Wednesday, September 28, 2011

Talk About Dutch Courage

This is old news I inexplicably missed. Thanks to Rafael for the tip. The story is that in 2010, the Customs authorities in French Guiana stopped a Dutch traveler with a suspicious pair of pants. They found a pouch full of humming birds. From the pictures, I would assume the beaks were not at all comfortable. Follow the link to see the truly strange pictures.

Saturday, September 24, 2011

Value Change Up for Comment

Customs is floating an idea to reinterpret the value law with respect to transfer pricing to give related party importers more flexibility with respect to post entry adjustments. Here is the notice asking for comments.

This is a long-awaited notice, but it is just a request for comments rather than an actual proposal.

The issue this notice seeks to address has to do with the application of transaction value in cases where the related parties have a transfer pricing policy that requires periodic adjustments to the sales price of the goods. Usually, this is done to ensure that the selling entity earns the appropriate amount of profit over the fiscal year or other period. Hitting that target is often an important consideration for tax planning. Consequently, companies spend a lot of time and effort working with accounting firms to establish an acceptable transfer pricing policy that meets their tax needs. In some case, these policies can be validated by one or both of the governments involved in what is called an Advanced Pricing Agreement.

The problem from a Customs standpoint is that post-entry adjustments to sales prices may impact on the correct entered value of the merchandise. There are a number of legal consequences to these adjustments. For example, if the amount of the adjustment is fixed or can be calculated based on a set formula at the time of entry, then the adjustments can be taken into consideration as part of a transaction value. In other words, if there is an acceptable formula, transaction value applies and the value can be updated--typically via reconciliation. Also, while the law requires that increases in price be taken into consideration, decreases and rebates are ignored. [No one ever said the law is fair.] Thus, post-entry price adjustments may not be evenly applied.

The biggest question has been whether a transfer price policy that relies on post-entry price adjustments is compatible with transaction value as the basis for appraisal. In some rulings, Customs and Border Protection has held that the transfer price policy did not create an acceptably fixed formula for appraisal. As a result, Customs has ruled that transaction value was not applicable and relied on the so-called "fall back" method of appraisal. In those cases, the adjustments were applied and the valuation ended up at essentially the same place.

Which brings me to the question of whether this is really important? Is this really just substituting one label for another? If the "transaction value" and the "fallback method" get to the same amount by taking into consideration the adjustments, does it really matter. You either have Customs accepting your policy as a formula for transaction value or rejecting transaction value and calling the same analysis a fall back.

One critical point is that if this proposal gets adopted, Customs will take price reductions into consideration because the reductions will not be discounts or rebates. Rather, they will be treated as applications of the policy and, therefore, the agreed price for the goods. That might produce some duty savings for importers who engage in downward price adjustments.

Another point is that the factors listed in the notice to support the finding that a transfer price can be considered a formula should inform the drafting of transfer price policies going forward if the proposal is ever adopted.

None of that strikes me as earth shaking, but I seem to be in the minority on that front. At least one lawyer I know and respect, my soon to be published co-author, has already labeled this the most important development in value law since the adoption of the current WTO code in 1979. Personally, I would give that title to the Federal Circuit decision in Nissho Iwai, which started the modern practice of using first sale valuation. I also know that the ABA Section on International Law, Customs Law Committee is interested in this.

So, you customs compliance and tax people out there, tell me whether this proposed change would significantly impact your business one way or the other. Comments are open.

New FAIR Enforcement Act

Here is something else I missed while I was away. Maybe you missed it too.

Senator Claire McCaskill has introduced legislation directed at creating policies to make it harder for companies to evade the payment of customs duties. In essence, this seems similar in goal to the ENFORCE Act, which my partner David Forgue covered in this interesting white paper. The new proposal focuses in part on the relationship between brokers and importers by imposing a "know your customer" requirement on brokers. In addition, the bill would eliminate bonding for new shippers in antidumping casing and require cash deposits like other importers. Apparently, this is intended to prevent new shippers from making a lot of entries and then defaulting when it comes time to assess the dumping duties.

Here is a press release from Senator McCaskill.

Waiting for GSP

There are things that happen in Washington that are a complete mystery to me. One such mystery is this kabuki dance that happens periodically when the Generalized System of Preferences expires. Everyone is pretty confident that it will eventually be renewed. But, despite that knowledge, Congress spends time futzing around with it (and similar programs like AGOA). It gets attached to other things that some legislator wants and used as leverage in negotiations.

Here's a crazy idea: Someone should introduce a bill just making it permanent unless and until repealed. Presumably, this could be coupled with a new set of rules defining beneficial developing country, if that is part of the political problem. If that were to happen, traders would know what to expect and there would be none of this administrative hassle of retroactive application.

Until something that reasonable happens, we have to put up with the sausage factory that is Congress.

