Years ago, when I was with the Federal Maritime Commission, Commissioner Tom Moakley thought that co-loading by NVOCCs was improper. Although his effort to outlaw the practice was abandoned in the face of industry opposition, the FMC promulgated co-loading rules that, if followed to the letter of the law, at the very least, discourage the practice. See 46 CFR 520.11(c)(2):
(2) Documentation requirements. An NVOCC which tenders cargo to another NVOCC for co-loading, whether under a shipper-to-carrier or carrier-to-carrier relationship, shall annotate each applicable bill of lading with the identity of any other NVOCC to which the shipment has been tendered for co-loading. Such annotation shall be shown on the face of the bill of lading in a clear and legible manner.
If you are a co-loading NVOCC, all of the shippers are supposed to be well-aware not only that the goods on a particular bill of lading have been co-loaded, but they must be informed of the identity of the co-loading NVOCCs. That would give your customer the name of someone to do business with, other than YOU. Who would want to do THAT?
Ironically, the DRAFT U.S. Customs (“CBP”) Informed Compliance Publication (“ICP”) What Every Member of the Trade Community should know About BONA FIDE SALES & SALES FOR EXPORTATION TO THE UNITED STATES bears the revision date of August 2013, but the DRAFT started making waves in 2014 and, if implemented in anything close to its present form, will likely impact the trade for years to come. It contains a laundry list—and then some—of items that CBP can require the importer to produce to prove qualification to use the sales price earlier in the chain of transactions than the price the importer pays to its direct supplier as the basis for dutiable value on entry into the U.S.
In May 2008, Congress passed the Food, Conservation, and Energy Act of 2008 (the ‘‘Act’’), Public Law 110–234, 122 Stat. 1547 (19 U.S.C. 1484 note), in part, to counteract an effort by CBP announced in January 2008 to prohibit the use of the “first sale for export to the United States” as the basis of valuation. The intended revocation of the use of “first sale” valuation had been announced by CBP despite the recognition given by the courts in Nissho Iwai American Corp. v United States, 982 F.2d 505 (Fed. Cir. 1992), and by CBP itself in numerous rulings in the intervening years after that decision.
With constraints imposed by Congress, CBP then required importers who used the “first sale for export” to flag the value on their import entries for a year, as an information gathering effort. CBP was prohibited from taking any steps to outlaw the practice until 2011 at the earliest.
In an action reminiscent of the biblical aphorism, “Whoa to you scholars of the law, you make impossible burdens, and do nothing to help,” CBP issued the DRAFT ICP. The documents required to prove the qualification for the use of the “first sale” for valuation include “complete financial statements for the middleman that show that the price the manufacturer charged was adequate to ensure its recovery of all costs plus profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind.”
Or “the importer could provide a transfer pricing study that was used in setting the price of the imported goods and demonstrate that the price was settled in a manner consistent with industry practice.”
Let’s get this straight—if the importer uses the “first sale” valuation, CBP can require “complete financial statements” that prove “that the price the manufacturer charged was adequate to ensure its recovery of all costs plus profit that is equivalent to the firm’s overall profit realized over a representative period of time in sales of merchandise of the same class or kind.”
Ever see that kind of information on a Balance Sheet? Income Statement? Tax Return? Oh, CBP would have the importer create a new document or series of documents to provide this proof, and CBP would decide if all of the criteria of proof that CBP requires were met.
The alternative would be to produce the transfer pricing study that predated the establishment of the price that would be used for the “first sale.” Oh, no transfer pricing study was created before the price was used? Seems like this option is foreclosed.
Maybe you should think of something else–something that the government likes.
Christopher M. Kane