Trade Alerts
Rules for Prior Disclosures and Customs Audits: Offsets and Sampling

U.S. Customs and Border Protection published on Oct. 25, 2011 a final rule in the Federal Register amending the agency’s regulations to add provisions for the use of statistical sampling and offsetting overpayments and underpayments of duty, fees and taxes under certain conditions. It also allows importers to use the same techniques in their internal company customs-related operations.

Statistical sampling, a method already in practice but not explicitly provided for in CBP regulations, is an important tool available to both the public andCBP auditors for examining customs entries. This method allows evaluation results of a selected reduced number of items to be applied to the entire universe of records, permitting conclusions to be drawn about the universe with a high degree of accuracy. The use of statistical sampling techniques is a practice recognized in both government and industry.

When statistical sampling is properly applied, it produces greater efficiency in review processes, reducing cost, and allowing CBP and importers to best use resources to evaluate import operations.

The revisions also define procedures for offsetting (netting) overpayments against underpayments on certain customs entries when identified during CBPaudits. However, CBP will consider allowing offset circumstances when discovered during the preparation of importer disclosures which meet the requirements of the prior disclosure regulations (19 USC 162.74).

EPA Withdraws FIFRA Penalty Case Against Broker: License Preserved

March 7, 2014

EPA Withdraws FIFRA Penalty Case Against Broker: License Preserved

Note:    Our client, the licensed Customs broker described below has reviewed the recap that follows and has allowed us to publish it without objection.

The Environmental Protection Agency (“EPA”) serves an important role in regulating hazards to the environment and threats to personal health.  However, it must act within the limits of its authority. We recently encountered what appeared to have been an overreaching of that authority in a case where the EPA sought to impose liability on a licensed Customs broker under circumstances where the EPA enforced statutes and regulations established no such liability.

Often, whether it is the EPA or another federal or state agency, when a penalty assessment is made against a corporation or individual, a decision is made by the alleged violator to settle rather than fight the seemingly limitless resources of the government.  For licensed Customs brokers, the admission of a violation of any part of any law or regulation administered by Customs can be as bad as a finding of a violation in an administrative proceeding or by a court in a judicial proceeding. With a full understanding of the risks, there are instances when fighting the government may be the only choice.

According to the information available to the public released by the EPA, in August 2011, EPA inspectors visited the office of our client, a licensed Customs broker.  The EPA inspectors requested and were given copies of twenty-three import files involving shipments of zinc borate. Under the Federal Insecticide, Fungicide and Rodenticide Act, EPA form NOA 3540-1 is required to be filed with the EPA prior to importation of a pesticide. Zinc borate, if intended to be used as a pesticide, is subject to the NOA filing requirement, but if it is intend for use as a fire retardant to be incorporated in other products, it is NOT subject to the NOA and EPA registration requirements.

In February 2013, the EPA issued claims against the importer AND the broker for the failure to file notices of arrival. The goods had been released by U.S. Customs without incident and there was no harm to the environment. The EPA claims were for the FIFRA statutory maximum of $7,500 for each importation, amounting to $172,500 against the importer and a like amount against the broker. The importer settled with the EPA for $34,000, and the EPA continued to press the broker for a penalty that was separate from and in addition to the settlement it had with the importer, going so far as to institute an EPA docket citing our client for penalties under FIFRA.

The negotiations were protracted.  Over time, the EPA reduced its claims against our client in increments from the original $172,500 to $14,100 claimed in the EPA docketed proceeding.

As counsel, we strongly believed that there was only ONE obligation to file the notice, and having penalized the importer, EPA had no business seeking a penalty against the broker, absent an allegation of conspiracy or financial interest in the failure to report the impending arrival of the goods. Further, the EPA has NEVER exacted a penalty for a FIFRA violation against a broker.  Its consent agreements with brokers serve no precedent, as they reflect the brokers’ agreement to settle without a determination by an EPA administrative law judge or the courts.

Our broker client was and is not any of the persons identified in the FIFRA statute as obligated to file the NOA.  It was not and is not a registrant, not a commercial applicator, not a wholesaler, not a dealer, not a retailer and not a distributor of any kind. The EPA case was premised largely on the conjecture that the broker “could” have been the importer, even though it was not the importer of record nor was it consignee on the Customs entry, it never took physical possession of the goods, the importer’s trucker removed the goods from the pier and the importer’s bond was used to clear the goods.

While settlement discussions continued to reduce the amount that the EPA was willing to accept to close the case, there was a larger concern for the broker. Under U.S. Customs regulations, 19 CFR 111.53(c), Customs can revoke a license if:

(c) The broker has violated any provision of any law enforced by Customs or the rules or regulations issued under any provision of any law enforced by Customs

If our broker client settled with the EPA, and admitted a violation of FIFRA, the fact that Customs has its own FIFRA regulations in 19 CFR 12.110-117, meant that Customs could have instituted proceedings to revoke the broker’s license.

