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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.


[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


Commercial Invoice Checklist: Avoid Miscommunicated Requirements

Customs officer with commercial invoice faded in the background

At last count, your company is sourcing from 35 foreign suppliers, located on five of the seven continents, and the number is growing quickly. With the amount of suppliers increasing, it’s a good idea to create a foreign supplier database that can be used by a number of departments. To gather information for this task, you head to the accounts payable department to pick up some invoices.

What you find stops you in your tracks. The commercial invoices do not have consistent formats. Some invoices indicate Incoterms, whereas others do not. There are even invoices that are completely in Spanish, handwritten, or incomplete.

How can these inconsistencies be corrected to ensure more uniformity? Fortunately, there is a solution—send your suppliers detailed instructions of what is mandatory on the commercial invoice [1]. This may sound simple, but getting the supplier to adhere to the requirements could prove challenging.

Communicating Requirements

Liquidated damages—monetary penalties—can be assessed against an importer for failing to provide a commercial invoice [2]. This can happen if Customs is at your facility performing a formal audit or if they request a hard copy of the commercial invoice for any entry, at any time. A shipment cannot be cleared by Customs without an invoice. Therefore, it is imperative to have a proper commercial invoice to avoid penalties and delays in clearance.

The requirement for an accurate commercial invoice should be incorporated into your import compliance manual and processes. Your procedure ought to include a way to communicate the requirements to the supplier, a process for monitoring the supplier’s paperwork, and a protocol to follow for when the requirements are not met.

While obtaining an invoice for every imported shipment may seem an obvious requirement [3], suppliers often create their own version of the document. This could be in the form of a packing list to which pricing information has been added, a pro-forma invoice [4], or their own invoice template. They may tell you they have “always done it this way;” however, none of the above supplier-created documents are acceptable replacements for a commercial invoice. This is why it is crucial to make the requirements clear to your supplier, which can be communicated in the purchase order, shipping instructions, or sales contract.


While there are few cases where a commercial invoice is not required, at minimum a U.S. importer must still present some sort of confirmation of the value of a shipment. There are also circumstances where invoice requirements may be waived by U.S. Customs, but the process to obtain a waiver is cumbersome and can cause clearance delays.

As a compliance best practice, it is recommended that you require suppliers to provide a commercial invoice for all U.S. import shipments, regardless of exceptions. Advising your suppliers that it might assist in expediting the payment process, could motivate them to comply with this request.

The Importance of Correct Value

The most important requirement to be aware of is reporting the correct value of a shipment at time of entry. It is the importer’s legal responsibility to declare the correct value, classification, and rate of duty [5]. An accurate commercial invoice will help to ensure the correct value is reported to U.S. Customs.

One way to ensure this is to compare the entered value shown on the U.S. Customs entry, against the amount your company paid to the supplier for that specific shipment. Any mistake, damage, overage, shortage, etc. that creates a discrepancy between the amount paid to the supplier—no matter when it’s paid and when it’s discovered—and the amount reported to U.S. Customs, requires that the entry be amended to show the actual value imported. If the two values do not match, corrective action—which may include advising U.S. Customs of the error—is required. Your company may want to contact a Customs attorney to discuss the best approach to this.

You may be wondering why this matters in today’s electronic environment, where hard copy documents are rarely, if ever, presented to U.S. Customs at time of entry. Even with electronic documents, discrepancies between the declared value and the payment amount often remain out of sight, until U.S. Customs arrives for an audit. Should that happen, it will do no good to explain why a system of checks and balances is not in place and why no corrective action has been taken.

The regulations are unmistakable; unless your situation qualifies for an exemption or you wish to pursue a waiver from U.S. Customs, a commercial invoice must be provided in order to be cleared by U.S. Customs. However, an inaccurate or incomplete commercial invoice is one of the most common errors found during a U.S. Customs audit. In order to avoid penalties and fines, importers need to ensure that their commercial invoices, or pro-forma invoices—in certain cases—meet all U.S. Customs requirements. By issuing instructions to suppliers, importers can help ensure the commercial invoice is accurate.

Click here to download our invoice checklist.

We can help you develop or improve your import compliance programs. For guidance on incorporating procedures about commercial invoices into your current compliance program, contact Mohawk Global Trade Advisors at 1-800-996-6429.


[1] See 19 CFR §141.81-141.90 (2017) for commercial invoice requirements.

