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Importers & Forced Labor Risk: The Onus Is on You to Know the Labor That Your Suppliers Use

Workers at garment factory in Southeast Asia

Earlier in March we shared an article on the importance of knowing your suppliers titled, Forced Labor and Chocolate: Do You Know Your Suppliers? The focus of that article was to inform U.S. importers of possible consequences they can face if they underestimate the importance of Reasonable Care, and to reinforce the importance of practicing due diligence in understanding what’s going on in their global supply chain.

As a follow up, this article serves as a best practice guide for U.S. importers to ensure their supply chains have no forced labor. Specifically, the U.S. Customs and Border Protection’s (CBP) recently posted recommendations as a best practice to follow to eradicate the importation of goods produced with prohibited forms of labor (forced or child labor, including dangerous child labor and the slave labor of trafficked children).

Have you taken measures to ensure your imported goods are not produced wholly or in part with forced or child labor? Here are some principles to create a social compliance system that mitigates your risks and builds on your internal controls as a best business practice and avoid an enforcement action:

Comprehensive Supply Chain Profile

  • Does the U. S. importer have a comprehensive understanding of the natural supply chain from sourcing of raw materials to subcontracting manufacturing to the assembly of finished goods destined for the U.S.?
  • For their products, has the U.S. importer conducted a comprehensive risk assessment of forced labor in the global supply chain and conducted onsite production visits to the factory, farm, or mine for high-risk countries?
  • Is the U.S. importer engaged with industry specific multistakeholder initiatives?

Written Code of Conduct

  • Has the U.S. importer developed and applied a formal written code of conduct for all international interactions associated with the sourcing of foreign goods?
  • Is the code of conduct shared with all suppliers in the global supply chain as a stand-alone document or as addendums to purchase orders, contracts, or letters of credit?
  • Does code of conduct include specific language as to minimum labor standards as specified by the United Nations International Labor Organization (ILO), other intergovernmental organizations, or multi-stake holder initiatives?

Robust Internal Control Process

  • Are the internal controls established according to professionally recognized objective audit standards?
  • Does the U.S. importer have sufficient internal controls in place to effectively deter and detect instances of noncompliance with the code of conduct and other best practices?
  • Does the U.S. importer conduct periodic compliance audits using in-house personnel or external audit professionals?
  • Does the U.S. importer’s internal control process cover every level of the product supply chain including relevant business documents?
  • Does the U.S. importer have adequate corrective action plans to address noncompliance and deter weak business practices?

The CBP is actively enforcing trafficking in supply chains and confiscating goods coming into ports under suspicion that they were produced with forced labor. To counteract items of child and forced labor from entering into your sales channel and global supply chains, you should have and follow established best business practices to ensure your global supply chain partners and vendors utilize no forms of forced or child labor.

To learn more about our import compliance services, or to simply talk about how we can help your organization develop its own forced labor best practices, contact Mohawk Global Trade Advisors.

 By Yvonne Scott-Younis

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Effective October 1, 2018, Merchandise Processing Fees to Increase for Fiscal Year 2019

Cash settlement. American currency with gavel. Law, legal, financial, savings.

In August, U.S. Customs and Border Protection (CBP) announced that the Consolidated Omnibus Budget Reconciliation Act (COBRA) will increase user fees effective October 1, 2018 by 4.886 percent to adjust for inflation for Fiscal Year 2019.

One fee affected by this increase is the “Minimum” and “Maximum” Processing Fees. Specifically, the “Minimum” and “Maximum” Merchandise Processing Fees (MPF) have increased. See below table of the current fees and the adjusted fees:

Minimum Merchandise Processing Fee

Current rate – $25.67

New MPF Minimum – $26.22

Maximum Merchandise Processing Fee

Current rate – $497.99

New MPF Maximum – $508.70

This fee relates back to Fixing America’s Surface Transportation Act (FAST). FAST was signed into law on December 4, 2015. Section 13031 of this act amended COBRA and requires certain COBRA fees and corresponding limitations to be adjusted by the Secretary of the Treasury to reflect increases in inflation.

For the full official agency notice, click here.

 By Yvonne Scott-Younis

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Tariffs on $200 Billion Worth of Chinese Imports Go Into Effect 9/24

TARIFFS-580

The Office of the U.S. Trade Representative (USTR) has released the official list of about $200 billion worth of Chinese imports subject to additional tariffs. This list contains 5,745 full or partial lines of the original 6,031 tariff lines that were announced back in July. Starting September 24, 2018 these items will be subject to a 10 percent tariff, which will increase to 25 percent starting January 1, 2019.

Some of the products that have been removed from the original list include certain consumer electronics such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles, and agriculture; certain health and safety products including bicycle helmets, and child safety furniture such as car seats and playpens.

If you have questions about these tariffs and how they may affect your business, reach out to your Mohawk customer service representative.

By Danielle Leonard

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New Tariffs Causing Insufficient Bonds

A calculator on top of paper with finances and a pencil.

U.S. Customs Border and Protection (CBP) recognizes that Section 232 and 301 tariffs are having a significant impact on continuous bond amounts and expect to see an increase in insufficient bonds in the coming months. In the meantime, CBP is urging importers, brokers, and sureties to be mindful when determining bond sufficiency based on Section 232 and 301 tariffs.

