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CUSTOMS PLANNING FOR A RECESSION

CUSTOMS PLANNING FOR A RECESSION. John M. Peterson NEVILLE PETERSON LLP New York Washington D.C. Superior Brokerage Services Inc. Eagan, Minnesota November 6, 2008. Customs and Supply Chain Planning in a Recession. How Bad is It? Retailers struggling Smaller orders, placed later

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CUSTOMS PLANNING FOR A RECESSION

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  1. CUSTOMS PLANNING FOR A RECESSION John M. Peterson NEVILLE PETERSON LLP New York Washington D.C. Superior Brokerage Services Inc. Eagan, Minnesota November 6, 2008

  2. Customs and Supply Chain Planning in a Recession • How Bad is It? • Retailers struggling • Smaller orders, placed later • Continuous price-point pressure • Weak dollar makes imports more expensive • Credit spending down

  3. What does CBP Do in a Recession? • Increased emphasis on commercial enforcement; • Legal mandates to enforce – 10+2, Consumer Product Safety Improvement Act, Lacey Act Amendments • More audits; • More intellectual property enforcement “We’re not going anywhere”

  4. Can You Squeeze Savings Out of Your Supply Chain? • Review Customs compliance procedures • Interaction With Corporate Internal Audit • Interaction with Sarbanes-Oxley programs • Don’t depend on the “Merchandise Fairy” “Sorry, the Merchandise Fairy is strictly retail.”

  5. Toolbox Item # 1: Documented Procedures and Policies • Company should have documented policies for Customs matters; • Companies without such policies cannot be scored “highly compliant” • Interactive intranet resources should be considered “The right tools for the right job”

  6. Toolbox Item #2: Recordkeeping Program • Tariff Act requires import records be retained at least 5 years; • “(a)(1)(A)” list items must be kept 5 years under pain of penalty; • Customs will approve electronic recordkeeping formats • Agree with brokers on document ownership and rights “You’re keeping the records; that’s a start. Now, it would help to organize them”

  7. Toolbox Item #3 – Tariff Classification Program • Review your products’ classification; • Question old rulings; • Examine way you design products; • Examine way you ship products; wIpod Composite good – See GRI 3(B)

  8. Toolbox Item #3 – Classification Program • Suppose you reduce a product’s duty rate from 5% to 1%; • That’s a 4% reduction in landed cost; • Falls right to the bottom line; or • Reduces your price point, drives sales • No engineering cost, no compromise of product quality Exercise Equipment – or Toy?

  9. Toolbox Item # 3 – Classification Program • Monitoring classification issues • Customs rulings; • CIT decisions; • Decisions of foreign courts and agencies • (e.g., European BTIs); • World Customs Organization decisions and HS changes Best of its kind --- Now, what is it, exactly?

  10. Toolbox Item #4 – Put Your Customs Value on a Diet • Is there “fat” in your Customs values? • Are you “bundling” non-dutiable items into the price paid for your goods? • Can you restructure transactions to save on duties? Customs valuation – follow the money!

  11. Toolbox Item #4 – Put Your Customs Values on a Diet • Diet tips: • Unbundle buying commissions, non-dutiable royalties, etc. from price; • Examine use of “first sale” valuation rule; • Turn middlemen into buying agents • Use “American Goods Returned”, 9802.00.80, other programs

  12. Toolbox Item # 5 (A,B,C, etc.);Special Trade Programs • Which special trade programs does your company use? • Which programs should you use? • A separate compliance module should be established for each such program Another load of NAFTA goods arriving – assuming you can prove it!

  13. U.S. Programs Generalized System of Preferences (GSP); Caribbean Basin Initiative (CBI); Andean Trade Promotion Act (ATPA); African Growth & Opportunity Act (AGOA); American Goods Returned (HTS 9801.00.10) “Repairs and Alterations” (HTS 9802.00.40/50) Offshore Metals Processing (HTS 9802.00.60) Offshore Assembly (HTS 9802.00.80); Temporary Importation Bonds (TIB) Nairobi Protocol, etc. Bilateral/Multilateral Programs NAFTA DR-CAFTA Bilateral Free Trade Agreements: Australia Bahrain Chile Israel Jordan Morocco Singapore Other agreements currently being negotiated with S. Korea, Peru and other countries Toolbox Item 5 (A,B,C etc.)Special Trade Programs

  14. Toolbox Item #6 – Special Duties and Quotas/TRQs • Defensive Tools: • Antidumping or Countervailing Duties – do they affect your imports? • Are you aware of scope issues? • Are you aware of how duties are imposed? • Do you obligate vendors to cooperate with AD/CVD investigations? • Do you have an “escape clause” in your contract? DANGER: Could lead to a “Brush” with Antidumping Duties

  15. Toolbox Item #6 – Special Duties and Quotas/TRQs • Quotas/TRQs: • Do you import any products subject to absolute quotas (e.g., textiles or apparel)? • Do you import goods subject to TRQ (mostly agricultural)? • Are you certain of classification? • Are you certain you have proper documents? Lucky Charms – Magically Expensive, Duty-Wise

  16. Toolbox Item # 7: Duty Drawback and FTZs • Do you have drawback-eligible export activity? • Is it manufacturing or unused merchandise drawback? • MPFs, HMTs now eligible for unused merchandise drawback; • 3 years from date of export to claim Drawback can turn you around A bit – but can be worth it

  17. Toolbox Item # 8: FTZs, Bonded Warehouses • Allow deferral of duty payments; • Avoidance of duty payments for exported goods; • “Inverted tariff” benefits for manufactured goods; • Merchandise processing fee savings

  18. Toolbox Item #9: Protect Your Intellectual Property • Counterfeits, knock-offs and gray market goods increase in recessions; • You can record your trademark with Customs for import protection from infringing goods; • Customs will seize, forefeit and destroy counterfeits – and penalize the importers

  19. Toolbox Item #8 – Protecting Intellectual Property • Section 337 of the Tariff Act – the nuclear weapon of International Trade • Following ITC investigation, Customs will exclude goods which infringe patents and other IP rights. Funny hat. Serious business.

  20. Toolbox Item 9: Exports • Weak US dollar makes US goods attractive overseas; • Most foreign countries use Customs laws similar to those in US; • You can leverage your US knowledge base overseas

  21. Recessions Stink: Use the Time Well • Examine all aspects of the supply chain critically; • Look for savings in Customs duties; • Protect your Intellectual Property; • Look to the past for savings, while planning for the future. • Chill – it’ll get better

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