So, with the preamble, I am letting you know that the Senate has passed an amended House GSP bill that also includes MPF adjustments and an extension of Trade Adjustment Assistance. Because there were amendments, this has to go back to the House for reconciliation before it can go to the President. According to press reports, the House hopes that the bill can be considered along with the pending trade agreements with Colombia, Panama, and South Korea.

Here is a USTR press release on the developments.

Wednesday, September 21, 2011


I am just back from Paris. Despite being a middle aged, well educated, reasonably well traveled person, I had never been to Paris (or anywhere in France) before this trip. I had an excellent time meeting with lawyers from throughout Europe and the North America to discuss our various practice areas. As is usually the case with these things, we had interesting discussions coupled with some exceptionally good meals and a bit of seeing the sites.

I narrowly escaped an airport fiasco on the way back when I realized that I had failed to pack a bottle of wine in my checked bag. For a moment, I considered being the person in the airport you marvel at when he or she sits down to eat their smuggled sausage or when they abandon a gallon of conditioner at the security line. I blame my lack of foresight on too little sleep. A quick reshuffle of dirty clothes from the big bag to the carry on created room for the wine without undue delay to others checking in.

The locals were nothing but nice and helpful. Hence, if you think the title of this post is an anti-French slur, you are wrong. In reality, it is a reference to this article, which tells of Customs and Border Protection in Houston discovering a rare amphibian in a cargo container.

How dare you think otherwise?

Saturday, September 10, 2011

News to Use

The MPF and GSP renewals have made it through the House and will now go to the Senate. The MPF will, assuming the bill passes, increase for formal entries to %0.3464. However, all indications are that the $485 cap will remain the same. That means that importers of small value merchandise are likely to feel the brunt of this increase more than importers of high-value imports. If this blog contained political commentary, which it doesn't, one might wonder about the politics of that decision.

The House bill also retroactively renews GSP. It appears that if entries were flagged using the A SPI while GSP had lapsed, the entries will be liquidated with GSP benefits. Of course, that remains to be seen, so don't rely on that for your internal procedures.

In his jobs speech, the President encouraged Congress to act to implement the already-negotiated trade agreements with South Korea, Colombia, and Panama. Reliable sources in Washington say that those agreements need to be submitted to Congress soon if they stand a chance of getting done before we are fully mired in the election process. Personally, I already feel mired.

If you use the port of Whitetail, MT, you need to look for another port. Customs is proposing to permanently close the port.

Thursday, September 01, 2011

Uniform Marking Officially Dead

But, like a brain eater from Zombieland or the upcoming World War Z, it may be back. Remember, always double tap.

Tomorrow, Customs will publish a Federal Register Notice making technical corrections to the Part 102 rules of origin and officially withdrawing the proposal that the U.S. implement tariff shift rules of origin for all commodities. The specific changes relate to pipe fittings and flanges, greeting cards, glass optical fiber, rice preparations, and certain textiles and apparel. If you import those goods, please check the FR Notice when it comes out. I am not giving a link because the link will to tomorrow's Federal Register will be dead tomorrow after the official version is published.

Regarding the proposal to adopt uniform rules of origin primarily based on a tariff shift methodology, Customs reports that it received a total of 70 public comments, 42 of which expressed opposition to the July 25, 2008 proposal. As a result of these comments, Customs and Border Protection states that is has "determined not to proceed with its proposal." For many people, this is a good outcome.

The problem most importers expressed (at least to me) about the proposed rules was not that it was difficult for producers to apply. Generally, it can be assumed that a producer knows the materials used in the production of its products and the materials' country of origin. That would be enough information for them to classify the goods, apply the tariff shift (or descriptive shift) rule to materials to do not originate in the country of production, and determine origin. This gets muddy in situations where raw materials or other commodities are traded many times or commingled, but those are the exceptions.

The problem is that under the proposal, it would be enormously difficult for importers to know any of this information. Importers, who have to act with reasonable care, would have difficulty determining whether they can rely on the representations of producers or exporters. Without a NAFTA-like verification process that put the burden on the producer or exporter, this proposal created a big liability risk for importers.

I know that some people will argue that the current rules do the same thing. There is some truth to that. Ultimately, the importer is currently responsible for the correct country of origin declaration and marking. But, it strikes me that an importer today has a better chance of explaining the traditional substantial transformation test to a supplier and getting reasonably reliable information to support the origin determination.

It will be interesting to see whether this has a zombie-like afterlife. Rumor has it that the U.S. was hoping to push these rules out here and then internationally as a means of creating a global standard. There is a lot to be said for a global standard. But, I think Customs and Border Protection is missing the target. It would be much more valuable to U.S. exporters to have a single, uniform rule on country of origin labeling so that exporters would not need to design origin labels to meet local requirements. Personally, I think a universal label showing an icon for manufacturing (maybe a gear or factory) along with the ISO code and flag for the country of origin might do the trick.