How Bonds are Being Impacted

Continuous bonds—for dutiable goods that are not subject to a participating government agency (PGA)—are normally based on 10% of the projected amount of duties, taxes, and fees that an importer is expected to pay over a 12-month period. This means, a company’s predetermined bond may now be insufficient due to duty increases related to the new tariffs. One steel importer stated they had a bond that went from $200,000 to $11 million, according to the JOC.

To assist brokers, sureties, and importers, CBP will be sending an email—to each surety—to discuss helping them with their long-term projections, to ensure importers will be sufficiently bonded for the 12-month period.

Insufficient bonds can hamper an importer’s ability to release their cargo at U.S. ports and cause them to incur demurrage, because CBP can hold shipments that have an insufficient bond.

This bond issue is expected to escalate as importers across a range of sectors determine whether the additional $200 billion in tariffs from China affect their goods. It is crucial to make sure your company has sufficient Customs bonds in place. If you need assistance, contact Mohawk Global Trade Advisors.

 

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CTPAT – To Participate or not to Participate

CTPAT

Is your company still on the fence about participating in Customs Trade Partnership Against Terrorism (CTPAT)?

Are these benefits not enticing enough?

  • less CBP examinations
  • front of the line inspections
  • possible exemption from Stratified Exams
  • shorter wait times at the border
  • assignment of a Supply Chain Security Specialist
  • access to the Free and Secure Trade (FAST) Lanes at the land borders
  • a secure supply chain (hence your reputation)

Here are a couple of incentives that may sway your company’s mind: Trusted Trader status and the loss of business opportunities.

Trusted Trader Status

Trusted Trader is the integration of the CTPAT and (ISA) Importer Self-Assessment Program. Although Trusted Trader status is not operational yet, it may be as early as the fall of 2018.

This status will consist of multiple tiers, and importers who participate in both CTPAT and ISA will be at the highest tier and have the maximum Trusted Trader status. Currently, an importer cannot apply for ISA unless they are CTPAT certified. Participating in CTPAT is the first level of Trusted Trader status and the first step to gaining the full benefits listed above.

A Loss of Business Opportunities

U.S. Customs strongly advises all CTPAT partners to encourage their business partners to participate in CTPAT. Many importers have taken this message to heart and are requiring importers they purchase from domestically to also be CTPAT certified, in order to do business with them. Why? A well-recognized company does not want to be linked with a supplier who experienced a security breach within their supply chain, no matter how small the supplier.

As U.S. Customs continues to mutually recognize the supply chain security programs of other countries*, we are seeing more foreign participants requiring their international trade partners to participate in their own country’s supply chain security program. Foreign manufacturers understand inspection of their cargo is minimal when their entire supply chain is certified in mutually recognized supply chain programs, resulting in quicker processing time of their cargo and availability of their product in the market.

Doing business with companies certified in mutually recognized supply chain programs lessens the burden of work when assessing your supply chain. You don’t have to assess a business partner that is already certified in a supply chain program–they’ve already done that for you, and their Customs agency has confirmed that they’ve done their due diligence by certifying and validating them.

Instead of thinking about whether your company should participate in C-TPAT, ask yourself this: can we afford additional exams because we are not a Trusted Trader? Can we afford to lose business opportunities because we aren’t certified?

*U.S. Customs & Border Protection mutually recognizes the following foreign supply chain programs: Canada, Dominican Republic, EU, Israel, Japan, Jordan, Korea, Mexico, New Zealand, Singapore, and Taiwan.

By Beverley Seif, Vice President and General Manager

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China Goes Head-to-Head with Additional Tariffs on U.S. Goods

China goes head to head 580

In response to the Trump administration’s recent proposed tariffs on $200 billion worth of Chinese goods, China has announced their own proposed list of additional 10 percent tariffs. Some of the major items by value on this 10 percent tariff list are food preparations, lasers other than laser diodes, and cast glass sheets.

These are China’s current lists of U.S. goods to be affected by tariffs.

The implementation dates will be announced separately, according to China’s announcement. However, it has been confirmed  that the 25 percent tariffs on additional $16 billion worth of imports from the U.S. will be imposed August 23.

International Trade Centre Data tweeted that China has removed crude oil and some chemicals from its updated $16 billion retaliation list and has added items such as cars, waste products, coal, and medical instruments.

If you have questions about these tariffs and how they may affect your business, reach out to your Mohawk customer service representative.

By Danielle Leonard

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USTR Announces Official Second List of Section 301 Tariffs

Second list of section 301 tariffs 580

The Office of the United States Trade Representative (USTR) has finalized list two of Section 301 tariffs on Chinese products. The list contains 279 tariff lines—about $16 billion worth of imports from China—and will be subject to a 25 percent additional tariff. Customs will start collecting these additional duties on August 23, 2018. A Federal Register notice will also announce a process to request product exclusions for items subject to these additional duties.

If you have questions about these tariffs and how they may affect your business, reach out to your Mohawk customer service representative.

You can find the official announcement here.

Section 301 Product Exclusion Request Form

By Danielle Leonard

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CTPAT Members—Your Chance to Submit Feedback on MSC

FeedBack (1)

The updated Customs Trade Partnership Against Terrorism (CTPAT) Minimum Security Criteria (MSC) Workbooks for members has been released and has entered into a commenting period, as of July 25. Over the next 90 days CTPAT members are advised to log into the CTPAT portal and review the updated MSC workbooks in the portal’s Document Section under Public Library.