[2] See 19 CFR § 171 App. B (D)(6) (2017)

[3] Per 19 CFR §141.81 (2017), “A commercial invoice shall be presented for each shipment of merchandise at the time the entry summary is filed.”

[4] A pro-forma invoice is acceptable only in certain circumstances as detailed in 19 CFR § 141.83(d) (2017). Many suppliers mistakenly provide a pro-forma invoice in place of a commercial invoice. Click here to see an example of a pro-forma invoice.

[5] See 19 USC § 1484(a) (2017)

By Adrienne Graddy

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©2016 Mohawk Global Trade Advisors


Antidumping and Countervailing Duties Coming Back to Haunt You?

American bill faces over cargo ship


After a relatively quiet week, your CFO calls you into his office to discuss a $280,000 bill received from U.S. Customs for antidumping duty on entries made seven years ago. You were not with the company at that time, you don’t have the money, and all of the profit made on this particular imported product has not only evaporated, but is now the largest loss on any product sold by your company in its history. Most of your imported products are either duty free or at a very low duty rate. How could this have happened?

When required, the imposition of antidumping (AD) or countervailing (CV) duties on U.S. imports levels the playing field by protecting U.S. industries against unfair trade practices. AD/CV duties exist in many countries and include U.S. products exported to other countries. According to the Anti-Dumping Act of 1974, when a foreign manufacturer sells a product in the U.S. for less than the price in their own market or at a price lower than the cost of production, an AD duty is imposed. When a foreign manufacturer receives a government subsidy lowering their local production cost, a CV duty is imposed to eliminate the unfair pricing advantage that the foreign manufacturers have due to the subsidy. In FY 2015 alone, “approximately $10.1 billion of imported goods were subject to an AD/CVD order” [1]. Imported products can be subject to either antidumping or countervailing duty, or both in some cases.

AD/CV duty rates can vary significantly and are specific to the manufacturer and country. The following are examples of this variance.

  • Green widgets manufactured in China by Sapphire Manufacturing Inc. may be subject to an AD margin of 65%.
  • Green widgets manufactured in China by Emerald Manufacturing Inc. may be subject to an AD margin of 98%.
  • Green widgets manufactured in China by all other manufacturers (except Sapphire and Emerald) may be subject to an AD margin of 125%.
  • Green widgets manufactured in Korea by Sapphire Manufacturing Inc. may not be subject to any AD/CV margin.
  • Green widgets manufactured in Korea by Emerald Manufacturing Inc. may be subject to a CV margin of 13.6%.
  • All Green widgets manufactured in Brazil may be subject to an AD margin of 3.2% regardless of manufacturer.
  • Green widgets manufactured in Germany by Ruby Manufacturing Inc. may be subject an AD margin of 13% and a CV margin of 2.1%.

Petitioning Injury

U.S. manufacturers may file a petition with the International Trade Commission (ITC) alleging that imported goods cause injury to their industry, including reduction in demand for the U.S. product, job losses for U.S. workers, and closure of production facilities. Once the petition is filed, a lengthy and complicated review takes place to allow the ITC to determine whether the U.S. industry is suffering. The investigation includes volumes of written documentation from foreign and U.S. manufacturers, U.S. importers, and considers (among other elements) pertinent economic factors such as, U.S. industry’s output, sales, market share, employment, and profits. Generally, the investigations are completed within 12-18 months of presentation of the petition.

If the ITC makes an affirmative preliminary determination of dumping and injury, then a preliminary AD/CV margin is assessed and paid at time of entry. You could be looking at AD/CV margins as high as 500%. These margins are calculated based on the value of the imported product and is in addition to the usual duties, fees, and taxes due. When the investigation is complete, the final AD/CV margin is determined. Because the preliminary margin can be different than the final margin, entries subject to AD/CV are not settled or liquidated by Customs until the final margin has been determined. This brings us back to how the hypothetical scenario from the beginning happened. In that case, the preliminary margin assessed was lower than the final margin, resulting in that $280,000 bill your CFO received from Customs.

The Difference Between Margins and Rates

Margins are assessed, they become rates, and then duty is paid on those rates. These two things happen at two different times in the process. The International Trade Commission conducts investigations to determine the margin to be assessed, advises Customs of the margin, and then it becomes a rate to be paid. The difference between these two words indicates where the process is at the time.

