreements.  In addition, they are concerned that regulatory agencies do not have the resources to ensure compliance with these programs.  As such, the Office of the U.S. Trade Representative, U.S. Customs and Border Protection, and the Departments of Labor and Commerce will be expected to closely monitor and enforce the agreements. However, the government can’t do it alone and the trade community needs to play their part.

What does this all mean for the importing community and how can they ensure that legitimate trade and business are not disrupted?  In the Korea FTA, CBP has been given the authority to deny entry for goods where a pattern of non-compliance is identified.  In addition, as with all FTAs, CBP has the ability to deny claims of preference and often this occurs well after the goods have entered the commerce of the United States.  The downstream impact is that importers may be faced with paying duties well after they have made business decisions on sourcing and pricing.  It is not uncommon for CBP to deny preference and send bills out for duty owed for a large number of transactions months after the goods have been entered.

Because these agreements have a level of complexity built into obtaining preferences, importers must ensure that manufacturers and producers know that a preference claim will be made when the goods are imported into the United States.  Communication between importer sourcing personnel, the buying agents, and manufacturers is critical.  Manufacturers must understand that a document trail is a key element of verification by CBP personnel. The inability to produce documents to illustrate the manufacturing process will lead to the denial of preference and a high-risk designation not only for the manufacturer, but also for the importer of record.

The customs house broker is the linchpin in the importing process.  The broker is licensed and regulated by CBP to conduct customs business on behalf of their clients, and thus a critical partner in ensuring compliance. When choosing a broker, the importer should ask the following questions:

• How long has the company been in business?
• How much of their business involves the textile industry?
• How much of their business involves trade preference program claims?
• What types of resources does the broker have?
• How versed are the broker’s resources in preferential trade programs?
• What past experiences do the broker’s resources have in international trade? Did they work for a regulatory agency? Did they work in international sourcing?
• Does the broker have a compliance department?
• Is the broker a member of broker associations, either locally or on the national level?
• Does the broker maintain open lines of communication with regulatory agencies?
• Does the broker maintain offices in key ports of entry handling trade preference program trade?
• Does the broker encourage open and frequent communication?
• Is the broker willing to work with your sourcing department to take maximum advantage of the trade preference programs?

Once you are comfortable with the customs house broker, it will be much easier to navigate through the trade preference programs—and there will be few, if any, surprises down the road.

In real estate, it’s all about “location, location, location.” In international trade, “compliance, compliance, compliance” will be the name of the game for the foreseeable future.

Janet Labuda has been a frequent presenter at USAITA conferences.  She recently retired from U.S. Customs and Border Protection and is currently the Vice President of Global Compliance for Vandegrift, a freight forwarder and customs house broker and USA-ITA Associate Member.