How to Provide Feedback

In the portal, members can submit a MSC feedback form that will be sent directly to the CTPAT Field offices. There is also a schedule of workshops available and although it is not mandatory, it is highly recommended that members attend one.

The updated criteria include the following

  • Agricultural Security/Personnel Security Issues
  • Cybersecurity
  • Non-IT Security technology
  • High Security Seals/Highway Carrier Issues
  • Prevention of Money Laundering and Terrorism Financing/Risk Assessment
  • Security Management and Administration

It is crucial for members to familiarize themselves with the workbook and submit their input within the allotted 90 days. If you have any questions regarding the updated MSC or how to provide feedback, contact MGTA.

 By Danielle Leonard

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Country of Origin: What Every Importer Should Know

Country of Origin

Before we can tackle country of origin, we first must take a step back in history to understand its roots.

In 1994 Congress passed the Customs Modernization Act, also known by its abbreviation Mod Act. A legal requirement of the Mod Act obligates importers to exercise reasonable care when importing goods into the United States (the fifty states, District of Columbia and Puerto Rico).

Duty of Importers

An important requirement of reasonable care is rules of origin. What exactly are rules of origin? Simply put, these rules that legally obligate importers to determine the country of origin for merchandise that they import into the United States.

Rules of origin legally shift responsibility from U.S. Customs and Border Protection (CBP) to importers, making it the importer’s responsibility to provide CBP with accurate information regarding not only country of origin, but also admissibility, tariff classification, and value of the imported goods. To be fully compliant, importers must also ensure the merchandise is marked conspicuously, legibly, indelibly, and permanently with the country of origin, plus ensure that the correct country of origin is on the Customs documents. Marking cannot happen until country of origin is determined.

Country of Origin Challenge

Sounds easy enough, right? Not so fast. Determining the country of origin can be quite a complicated undertaking because of today’s complex, globalized supply chains and growing trade business among many countries of the world. However, it is something that all parties involved in importing merchandise into the United States must do.

First and foremost, it cannot be overemphasized enough: country of origin does not always equal country of exportation.

According to CBP, the country of origin is determined by “the country of manufacture, production, or growth of any article of foreign origin.” Considering that a particular article can have raw materials and parts sourced from multiple countries, and then subsequently undergo manufacturing and processing in others, it’s easy to see how

Made In China Fan difficult it can be to make the final determination of that article’s country of origin. But it must be determined—and determined accurately. Unmarked or inaccurate markings can turn into profit-killing border delays or detainments, lost sales, third-party warehouse service fees, fines or penalties, and even outright entry denials.

Substantial Transformation Test

Applying the substantial transformation test is the principle legal way to determine country of origin. Unfortunately, this is not a foolproof test that can be applied across the board for all products that originate in multiple countries. This test must be applied on a case-by-case basis.

According to the CBP, “an article that consists in whole or in part of materials from more than one country is a product of the country in which it has been substantially transformed into a new and different article of commerce with a name, character, and use distinct from that of the article or articles from which it was so transformed.”

Let’s look at an example for a popular consumer item – jeans. Approximately 450 million jeans are sold in the U.S. each year. Did you ever stop to think about the journey they take? By the time jeans enter the U.S., they could have feasibly traveled up to 40,000 miles. Here are a few steps along the way:

  • Cotton is grown in and sourced from India, Pakistan, Korea, Hungary or Northern Ireland
  • Pumice stone (stonewash) is sourced from Turkey
  • Cotton is dyed in Spain
  • Brass rivets are sourced from Germany
  • Zippers are sourced from Japan
  • Jeans are manufactured in Tunisia

As you can see, jeans have parts sourced in certain countries, components from others, and processing in additional countries. However, the country of origin is Tunisia because this is where the substantial transformation took place, resulting in the end product – jeans.

Free Trade Agreements

COO Flowchart

Understanding the country of origin also helps you to determine if your merchandise qualifies for preferential treatment under one of the several Free Trade Agreements and associated specific rule of origin.

What Can Be Done Prior to Import

It is highly recommended that importers of merchandise—that does not originate wholly from one single country—into the United States seek guidance and consultation from a licensed Customs broker, an attorney, or accountant to help navigate the plethora of regulations and applicable laws, and to ensure compliance.

Importers can also consult CBP’s U.S. Rules of Origin compliance publication.

Need help ensuring your products are compliant? Contact one of our many expert trade advisors.

By Yvonne Scott-Younis

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A Chance for Product Exclusions from Section 301 Tariffs

Product exclusions 580

Good news for importers. Companies are being given the chance to obtain product exclusions from list 1 of Section 301, according to the announcement made on July 6, by the U.S. Trade Representative’s (USTR) office.

For each request, the USTR may consider the following

  • Whether a product is available from a source outside of China.
  • If the additional duties would cause severe economic harm to the requestor or other U.S. interests.
  • If the particular product is strategically important or related to Chinese industrial programs including “Made in China 2025”.

The public will have until October 9 to file a request for a product exclusion. Once a request is filed and posted on regulations.gov, public responses will be collected for 14 days, with an additional seven days for rebuttals.

Exclusions will be effective for one year upon the publication of the exclusion determination in the Federal Register and will apply retroactively to July 6, 2018.

Since exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. The U.S. Customs and Border Protection will apply the tariff exclusions based on the product.