With that being said, even after you have paid the duty based on the preliminary margin at time of entry, you are still not out of the woods. It could be several years down the road before the final margin is determined. At that point, you could be subject to paying much more than you had originally anticipated. There are instances where the final margin is lower than the preliminary margin, meaning you will be refunded the difference by Customs, but those are a rarer occurrence. It is important to be aware that just because you feel that you can afford to pay the AD/CV duties initially, years down the road you may not be able to afford the final margin.

How to Prepare Yourself

It can be difficult to determine whether your specific imported product is covered by an AD/CV order. A comprehensive review and understanding of the scope of the AD/CV order will delineate differences or conditions that will allow you to determine whether your imported product falls inside (meaning you will pay AD) or outside the scope, (meaning you will not pay). Some conditions stipulated within the scope may not be easily discernable. A hypothetical example would be,

flange bearings are classified under 8482.10.5016; some flange bearings are manufactured with two holes and some are manufactured with four holes. It is possible that a flange bearing with two holes is subject to AD and a flange bearing with four holes is not subject to AD.

An importer cannot rely solely on the 10-digit HTS classification to make this determination. It is crucial to understand your product’s scope in order to prepare yourself for the AD/CV duties.

U.S. Customs continues to dedicate significant national resources to target the circumvention of AD/CV and has done so for many years. This includes reviewing and auditing, in high risk circumstances, and testing of imported products. This exceptional focus has led to an increase in identification and disruption of supply chain operations that attempt to circumvent AD/CV, resulting in over $51 million in importer penalties (fraud, gross negligence, and negligence), and seizures valued at over $5.1 million in FY 2015 [2].

It is imperative that you are knowledgeable about your product and to prepare yourself if it is covered by an AD/CV order. Here are some questions to consider:

  • As the U.S. is the only country where AD/CV is handled on a retrospective basis (all other countries handle their AD/CV on a prospective basis), how do you manage profitability and margins on products after you imported and sold and the final margin is higher (or lower)?
  • Do you question whether your product falls within the scope of the order, or you really believe your product does not fall within the scope of the order, what are your options?
  • How long does your organization retain records on your AD/CV shipments?
  • What is your process for raw materials subject to an AD/CV order that are integrated into your finished product?
  • What type of vetting and review process do you have for your current and future products?
  • How do you determine if any new AD/CV cases are applicable to your products?
  • What is your company policy on AD/CV?

Do you want help with your antidumping duty processes? Ask us about our Import Compliance Programs.


[1] “Antidumping and Countervailing Duties Brochure,” CBP Publication Number 115-0417; U.S. Customs and Border Protection. Retrieved on 07/14/16.

[2] Ibid.

By Adrienne Graddy

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©2016 Mohawk Global Trade Advisors


Changes Allow for Duty Free Return of Foreign Goods

Faded containers and professional man writing

For years, U.S. buyers have found it difficult to return imported articles when products come in damaged or erroneously shipped. In the case of a return, importers have been required to pay additional duties and Merchandise Processing Fees (MPF) upon re-importation.

With that being said, there is good news for importers. Recent changes to U.S. tariff number 9801.00.10 allow for duty free return of foreign goods, according to the Trade Facilitation and Trade Enforcement Act of 2015 [1].

Conditions to Qualify

It is important to meet the following conditions to avoid paying duties a second time.

  • Goods must be returned within 3 years of initial export.
  • Duty drawback was not claimed on the original export.
  • The goods were not entered under bond or produced in a Foreign Trade Zone (FTZ).
  • The article was not advanced in value or improved in condition while abroad [2].
  • The U.S. importer has proper documentation to support the claim.

Support Documentation

U.S. Customs is in the process of defining the required documents more clearly for 9801.00.10. In the meantime, it is vital for importers to have these documents on hand at time of entry to support their claim. These documents include

  • A Foreign Shipper’s Declaration and U.S. Importer’s Declaration
  • Some form of proof to demonstrate that the goods have been returned within 3 years, such as

- Export invoices
- Export bill of ladings
- Electronic Export Information filings (EEI)

On the bright side, these documents are already required records for exporters, making the process easier.

By meeting these conditions and having the supporting documents, the change to this tariff provision will save importers significant duties and MPF for their returning goods.

For assistance with developing processes and procedures for returning goods, contact Mohawk Global Trade Advisors.


[1] “Products of the United States when returned after having been exported, or any other products when returned within 3 years after having been exported, without having been advanced in value or improved in condition by any process of manufacture or other means while abroad.” Harmonized Tariff Schedule of the United States (2016).

[2] The article was not altered in any way that might have made it into a new product or might have improved it while overseas.