In response to many of the EPA’s settlement offers, we simply requested that the EPA withdraw its case as being beyond the scope of the statute. On February 27, 2014, the EPA did just that. It withdrew the case and stated in its withdrawal that it had no intention of pursuing any action against our broker client on the 23 shipments that were the basis of its complaint. On March 6, 2014, the assigned administrative law judge issued an order of dismissal with prejudice against the EPA, officially ending the case.

As there was no final decision by the EPA in the case at the agency, and the case never got to the courts, the EPA could seek to invoke the FIFRA penalty provisions against a licensed Customs broker in the future.  The brokerage community should know that at least in this instance, the licensed Customs broker fought the EPA and walked away with no penalty, and its license has been preserved.

Our client and we are most pleased with the outcome, which could only have been achieved because the broker was willing to oppose the enforcement efforts of the EPA.

If you’d like to speak with me about this case, please feel free to contact me.

Christopher M. Kane

First Sale for Export Valuation: Bye-Bye or When the “Government Doesn’t Like Something” You’ll Know

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

Something Old Becomes New Again? Buying Agency Agreements

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 may be an incentive to revisit the way many importers structure their transactions and how they value their goods.

The DRAFT has a list of 33 “examples” of supporting documents that CBP may request when evaluating the use of the “first sale for export to the U.S.” as the basis for Customs value and the assessment of ad valorem duties. The result of such an evaluation may be the denial of the use of that value. The importer would then be required to declare and pay duty on the higher value charged by a middleman to the importer than on the lower price paid by the middleman to the manufacturer.

The “best of both worlds,” whereby the importer paid duty on the lower price but paid income taxes on a cost of goods sold incorporating the higher price actually paid to the middleman would be gone.

What to do.

In the days before Nissho Iwai, i.e. Nissho Iwai American Corp. v United States, 982 F.2d 505 (Fed. Cir. 1992), the use of buying agents to whom buying commissions are paid was more common than in the ensuing years.  The buying agent is an intermediary, but is NOT a seller or reseller to the U.S. importer.

If your present Nissho Iwai middleman/seller is to become a buying agent whose fee, as opposed to his profit, is to be excluded from entered value, some changes in the importer’s relationship will be necessary. Note that the buying agency commission very likely will be less than what a middleman might have made as a profit on resale.

Bona fide buying commissions  are not included in transaction value as part of the price actually paid or payable or as an addition thereto. See Pier 1 Imports, Inc. v. United States¸13 Ct. Int’l Trade 161, 164, 708 F. Supp. 351, 354 (1989); Rosenthal-Netter, Inc. v. United States, 12 Ct. Int’l Trade 77, 78, 679 F. Supp. 21, 23 (1988), aff’d, 861 F.2d 261 (Fed. Cir. 1988); and Jay-Arr Slimwear, Inc. v. United States, 12 Ct. Int’l Trade 133, 136, 681 F. Supp. 875, 878 (1988).

The existence of a bona fide buying  commission depends upon the relevant factors of the individual case, and  the importer has the burden of proving that a bona fide agency relationship exists and that payments to the agent constitute bona fide buying commissions. The totality of the evidence must demonstrate that the purported agent is in fact a bona fide buying  agent and not a selling agent or an independent seller. Headquarters Ruling Letter (“HQ”) 542141 dated September 29, 1980, also cited as TAA No. 7.
CBP has said that although no single factor is determinative, the primary consideration in determining whether an agency relationship exists is the right of the principal to control the agent’s conduct with respect to those matters entrusted to the agent.

In addition, the courts have examined such factors as the existence of a WRITTEN buying agency agreement; whether the importer could have purchased directly from the manufacturers without employing an agent; whether the agent was financially detached from the manufacturer of the merchandise; and the transaction documents. The courts have also examined whether the purported agent's actions were primarily for the benefit of the principal; whether the agent bore the risk of loss for damaged, lost or defective merchandise; whether the agent was responsible for the shipping and handling and the costs thereof; and whether the intermediary was operating an independent business, primarily for its own benefit.

The written buying agency agreement can address these points. Can this work? It depends.


Christopher M. Kane

GSP 2014: Will YOU Get Your Money Back? (Part One)

GSP 2014: Will YOU Get Your Money Back? (Part One)

The Generalized System of Preferences (“GSP”) is a program that has afforded beneficiary developing countries duty-free treatment of their qualified goods directly exported to the United States. GSP was instituted on January 1, 1976, by the Trade Act of 1974.

Canada has a similar program called the General Preferential Tariff (‘GPT”).