By Danielle Leonard

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USTR Announces Proposed List of Additional Section 301 Tariffs

Additonal 301 tariffs july mgta

On Tuesday, July 10, the Trump administration announced a list of additional 10 percent tariffs on $200 billion in Chinese goods.

This new list contains 6,031 tariff lines and is, “a result of China’s retaliation and failure to change its practices,” according to U.S. Trade Representative Robert Lighthizer.

These tariffs will not go into effect immediately, as they must undergo a two-month review process, with public hearings that will take place August 20-23.

If you have questions about these tariffs and how they may affect your business, reach out to your Mohawk customer service representative.

For an excel version of the tariff list please reach out to your Mohawk customer service representative.

By Danielle Leonard

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Official Section 301 Tariff List Announced

Caution road sign with Tariffs Just Ahead written on it.

In April, the Trump Administration proposed tariffs on 1,333 items under Section 301 and stated that the official list would be announced June 15, 2018.

That official list of products has been announced and separated into two sets. The first set contains 818 items of the originally proposed 1,333 items. These products will be subject to a 25 percent tariff, beginning July 6, 2018.

The second set contains 284 items that are still undergoing further review, including a public hearing. Once this process is completed, the USTR will issue a final list of products from this list that will be subject to additional duties.

If you have questions about these tariffs and how they may affect your business, reach out to your Mohawk customer service representative.

By Danielle Leonard

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Get Duty Drawback on Section 301 Duties

duty drawback and section 301

In a message  from Customs, it has been officially announced that Section 301 duties are eligible for duty drawback. This is great news for importers.

Section 301 Background

In April, the Trump Administration proposed tariffs on 1,333 items under Section 301 and stated that the official list would be announced June 15, 2018.

That official list of products has been announced and separated into two sets. The first set contains 818 items of the originally proposed 1,333 items. These products will be subject to a 25 percent tariff, beginning July 6, 2018.

The second set contains 284 items that will be subject to additional duties, effective July 6.

Duty Drawback

How it works

  • Merchandise is imported into the U.S.
  • Duties are paid on the merchandise.
  • Merchandise is resold and exported to a foreign buyer.
  • U.S. Customs refunds 99% of the duties previously paid.

We offer a wide variety of drawback services including:

  • Free Drawback Eligibility Assessment.
  • Drawback Application Setup and Submission.
  • Filing of Drawback Claims and Claims Management.
  • Expedited Drawback Refunds.

Learn more about our duty drawback program.

If you have questions about how to take advantage of drawback on Section 301 duties, contact Mohawk Global Trade Advisors.

By Danielle Leonard

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How Important is it to Screen Your Suppliers? Ask ZTE.

A smartphone being used as a GPS on a car dashboard.

I recently took an Uber in New York City and noticed that the drivers tend to have their smartphones mounted on their dash to allow them to use city maps. What humored me was seeing that my driver didn’t have the most common iPhone or Samsung Galaxy device, instead he had a Zhongxing Telecommunications Equipment (ZTE) smartphone. I chuckled at the irony and thought, “well that’s the last ZTE phone he’ll ever own,” at least for the next seven years.

ZTE is the fourth-largest smartphone vendor in the U.S. and sells to major mobile carriers such as AT&T, T-Mobile, and Sprint [1]. As the second largest telecommunication provider in China, they are a manufacturer and integrator of networking apparatuses and handheld devices [2]. The most common ZTE models include the Tempo X, Prestige 2, and Majesty Pro.

Not All Press is Good Press

Throughout the last couple of years, ZTE has made U.S. trade compliance news multiple times, but on April 20, 2018 they made headlines in bold font. ZTE had the unfortunate honor of achieving the highest export monetary penalty issued by the Bureau of Industry and Security (BIS) at $1.9 billion. This penalty was originally issued in March 2017 but ZTE was granted monetary deferrals and delays of suspensions, therefore April 20, 2018 was the official activation date.

Along with this hefty financial penalty, ZTE is no longer able to receive products from the United States. The impact of this on ZTE has been so substantial to its bottom line that they have had to halt operations [3].

So how does this apply to the Uber driver with his ZTE smartphone? Now that ZTE is frozen from receiving exports from the U.S.—or on behalf of the U.S.—his friendly retailer can no longer purchase from ZTE.

Why? Multiple exports occur in order to buy handheld devices from ZTE.

Export one: The retailer needs to request making a purchase, likely by email.

Export two: Then they will need to send a purchase order.

Export three: Finally, they must pay for the devices to be shipped from China, or a third party.

In between these transactions, there may have been additional communication by email or phone, which are all exports and are therefore banned.

While the Federal Communications Commission (FCC) grapples with the conflict between consumer interest and regulatory compliance, ZTE device owners have to wonder, will they be able to receive operating system downloads [4]?

Why ZTE Was Issued This Penalty

ZTE received components and equipment from the U.S. that were then transshipped to Iran and North Korea. In some cases, these products were not transformed but were shipped as is, and in other cases, they were put into telecommunications equipment to modernize the capabilities of the respective country—i.e. Iran and North Korea. This was a direct violation of U.S. sanctions.

Export compliance consultants and practitioners everywhere have been screaming, “screen your suppliers,” and now ZTE has given us a tangible example of why it is so crucial to practice export compliance within the supply chain.