By Jim Trubits, Vice President.

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©2016 Mohawk Global Trade Advisors


Manufacturing with Dies and Molds: What’s the Real Cost?

When outsourcing production overseas, U.S. companies will often rely on a foreign vendor to fabricate custom dies and molds to use as part of the manufacturing process. Typically, the vendor will invoice the U.S. buyer separately for the work. Sometimes it’s provided to the buyer at a reduced rate or free of charge. Although this type of billing arrangement may seem beneficial on the surface, especially in terms of convenience, many U.S. importers would be surprised to learn that it’s leading them to undervalue their incoming goods and exposing their company to steep penalties from U.S. Customs & Border Protection.

Plastic parts or components made from molds

Did You Know? By law, duties must be paid on imported goods. They must also be paid on any “assist” that aided in the production of the merchandise [1].

An “assist” is an article or design that meets all of the following criteria.

  • It’s provided by the buyer directly (purchased and shipped to the foreign manufacturer) or indirectly (built to order by the foreign manufacturer).
  • It’s supplied free of charge or at a reduced cost.
  • It’s used in the production of merchandise for export to the United States.

Types of Assists

Assists can take on many different forms, such as

  • tools, dies, molds, and similar items used in producing the imported merchandise
  • materials, components, parts, and similar items incorporated in the imported merchandise
  • merchandise consumed in producing the imported merchandise
  • engineering, development, artwork, design work, plans, and sketches undertaken outside the U.S. and necessary for the production of the imported merchandise

U.S. Customs & Border Protection requires the value of an assist (plus any costs to transport it to the place of production) to be reported as part of the merchandise’s import value [2]. This can be done by

  • reporting the value as a lump sum on the first shipment
  • reporting the value over the number of units produced up to the time of the first shipment
  • prorating the value to the unit cost of the merchandise based on anticipated production [3]

In addition, should the tools, dies, molds, or similar assists undergo subsequent refurbishment, modification, or other improvements, the importer must use one of the apportioning methods above to declare these additional costs as part of the transaction value.

Penalties: A Sobering Reality
Failing to declare the value of an assist is a serious matter in the eyes of U.S. Customs and Border Protection. It’s also easy for the agency to spot, given the sophistication of their monitoring tools. Shipments from any American industry that commonly makes use of molds or dies, such as manufacturers that import plastic products and components, would be watched closely by Customs for indications of an undeclared assist. If Customs expects a violation, they may send the importer a Request for Information (CF28) or worse, a notice for an impending audit. Depending on the veracity of the violation, an importer could face penalties from two to four times the amount of duties, taxes, and fees previously lost by the agency or 20-40 percent of the merchandise’s dutiable value if there was no monetary loss to the agency [4].

When declaring assists, the importer must retain all related records (such as invoices, entry documentation, etc.), as long as the assist is in use, to serve as proof of valuation and proper declaration. Failure to produce records for Customs upon request can result in recordkeeping penalties, which could be up to $100,000 for the most egregious of violations [5].

Stay compliant and avoid unnecessary fines!

For assistance with how to properly value your imported goods, contact Mohawk Global Trade Advisors.


[1] Per 19 C.F.R. § 152.103(b)(1)(iii) (2016).

[2] Per 19 C.F.R. § 152.103(d)-(e)(1) (2016).

[3] If the entire anticipated production is not destined for the U.S., the value needs to be apportioned consistent with Generally Accepted Accounting Principles (GAAP). The value declared in the U.S. should be determined based on the anticipated production destined for the U.S.

[4] Per 19 C.F.R. § 162.73(a) (2016).

[5] Per 19 C.F.R. § 163.6(b)(i)-(ii) (2016).

By Cindi Kavanaugh, Senior Advisor.

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©2016 Mohawk Global Trade Advisors


How Do You Prove Transaction Value?

Determining the price actually paid or payable for your Customs entry can be quite tricky. Transaction Value rules, pursuant to 19 USC 1401a(b), place responsibility on the importer to exercise reasonable care and accurately provide Customs and Border Protection (CBP) with the proper declared value.

It’s important to assure that all lawfully mandated payments (additions) and allowable deductions (subtractions) are accounted for in the total entered value on the Entry Summary.

If you are an importer that purchases goods under an INCOTERMS® rule starting with C or D (CIF, CFR, CPT, CIP, DAP, or DDP), you may deduct the freight transportation and other costs (insurance, etc.), provided they are included in the price payable and you have supporting documentation. To help guide importers, CBP has published the Informed Compliance Publication, Proper Deductions of Freight and Other Costs from Customs Value.

