Importing Goods? Adhere to the Rules
The U.S. government provides reduced or duty-free privileges on thousands of goods made in developing nations around the world. Likewise, the U.S. has entered more than a dozen free-trade agreements with trading partners of various sizes. Trade preference programs and FTAs can offer substantial savings to companies importing or selling covered products in the U.S. market, a benefit that's even more notable in today's uncertain economic climate. But there are specific rules for taking advantage of these preferences, and a recent court decision highlights the importance of observing those rules, as well as the heightened scrutiny the federal government is giving to this issue.
The Court of International Trade recently issued a decision in Polly U.S.A., Inc. v. United States, denying an importer's claims for duty-free entry of apparel from Swaziland under the African Growth and Opportunity Act because the importer was unable to establish that the goods were produced in that country. The court stressed the importer's failure to provide a traceable production time line, noting inconsistencies between the cutting and sewing records, worker time cards and salary information, and dates for the work tasks.
The importer's arguments reflect some of the frustrations encountered by those who do business in trade preference program beneficiary countries, which can have various shortcomings that make it difficult to comply with program standards. For example, the importer argued that the inconsistencies noted by the court were largely immaterial and that the country of origin declaration should be sufficient to establish AGOA eligibility. The court responded that, under established regulations, AGOA claims are subject to "whatever verification the [U.S.] port director deems necessary." The importer also said U.S. customs should give it the benefit of the doubt because keeping adequate records in small, developing countries is difficult. But the court upheld customs' discretion to deny preference claims if the required documentation is substantially insufficient in either quality or quantity.
Customs regulations require importers to "establish and implement internal controls which provide for the periodic review of ... records." The Polly decision highlights the necessity for suppliers to maintain accurate production records as well as regularly reviewing those records to ensure they meet FTA and trade preference standards. It is crucial for importers to educate their foreign suppliers on the documentation requirements. This is particularly important during this time of increased U.S. customs scrutiny of production documentation. In many cases, reviewing electronic entry data available through the Automated Commercial Environment can readily enable importers to detect potential trade preference risk areas.