The Nature of Their Deceit

It started back around January 2010, when ZTE began bidding on two Iranian projects where they would install cellular and landline network infrastructure. Through 2016 those contracts resulted in the illegal transfer of approximately $32,000,000 of U.S.-origin items, which were installed and used in Iran. During this time, it was also discovered that ZTE made 283 shipments of U.S. products to North Korea, these shipments included routers, microprocessors, servers, etc.

ZTE’s senior management knew they were in the wrong. In the summer of 2012, they required each employee involved with sales to Iran to sign nondisclosure agreements in which the employees agreed to keep all information related to the company’s exports to Iran confidential [5]. This resulted in employees providing false end user details to U.S. exporters and manufacturers.

During the two settlements in 2016 and 2017, ZTE had assured that all employees would be trained on compliance with U.S. export regulations and process updates. They also advised that internal audits would be conducted, and most importantly, top executives directly involved in the sales to North Korean and Iran would be disciplined for their actions, including the possibility of dismissal and at minimum a loss of bonuses. Earlier this year, the Department of Commerce (DOC) followed up with ZTE on the 2016 settlement requirements (internal audits, discipline of senior managers, implementation of compliance processes in line with U.S. regulations), as ZTE was allowed to continue business with the United States—a case of the U.S. attempting to maintain a flow of commerce—with the assumption that they would fulfill these requirements. However, ZTE failed to comply and falsely stated that all requirements were met, which has led to their current situation [6].

The Impact on U.S. Exporters

Not only is the ZTE ruling a hindrance to those who sell to or purchase from ZTE, but it is also impacting legal, legitimate, and profitable business for U.S. suppliers. As a manufacturer, ZTE has been involved in the modernization of telecommunication networks in many countries. For the U.S. exporter, sometimes ZTE is their customer and at other times, they are simply the middle man—the integrator, installer or operator. The ban on exports not only forbids new sales to ZTE, it also halts any pre-existing contracts, if ZTE is listed or known as an intermediary party on those contracts, mainly to entities that are based around Asia Pacific and the Middle East.

U.S. corporations must consider the impact this will have on ongoing services and maintenance requirements of existing telecommunications systems involving ZTE. If ZTE is the operator and has sold maintenance services to end users, ZTE is no longer able to purchase parts from the U.S.—directly or indirectly—or receive technical information to conduct that service or maintenance.

The Moral of the Story

We all understand that diverting goods to Iran or North Korea is against U.S. sanctions, but why was there such a hefty penalty? Well, ZTE had its own Hollywood-style-drama of lies and deceit which included making false statements to U.S. and Chinese attorneys and investigators, falsifying customs documentation, and mixing U.S. product with Chinese origin product in attempt to hide it.

What all of this tells us is just how important it is to ensure your vendors are compliant with U.S. export and import regulations. It also tells us to avoid single-sourcing providers, integrators, installers, etc. to help avoid major impacts to your business, if a situation like this arises.

A Chance for a Third Strike

After the April 20, 2018 penalty activation, ZTE did file documentation with the DOC again, stating they will train and audit their staff and processes, as well as discipline their senior team. The DOC has stated they are willing to see evidence.

Will ZTE have an opportunity for a third strike? With U.S. component—or chip—manufacturers suffering from a significant drop in export sales due to the inability to ship to ZTE, and the realization of possibly losing 75,000 jobs in Beijing China, we can expect ZTE to stay a topic of trade news for months to come. Also, due to the ongoing fear of a trade war with China, the BIS’s decision may be overturned by the Executive Branch.

President Trump has offered his assistance in resolving the issues between ZTE and the U.S. government [7]. How that help will be facilitated is unclear but does assure that ZTE will be a household name throughout 2018, with constant media attention. It is imperative for U.S. importers and exporter to stay current on trade news to assure compliance, as well as understand how these issues may impact their organization and bottom line.

MGTA’s import and export audit services can help you to uncover gaps in your compliance procedures. Contact Mohawk Global Trade Advisors to discuss how we can help you develop or improve your current import and export compliance programs.


Footnotes:

[1] “Company Overview,” ZTE USA. Retrieved on May 17, 2018 from <https://www.zteusa.com/about-us/>.

[2] Meyer, David, “One of the World’s Biggest Phone Firms Is Stopping Operations Because of a Ban on Buying U.S. Parts,” Fortune, May 10, 2018. Retrieved on May 17, 2018 from <http://fortune.com/2018/05/10/zte-components-china-technology-denial-order/>.

[3] Jiang, Sijia, “China’s ZTE Says Main Business Operations Cease Due to U.S. Ban,” Reuters, May 9, 2018. Retrieved on May 17, 2018 from <https://www.reuters.com/article/us-zte-ban/chinas-zte-says-main-business-operations-cease-due-to-u-s-ban-idUSKBN1IA1XF>.

[4] Dave, Paresh, & Shepardson, David, “China’s ZTE May Lose Android License as U.S. Market Woes Build,” Reuters, April 17, 2018. Retrieved on May 17, 2018 from <https://www.reuters.com/article/us-usa-fcc-china/chinas-zte-may-lose-android-license-as-u-s-market-woes-build-idUSKBN1HO2BD>.

[5] “ZTE Corporation Agrees to Plead Guilty and Pay over $430.4 Million for Violating U.S. Sanctions by Sending U.S.-Origin Items to Iran,” The United States Department of Justice, March 7, 2017. Retrieved on May 17, 2018 from <https://www.justice.gov/opa/pr/zte-corporation-agrees-plead-guilty-and-pay-over-4304-million-violating-us-sanctions-sending>.