The United States Trade Representative describes GSP as a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 5,000 products when imported from one of 123 designated beneficiary countries and territories. The USTR characterizes the GSP program as supporting U.S. jobs, citing imports of $19.9 billion worth of products under the GSP program in 2012, a figure that included  inputs used in U.S. manufacturing.  The U.S. Chamber of Commerce in a 2005 study said that over 80,000 American jobs are associated with moving GSP imports from the docks to farmers, manufacturers, and retail shelves. In the U.S., GSP has been effective for prescribed periods, subject to expiration. The latest expiration was July 31, 2013. In the past, when GSP lapsed, legislation intended to reinstate duty-free treatment eventually has been put in place. Duties paid in the interim may be retroactively refunded.

However, that retroactivity has not always been smooth. When GSP lapsed in 1998, retroactive refunds were issued, including refunds to our client Samuel Aaron, Inc., an importer of gold jewelry from Thailand. The GSP qualification for gold jewelry from Thailand expired with the expiration of the program as a whole. It was later restored to the list of qualified goods, but it was not on the list of qualified goods on July 1, 1998. The statutory language for the retroactivity of GSP in 1998 applied to goods qualified for GSP on July 1, 1998. Despite the fact that gold jewelry from Thailand was NOT qualified for GSP on July 1, 1998, U.S. Customs refunded the duties Samuel Aaron paid on entry, and then had second thoughts. Eventually, in 2007, the Court of Appeals upheld the unorthodox “off-line” reliquidations and the issuance of bills between six and ten weeks AFTER the window for “voluntary reliquidation” would have allowed Customs to correct errors in the original liquidations. The court refused to recognize the importer’s arguments that what took place when the bills were issued was the actual reliquidation, and that Customs was prevented statutorily under 19 USC 1501 from reliquidating an entry more than 90 days after the original liquidation of the duties, taxes and fees owed on an entry.

To get to court, any importer contesting a decision by Customs, must pay the amount in issue. Samuel Aaron paid the previously refunded duty, and the courts refused to give it back.

The point of all this is that YOU may think you’re going to get a refund of duties paid on goods from GSP beneficiary developing countries if/when GSP is reinstated, but it ain’t necessarily so.


July 2014

GSP 2014: Will YOU Get Your Money Back? (Part Two)

GSP 2014: Will YOU Get Your Money Back? (Part Two)

In Part One of this consideration of the Generalized System of Preferences (“GSP”), we spoke about the effect of the choice of words in the 1998 legislation that was intended to retroactively reinstate GSP benefits after the program lapsed. In 1998, the statute created a “notch” for some goods that were not given retroactive GSP, even though after the reinstatement subsequent imports of those goods were given duty-free treatment.

So what do we do NOW to protect the CHANCE of getting refunds if and when GSP is reinstated?

Here are some suggestions ---

1)      You  might want to contact your members of Congress to voice your concern over the ongoing lapse of the program, and your hope that it will be reinstated retroactively back to the July 31, 2013 expiration, with refunds PLUS interest being issued.

2)      You will want to be sure that the CBP form 7501 for entries made since July 31, 2013 bear the Special Program indicators for the particular type of GSP for which the goods qualify.

3)      If the GSP designation has not been shown, be sure to have corrected entries filed.

4)      If any of what would have been GSP entries have liquidated without the GSP designation having been shown, you can protest the liquidation and/or otherwise bring the fact that particular goods on those entries should have been designated for GSP either by filing corrected entries or possibly even filing a prior disclosure to inform Customs of this material fact.

5)      Be sure that the claim for GSP can be supported—the requirements are strict ---and  GSP claims should NOT be made unless they can be supported:


-          Direct shipment from the beneficiary developing country

-          Local inputs of at least 35%

-          Raw materials from outside the GSP country substantially  transformed in the GSP country

-          Double substantial  transformation for certain goods, e.g. gold jewelry


6)      Document the manufacturing process in the GSP country with video,  purchase orders, inventory records, production records, shipping records.

When all else fails, you may be able to protest the liquidation for duty of entries that should have gotten GSP duty-free treatment,  either within the 180 day post-liquidation window under the law as it stands, or  if the reinstatement legislation allows for protests on a different time schedule.

BUT be prepared to submit proof in line with paragraph nos.  5 and 6, above, because it is unlikely that there will be any “automatic approvals” if you have to protest.


July 2014

Trade Incentives 2015


Classification? Valuation? Country of Origin? Compliance Incentives?

Many International Trade Professionals, service providers and trade publications emphasize the administrative and legal requirements involved in international trade. They may stress the assessment of penalties and other adverse enforcement actions. These consequences may result from a failure to understand and comply with Customs laws and regulations. The consequences may come from CBP auditing entries up to five years old. In all of these instances, the emphasis is on dire circumstances. However, when properly applied, the many laws and regulations governing international trade can be utilized as an untapped source of revenue and business opportunities.