Keep in mind that Customs doesn’t consider amounts shown on the commercial invoice as proof of freight transportation paid by the shipper.

What is CBP’s position?
Customs requires transportation and insurance to be deducted as actual—not estimated—costs paid to the international carrier, freight forwarder, insurance company, or other appropriate provider of such services. Again, declaring these amounts without the proper backup may result in CBP disallowing the deductions during an audit or review of the Customs entry.

So what does CBP consider proof?
To prove actual price paid, CBP requires evidence, such as a rated bill of lading, from the service provider showing the actual freight/insurance charges. CBP may allow other types of substantiation as well.

Finally, it’s important for importers to be able to produce the required Customs entry documentation and the supplementary information showing the actual costs to support the entered value. This should be part of every importer’s recordkeeping program.

By Jim Trubits, Vice President, of Mohawk Global Trade Advisors. Jim is a licensed Customs broker. Read more about Jim here.


Stop Importer Identity Theft

We’ve all heard of identity theft, and the first thought that comes to mind is having our personal identity stolen. Yet, there are other kinds of identity theft. Many do not realize that corporate identity theft is an issue on the rise.

In particular, reputable importers, who are well known to the public, are having their identity stolen; and unbeknownst to many importers their names are being used in many instances to import contraband and intellectual property rights (IPR) goods. By the time an importer discovers the ruse, the thieves have long closed up shop and moved on to their next victim.

Victims of importer identity theft are often slapped with various lawsuits from the companies that own the intellectual property rights to the illegitimate goods (designer/brand name shoes, handbags, electronics, and pharmaceuticals, etc.) shipped under the importer’s name. Even if the lawsuits are not successful, the legal fees spent to resolve the litigation can be incredibly expensive. An importer’s time will also be taxed, as they will need to be involved in providing information to help U.S. Customs investigate the incident.

As an importer, you are probably asking yourself how this is possible. How easy can it be to steal your corporate identity? Believe it or not, it’s fairly easy to do. Much of an importer’s information is publicly available, some even for sale, through organizations that sell copies of vessel manifests‒which is perfectly legal. Obtaining a company’s federal ID number is easy enough, since it is often widely shared within an organization and with other companies. Company logos can often be copied from web pages or advertising material, making it easy for an imposter to create a company letter head, purchase order, etc. Disgruntled employees have also been known to share information for a price.

What can importers do to help protect their corporate identity? While you may not be able to stop an imposter from stealing your corporate identity, you can take steps to stop them in their tracks and prevent them from using your identity for multiple shipments.

File a manifest confidentiality request with U.S. Customs.
This procedure prevents vessel manifests containing your shipper information, products, marks and numbers, etc. from being copied and sold to the public.

Apply for an online ACE account and check it weekly.
An ACE account allows you to view:

  • entries filed in your company name
  • your shipments’ ports of entry
  • names of customs brokers who have filed entry on your behalf

If you see an unfamiliar port, entry number, or broker and can’t match this information with any of your entries, immediately contact the Port Director of the port where the unidentifiable entry was filed. The port will launch an investigation to track down the identity thief.

Register your trademark and apply for e-recordation with U.S. Customs.
Once you’ve completed these steps, Customs uses the information you provide on your trademark and branded products to try and stop the flow of illegitimate cargo into the United States. Although this is not a full proof way of preventing counterfeit goods from getting into the country, it decreases the odds of it happening.

Shred, shred, shred.
Anything that has identifying company information (stationery, invoices, packaging material, etc.) should be shredded. Dumpsters can be a major source of information for identity thieves.

Wipe electronics before recycling.
Make sure that you wipe smartphones, tablets, computers, copiers, and any other electronics clean before recycling. Identity thieves can easily retrieve company information from old files on discarded devices that haven’t been wiped.

Set up IT controls to secure your company’s network.
It’s important to implement IT controls such as,

  • requiring passwords to be changed every 90 days
  • securing your server in a locked room or by password
  • installing firewall and anti-virus software
  • having software that tracks user access and assigns accountability for transactions

Implementing these recommendations will put your company on track to protect its identity from the ever growing number of thieves out to make a quick buck on your company’s hard earned reputation.

Mohawk Global Trade Advisors offers on-site training for Protecting Your Corporate Identity. See Import Compliance Training for more information about this and other training sessions that we offer.