[6] “Secretary Ross Announces Activation of ZTE Denial Order in Response to Repeated False Statements to the U.S. Government,” Department of Commerce, April 16, 2018. Retrieved on May 17, 2018 from <https://www.commerce.gov/news/press-releases/2018/04/secretary-ross-announces-activation-zte-denial-order-response-repeated>.

[7] Trump, Donald J., Twitter, May 13, 2018. Retrieved on May 17, 2018 from <https://twitter.com/realDonaldTrump/status/995680316458262533>.


By Kristen Morneau, Senior Advisor

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©2018 Mohawk Global Trade Advisors

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Updates from the Recent Steel and Aluminum Proclamations

Steelandaluminumtariffupdate

President Trump has issued two proclamations, on April 30, that extend temporary exemptions from the Section 232 duty on steel and aluminum products, along with other adjustments.

These are some of the main takeaways.

  • President Trump has extended temporary exemptions for Argentina, Australia, Brazil, Canada, Mexico, and the member countries of the EU.
  • The proclamation on steel also sets a quota, which restricts the quantity of steel articles imported into the United States from South Korea.
  • No drawback will be allowed for steel and aluminum section 232 duties.

If you have any questions about how these proclamations may impact your business, contact Mohawk Global Trade Advisors.

By Danielle Leonard

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Importer Security Filing Importer Definition Expanded

Importer Security Filing importer definition expanded

Customs and Border Protection (CBP) has issued a final rule, effective May 14, that will expand the definition of an Importer Security Filing (ISF) importer—the party responsible for filing an ISF for certain types of shipments. The changes will add parties that have a commercial interest in the cargo and the best access to the required information.

Before the Rule

Currently, the regulation designates a ISF Importer even if that party has no commercial interest in the shipment and limited access to the ISF data. In some cases, the party responsible may not even be involved in the importation when the ISF must be filed. Therefore, it is unclear as to which party has the responsibility for filing the ISF. It is also raises confidentiality concerns because there are times when the private party, that has the data, gives it to the ISF importer who then sends it to CBP, causing the information to be passed through many hands.

After the Rule

The new definition will expand the definition of ISF importer for foreign cargo remaining on board (FROB) cargo, by adding non-vessel operating common carrier (NVOCC) instead of just the vessel operating common carrier (VOCC), depending on which of these is the party causing the goods to arrive. The rule will also add to the definition of ISF importer for Immediate Exportation (IE) and Transportation and Exportation (T&E) shipments by including the goods’ owner, purchaser, consignee, or agent such as a licensed Customs broker, as well as for goods delivered to an Foreign Trade Zone (FTZ). This will ensure that the responsible party will most likely have direct knowledge of the ISF data.

By expanding the definition this rule will simplify the transmission of ISF information to CBP, eliminate confusion regarding the responsible party, and significantly reduce confidentiality concerns. If you have questions about this final rule or are interested in building an Import Compliance Program contact Mohawk Global Trade Advisors.

By Danielle Leonard

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Highlights from Trade Fest 2018

A collage of images from Trade Fest 2018

Mohawk Global Trade Advisors (MGTA) had a great turn out at this year’s Trade Fest in Syracuse, NY. We’d like to sincerely thank all of the attendees, speakers, and sponsors for making the event a success.

The day was filled with insightful seminars discussing various topics such as, economic trends, critical issues and what’s ahead, import and export compliance in your supply chain, and more.

This event was live tweeted by Mohawk’s marketing team; here’s a small sample.

 

   
 


 

   
 


 

   
 


 


 

 
A special thank you to our sponsors Mohawk Global Logistics, High Tech Rochester, Philips Lytle LLP, Avalon Risk Management, The Bank of America, Roanoke Insurance Group, Duble & O’Hearn Insurance, and Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP. We wouldn’t have been able to do this without you.

Trade Fest recap 2018-our sponsors

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Forced Labor and Chocolate: Do You Know Your Suppliers?

Hands holding a pile of roasted cocoa beans

On February 26, class action lawsuits were filed against Hershey and Mars in Massachusetts for failing to disclose that the cocoa in their chocolate was the product of child or forced labor. According to Hagens Berman, these two companies regularly import cocoa beans from suppliers in the Ivory Coast who are known to use the worst forms of child labor, including dangerous child labor and the slave labor of trafficked children. How well do you know the labor that your suppliers use?

Establishing Reasonable Care

Class action lawsuits are just one of consequences importers can face if they underestimate the importance of Reasonable Care. In September of 2017, U.S. Customs and Border Protection (CBP) updated their Informed Compliance Publication on Reasonable Care to include a forced labor section in an effort to create further awareness. Ultimately, it is up to the importer to practice due diligence and know what’s going on in their supply chain.

To assist, CBP has a Forced Labor Enforcement fact sheet aimed to inform and therefore fight the risks of forced labor within companies’ operations and global supply chains. This Responsible Sourcing Tool, can also help supply chain owners visualize each country’s risk of child labor and forced labor.

Have you taken measures under Reasonable Care to ensure your imported goods are not produced wholly or in part with forced or child labor? Here are some questions that importers should ask themselves to prevent the use of forced labor in their supply chain.