Acceptable tariff engineering can be an important ingredient as part of the plans to market imported merchandise by enjoying the most desirable duty rates through strategic classification. This can be coupled with an advance classification ruling from CBP, to solidify the lowest possible duty rates for the importer. The ruling process affords reliance and protection from administrative reversals and modification, providing the savvy importer with market advantages over the competition who did not take similar action.


Strategic Valuation can result in lower duty payments by applying alternatives to the generally prescribed Transaction Value method. Rather than paying duty on a value based on what the importer has paid or will pay to the foreign exporter, Deductive Value; Computed Value; or Residual Value, where applicable, may provide duty advantages. Even when the Transaction Value method is applied, by establishing a sale for export to the U.S. price prior to the sale to the U.S. importer rather than the price paid by the U.S. importer as the valuation for duty purposes, substantial duty earnings may also be achieved.

Country of Origin?

Country of Origin determinations affect more than the declaration on a CBP form 7501 import entry. They impact:

  • Marking of products and packaging
  • Free Trade Agreement /Duty Preference qualification
  • Buy America sales
  • FTC requirements when reference to U.S. origin is made

Multi-country production of components resulting in a single imported product may make a country of origin determination difficult but, when strategically planned, the “right” country of origin can allow the importer to market a product with a favorable foreign cache. It may allow the importer to take advantage of duties applied under one of the many Bilateral Free Trade Agreements or under a Multilateral Duty Preference Program. And more than just being able to say that merchandise is Made in USA, the determination may allow for sales to the U.S. government under the Buy America program.

Compliance Incentives?

Importers who partner with CBP as members of various incentive compliance programs and efforts, including Internal Self Assessment (“ISA”) and Customs Trade Partnership Against Terrorism (“CTPAT”), can enjoy:

  • Faster release of cargo
  • Fewer inspections
  • Less paperwork requirements

These incentives may require an extraordinary level of commitment, but the rewards are tangible. Being on the “Good Guy List” of participants in these programs may be a consideration in the event CBP is contemplating a penalty or other adverse action against a particular importer or a broader action against the trade.. In fact, the bi-laws of ISA and CTPAT promise benefits to partners in the trade.


Suffice it to say, the laws and regulations governing importers and the importation of goods need not be a burden or a source of consternation. By embracing these rules, businesses can reap the benefits and achieve competitive advantages. With the right assistance, the question is not: what must you do for the government, but rather— what can the government do for you! Of course, if you would like to discuss any of these strategies, and how they can be used to your best advantage, please contact us.

U.S. Customs to Revoke Rulings Dealing with the Classification of Certain Gazebos

In the August 19, 2015 Customs Bulletin, U.S. Customs and Border Protection (CBP) published a notice announcing that it will revoke two rulings dealing with the classification of certain gazebos under the HTSUS.  Importers entering this kind of merchandise should take note of these ruling revocations, which take effect on October 19, 2015.

Why is this Notice Important for Importers? More Duty or Refunds!

This notice is important for importers because it means that they may need to start paying more duty or they may qualify for a refund of duties on their entries of this type of merchandise.  For example, if an importer has been entering the merchandise under Heading 7308, HTSUS, as a duty-free structure of iron or steel, it may need to start paying 5.3% ad valorem (if the canopy is made of plastic textile).  If an importer made entry under Headings 6306 at 8.8% or 6307 at 7%, it may be able to obtain a refund of the excess duties paid by filing a protest.

The Merchandise in Issue in the Rulings

The gazebos in the rulings consist of steel frames with canopies made of plastic textile. CBP had originally classified the gazebos under subheading 7308.90.95, HTSUS, which provides for structures of iron or steel (duty-free).  Based on the CIT’s analysis in Target Stores v. United States, 2012 Ct. Intl Trade LEXIS 40, CBP has concluded that the gazebos are neither “tents” of Heading 6306, HTSUS, nor “structures” of Heading 7308, HTSUS.

According to CBP, even though temporary, the gazebos are not tents of Heading 6306, HTSUS, because they have no walls and do not protect “the user from weather elements other than sunshine.”  The gazebos are also not “structures” of Heading 7308, HTSUS, like the Target gazebos because they are relatively easy to assemble by one or two persons and they do not serve as permanent shelters/landscape design features.

Instead using a GRI 3(b) analysis, CBP believes the gazebos that were the subject of the two rulings are more appropriately classified under subheading 3926.90.9995, which provides for other articles of plastic and carries a duty rate of 5.3% ad valorem.

The full notice is available on page 41 at

If you have any questions concerning this action by CBP, please contact Mariana del Rio at or 212-775-0055, Ext. 205.