By Beverley A. Seif, Vice President & General Manager. Click here to read more about Beverley.

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Don’t Overlook Reasonable Care

One common misconception among U.S. importers is that they don’t have to worry about what’s on their commercial invoice and other import documentation. These importers will often neglect to provide their Customs broker with a truly complete product description or accurate country of origin because they don’t think they have to sweat the details. What they may not realize is that these types of requirements fall under the umbrella of what U.S. Customs & Border Protection (CBP) refers to as “reasonable care.” Importers who do not attend to these crucial requirements risk delays in release of their goods, audits, and penalties.

Defining reasonable care

CBP expects all importers to exercise some form of caution (i.e. reasonable care) when dealing with [1]

  • import documentation
  • country of origin verification, marking, and labeling
  • tariff classification, valuation, and duty rates
  • quantity
  • free trade agreements
  • other government agencies
  • recordkeeping

Although this is by no means an exhaustive list, importers must be careful with all details relating to these areas, as well as have written procedures to document their approach. In other words, as an importer, you should be able to prove to Customs that you provided and obtained the right information to meet these regulatory standards.

Is there a right way to manage my reasonable care?

CBP allows you flexibility in how you manage your reasonable care responsibilities. You can manage them yourself, use an expert (a licensed Customs broker, attorney, or accountant), or a combination of the two.

If you decide to use an expert, it is important to choose wisely. CBP expects you to qualify your expert by asking if their firm is a licensed Customs broker or, in the case of an attorney or accountant, if they have specialized knowledge or expertise in CBP matters. When in doubt, avoid taking advice from unregulated or unlicensed “experts,” as it will not serve in your defense during a CBP audit.

Once you’ve qualified your expert, it is crucial to provide him or her with complete and accurate information about the import transaction. Falling short of this requirement will lead CBP to view your company as lacking reasonable care.

What steps can I take?

Prior to import

  • Familiarize yourself with U.S. import requirements by reading informed compliance publications like, What Every Member of the Trade Community Should Know About: Reasonable Care [2].
  • Determine if there are any other government requirements for your imported products, such as an FDA Prior Notice for food products or additional labeling requirements for wearing apparel.
  • Bookmark the link to the online Harmonized Tariff Schedule for quick classification reference [3].
  • Consult with a licensed or certified expert, such as a Customs broker, attorney, or accountant.
  • Search CROSS, CBP’s online ruling database, to see if Customs has previously ruled on a product similar to yours [4]. Use this ruling as a guide for classifying, valuing, and marking your goods.
  • If after consulting with an expert and reviewing CROSS you are still in doubt of your product’s correct classification, origin, value, etc., seek a binding ruling from CBP. The beauty of a binding ruling is that it provides CBP and the importer with a definitive answer on these aspects of the product.
  • Document your processes for classification, origin verification, valuation, marking, etc. and provide employees with step-by-step instructions to achieve compliance. Keep procedures simple and easy to follow and them with your vendor and Customs broker.
  • Create a tariff database and share it with your broker to cut down on entry errors. Periodically review the database and provide your broker with any updates.
  • Issue purchase order instructions to your vendor that match your invoice requirements.

After import

  • Attend trade seminars and read newsletters to stay informed of changing requirements.
  • Review your commercial invoice or proforma invoice to make sure all requirements are met [5].
  • Verify that entries prepared by your broker are correct. If you find an error during a post entry review, correct it and work with your vendor and broker to prevent it from happening again.
  • Establish a recordkeeping program. Verify which documents should be kept, how long they should be retained, and how they should be stored.

Keeping up with your reasonable care responsibilities is not easy but with continued effort you will be able to show CBP that you’ve done your homework.

MGTA’s import audit service can help you to uncover gaps in your import procedures. Click here to learn more about our import audit services. Our import compliance programs can assist you in developing, improving, and enhancing your reasonable care policies and procedures. Click here to learn more about our import compliance programs.


[1] per U.S. Code Title 19, Section 1484(a)(1).
[2] See the list of Informed Compliance Publications, including Reasonable Care (A Checklist for Compliance), on U.S. Customs & Border Protection’s website, www.cbp.gov.
[3] View the Harmonized Tariff Schedule at www.usitc.gov/tata/hts/.
[4] See rulings.cbp.gov.
[5] For a complete list of requirements see 19 CFR 141.86-141.89 and 142.6.

By Jim Trubits, Vice President. Click here to read more about Jim.

©2012 Mohawk Global Trade Advisors

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