  1. Have you established reliable procedures to ensure you are not importing goods in violation of 19 U.S.C. § 1307 and 19 C.F.R. §§ 12.42-12.44?
  2. Do you know how your goods are made, from raw materials to finished goods, by whom, where, and under what labor conditions?
  3. Have you reviewed CBP’s Forced Labor webpage, which includes a list of active withhold release orders and findings, as well as forced labor fact sheets?
  4. Have you established a reliable procedure of conducting periodic internal audits to check for forced labor in your supply chain?
  5. Have you established a reliable procedure of having a third-party auditor familiar with evaluating forced labor risks conduct periodic, unannounced audits of your supply chain for forced labor?
  6. Do you vet new suppliers for forced labor risks through questionnaires or some other means?
  7. Do your contracts with suppliers include terms that prohibit the use of forced labor, a time frame by which to take corrective action if forced labor is identified, and the consequences if corrective action is not taken, such as the termination of the contractual relationship?
  8. Have you developed a reliable program or procedure to maintain and produce any required customs entry documentation and supporting information?

To counteract items of child and forced labor from entering into your sales channel and global supply chains, you should have a documented comprehensive and transparent social compliance system in place. If you need guidance on starting or enhancing a social compliance system for your company, contact Mohawk Global Trade Advisors.

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HTS Codes Affected by New Steel and Aluminum Tariffs

Steel 580

Yesterday—March 8, 2018—President Trump signed a tariff proclamation that placed a 25% tariff on steel imports and a 10% tariff on aluminum imports from all countries except Canada and Mexico.

HTS Codes Affected

Steel Articles

  • 7206.10 through 7216.50
  • 7216.99 through 7301.10
  • 7302.10
  • 7302.40 through 7302.90
  • 7304.10 through 7306.90

Aluminum Articles

  • 7601—unwrought aluminum
  • 7604—aluminum bars, rods, and profiles
  • 7605—aluminum wire
  • 7606 and 7607—aluminum plate, sheet, strip, and foil (flat rolled products)
  • 7608 and 7609—aluminum tubes and pipes and tube and pipe fitting
  • 7616.99.51.60 and 7616.99.51.70—aluminum castings and forgings

Presidential Proclamation—Steel

Presidential Proclamation—Aluminum

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No Need for Green Form for United States-Israel Exports

Shaded green, a man writes on paper.

If you export goods that qualify under the U.S.-Israel Free Trade Agreement (ILFTA), you’ll be glad to know that the hard copy certificate of origin—also known as the Green Form or Form A—has been replaced with a simple declaration, effective January 10, 2018. U.S. exporters can now prepare the declaration on either their invoice, delivery note, or on their letterhead.

We recommend that you thoroughly review the rules of origin to ensure that your goods qualify, prior to completing and signing the country of origin declaration.

Be aware that the Israeli Customs Authorities may ask you to complete a Verification Declaration to support your claim and you must retain proof of your ILFTA qualification for five years. Export.gov recommends that you keep, at least, the following information:

  • A description of the article, quantity, numbers and marks of packages, invoice numbers, and bills of lading.
  • A description of the operations performed during the production of the article in the U.S. and identification of the direct costs of processing operations.
  • A description of any material used in production of the article, which are wholly grown, produced, or manufactured in the U.S., and a statement of the cost or value of these materials.
  • A description of the operations performed on and a statement as to the origin and cost or value of any foreign (non-U.S.) materials used in the article, which are claimed to have been sufficiently processed in the U.S. making them materials produced in the U.S.
  • A description of the origin and cost or value of any foreign (non-U.S.) materials used in the article, which have not been substantially transformed in the U.S.

Below is a sample declaration that you may include on your commercial invoice or have as a separate declaration on your letterhead.

U.S. Israel Origin Invoice Declaration

I, the undersigned, hereby declare that unless otherwise indicated, the goods covered by this document fully comply with the rules of origin and the other provisions of the Agreement on the Establishment of a Free Trade Area between the Government of Israel and the Government of the United States of America.

Check one that applies:

___ The Exporter
(whether the exporter is the producer or not)

___ The Producer
(is not the exporter)

Tax Identification:

Name:

Title:

Email:

Signature:

By Jim Trubits, Vice President

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Why Do My Goods Need to be Marked with the Country of Origin?

Clean paint brushes labeled as made in Germany.

Receiving a marking notice from Customs and Border Protection (CBP) could cost your company a lot of money. It might result in additional expenses in trucking fees and third-party warehouse service fees to unload your cargo. Not to mention, the added cost to correct the unmarked, or inaccurately marked, merchandise. In addition, you would not be able to sell your goods until they were properly marked, which would cause delays or lost sales. Eventually, if you unmark or inaccurately mark future orders, CBP may step up exams, issue penalties, or assess a 10% marking duty on your products.

Why do my goods need to be marked?

Under Reasonable Care, CBP requires the importer to establish reliable procedures to verify that their merchandise is properly marked with the correct country of origin—upon entry—and that it matches CBP’s documents.

When do my marking obligations start?

Your responsibility begins prior to importing, as the goods must be correctly marked when they are imported into the United Sates. Therefore, it is important to give your vendors clear guidance on how to mark and label your goods, in order to meet the country of origin marking requirements.

What options do I have, if CBP discovers my goods are not marked?

You have three options.

  • Re-export the goods.
  • Destroy them.
  • Mark the goods properly using one of the CBP’s acceptable methods.

Any unmarked goods released into the commerce of the U.S. may be subjected to marking duties and penalties by CBP.

