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CBP Making More Textile and Apparel Seizures, Penalties and Liquidated Damages

Posted March 20, 2014

In advance of a webinar on textile and apparel rules of origin on March 25, the law firm Sandler, Travis & Rosenberg has recapitulated some of the findings regarding the trade compliance verification and border enforcement activities of U.S. Customs and Border Protection (CBP) that were disclosed in the agency’s FY 2013 report released earlier this year.

There were 9,300 intellectual property rights-related seizures valued at $15.7 million, up 29.6% in volume but only 8.7% in value from FY 2012. Quarterly figures ranged from a high of 3,246 seizures in the second quarter to a low of 1,085 in the third quarter. Since FY 2008 the number of annual IPR seizures has increased by more than 85% while the total value has dropped by nearly 40%.

CBP also registered 67 non-IPR seizures, including smuggling, valued at $5.79 million, down 29.5% in volume and 22.6% in value from a year earlier.

Commercial Fraud
CBP imposed 23 commercial fraud penalties totaling $22.01 million, compared to 21 penalties totaling $23.37 million the previous year. Both FY 2013 figures are down significantly from their historical highs of 91 penalties in FY 2005 and $50.1 million in FY 2007. The annual averages over the last ten years have been 50.6 penalties and $18.9 million.

Liquidated Damages
There were 968 liquidated damages claims associated with textiles (up 15.9%): 908 (up 13.8%) related to entry, 44 related to temporary importations under bond (compared to just one in FY 2012), and 16 related to redelivery (down 55.6%).

Transshipment/Trade Preferences
CBP textile production verification teams visited 143 factories in eight countries (down from 174 factories in nine countries the previous year) to investigate concerns about both illegal transshipment and trade preference claims. The percentage of discrepant factories was 14.7% for illegal transshipment and 35.7% for trade preference claims, compared to 26% and 39% a year earlier.

The number of factories visited for illegal transshipment has seen a mostly steady decline since a high of 712 in FY 2004, which also saw the high discrepancy rate of 65%. There has been a particularly sharp drop in both categories since FY 2008, when 472 factories in 15 countries were visited and 56% were found discrepant.

The number of factories visited for trade preference claims has been more variable, from 235 in FY 2005 down to 97 in FY 2008 and then up to 223 in FY 2009. The discrepancy rate cycles up and down every couple of years, from a high of around 45% to a low of around 25%.

CBP conducted 11,279 examinations, up 12.2% from FY 2012, with 1,155 discrepant (10%, down from 11%). Quarterly figures ranged from 2,451 exams in the first quarter to 3,163 in the fourth, and the discrepancy rate ranged from 9% in the first quarter to 12% in the second. Since CBP began keeping statistics in FY 2006 the number of exams has fallen from 16,898 (with increases only twice, in FYs 2010 and 2013) and the discrepancy rate has declined from 17% (after a brief spike at 19% in FY 2008).

There were 33 audits initiated and 43 completed, with recommended recoveries of $7.16 million. In FY 2012, by contrast, there were 39 audits initiated and 40 completed, with recommended recoveries of $1.36 million. A third of the audit initiations came in the third quarter and nearly half of the completions were registered in the fourth quarter. The number of audits has remained fairly steady over the past three years but the FY 2013 recommended recovery total was well above the $4.54 million annual average over the last seven years.

Lab Analyses
CBP labs tested 1,170 samples, down 15.4% from the year before. The 52% discrepancy rate was down from the high of 56.4% registered in FY 2012 but still above the 48.3% average over the previous five years. The total number of samples tested, however, remains well below the high of 2,449 in FY 2006.

Special Enforcement
CBP initiated seven special enforcement operations and completed nine, compared to four and six in FY 2012 and highs of 11 and nine in FY 2008.