What steps should I take under Reasonable Care to prevent marking issues?

  • Work with your marketing group when they are developing new products and packaging, in addition to making changes to existing packaging.
  • Notify your vendors, in writing, of the country of origin marking requirements for the product, packaging, and Customs documentation.
  • Establish procedures to verify the correct country of origin is on the entry and Customs documents. Also, confirm the goods are properly marked when they are received at the warehouse.
  • If any errors are discovered, take immediate steps to document and correct them.

By Jim Trubits, Vice President

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Increased Civil Penalties for Export Violations

A judges gavel hits a pile of money

The Department of Commerce and Department of State have increased the civil monetary penalties for export violations to account for inflation, effective January 15. It is important to recognize that these new amounts are retroactive and can be charged against each violation, regardless of when the violation occurred.

Here is a summary of the penalty increases:

  • The maximum amount for an EAR civil violation is now $295,141 or two times the value of the transaction (50 U.S.C. 1705(b)).
  • Penalties for late AES filings are now $1,360 per day; with the maximum per violation increasing to $13,605. All other AES violations are now $13,605 (13 U.S.C. 304 & 13 U.S.C. 305(b)).
  • The penalty for Directorate of Defense Trade Controls (DDTC) civil penalties has increased to $1,134,602 per violation (22 U.S.C. 2778 (e)).

The adjusted penalty amounts serve as a reminder to keep your export compliance program and training up to date. Make sure you monitor your export transactions and processes, and if you do discover an export violation, consider making a voluntary disclosure.

Contact us and ask how to we can help you build a custom export compliance program.

By Danielle Leonard

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9 Most Common Medical Device Entry Screening Errors

Medical devices hung on a wall in a doctors office.

While importers of medical devices may not see the benefit of each entry line being scored through the U.S. Food and Drug Administration’s (FDA) Predictive Risk-based Evaluation for Dynamic Import Compliance Targeting (PREDICT) system, this process has the potential to help speed up entry screening of their medical devices.

What is PREDICT?

PREDICT—the FDA’s electronic screening tool for import operations—is designed to assist entry reviewers in targeting higher-risk shipments for examination. It works behind the scenes to screen all lines of imported product electronically submitted to the FDA through the U.S. Customs Automated Commercial Environment (ACE) via the Automated Broker Interface (ABI) and then assigns a score to each line. A high score means a higher risk and a low score means a low risk. If your PREDICT score is lower, the product has the potential to clear faster.

Keep Your PREDICT Score Low

Importers should ensure they provide accurate and complete data, whether they file their own entries or have a Customs Broker file for them. If there is inaccurate or missing data, such as failing to provide a device listing number or entering inaccurate product codes, your PREDICT score goes up and is flagged as high-risk. This could result in delays for present and future shipments.

How to Avoid Common Errors

The FDA has provided a list of the most common errors for medical devices in fiscal year 2017. This should help importers and entry filers identify the types of criteria they might be missing or providing incorrectly.

When in doubt, importers should use reasonable care when providing entry data. Ensuring you supply the most accurate information will help keep your PREDICT score down and result in a low-risk rating, thus expedite the screening process.

Below are the FDA’s most common entry errors for medical devices.

Most Common Entry Errors for Medical Devices in 2017

LST not transmitted
No listing number (LST) was transmitted for the entry. Verify that a listing number is required and provide one as applicable. There is no public website to search listing numbers because they are proprietary. Contact the listing entity to retrieve the number.

Could not find LST number
The listing number transmitted could not be found in FDA’s database. Verify that the listing number provided is accurate and in the correct format.

Rgstrn not trnsmttd (DEV/DFE)
No registration number was transmitted for the foreign manufacturer (DEV) or foreign device exporter (DFE). Verify that a DEV, DDM or DFE is required and provide one as applicable.

Mnfctr has Country code = US
The listing number transmitted indicated that the manufacturer was a U.S. firm, but the manufacturer provided on the line is a foreign firm. Verify the correct LST was provided.

Product Code does not match
The product code transmitted for the entry did not match the product code on file for the listing number transmitted. Verify that the correct LST was provided and/or that the product code matches the LST.

Submission # does not match
The Pre-market notification or Premarket approval (PM#) transmitted for the entry did not match one of the numbers on file for the listing number transmitted. Verify that the PM# provided matches the product being introduced for import.

Firm name does not match
The firm name provided in the entry did not match the firm name on file for the listing number transmitted. Verify that the firm listed on the entry matches the firm used for the LST.

Registration does not match
The registration number provided in the entry did not match the registration number on file for the transmitted listing number. Verify the DEV provided matches the LST provided.

UNK is declared as IUC and the AofC REG supplied instead of DEV
When the Intended Use Code (IUC) is declared as unknown (UNK), inappropriate Affirmation of Compliance (AofC) qualifiers can be transmitted causing a lookup failure. Example: AofC provided was for Drug Registration (REG) not Device Manufacturer Registration (DEV) or Device Foreign Exporter Registration (DFE) as required for a device entry. Make sure when submitting a foreign device registration number that either DEV (manufacturer) or DFE (exporter) is used. 

We understand the complexity of creating and maintaining a seamless compliance process. Contact Mohawk Global Trade Advisors to talk about how we can help you build a better Import Compliance Program.

FDA’s Medical Device Common Entry Errors.

PREDICT Fact Sheet.

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