1 u.s. customs and border protection textiles department of homeland security customs and border...

1

U.S. Customs and Border U.S. Customs and Border ProtectionProtection

TextilesTextiles

Department of Homeland Security Customs and Border Protection

August 2006August 2006

Qualifying Industrial Zones QIZQualifying Industrial Zones QIZCairo, EgyptCairo, Egypt

http://images.google.com/imgres?imgurl=http://www.worldecitizens.net/wecitizens/gallery/KnowlePrimary/GC4_files/image009.jpg&imgrefurl=http://www.worldecitizens.net/wecitizens/gallery/KnowlePrimary/GC4.htm&h=170&w=238&sz=3&hl=en&start=31&tbnid=Fs-QS4VCfbR9cM:&tbnh=74&tbnw=104&prev=/images%3Fq%3Degyptian%2Bflag%26start%3D20%26ndsp%3D20%26svnum%3D10%26hl%3Den%26lr%3D%26sa%3DN

2

U.S. Textile Import U.S. Textile Import IndustryIndustry


• The United States The United States Represents the Represents the Largest Import Largest Import Market for Textile Market for Textile and Clothing and Clothing Products in the Products in the WorldWorld


3



Total for All Imports = $ 1.9 TrillionTotal for All Imports = $ 1.9 TrillionTextile Products = 43% of all Duties CollectedTextile Products = 43% of all Duties CollectedTotal Duties = $25 BillionTotal Duties = $25 BillionAverage Textile Duty Rate 16%Average Textile Duty Rate 16%Average Duty Rate for other Products< 2%Average Duty Rate for other Products< 2%

*K = Thousand M = Million B = Billion

CY 2001 CY 2002 CY 2003 CY 2004 CY2005% CHG

CY01-05Importers 56.9K* 60.8K 62.1K 63.5K 73.6K 29%Lines 5.1M 5.8M 6.2M 6.7M 7.7M 51%Value $71.4B $75.7B $83.4B $91.2B $100.3B 40%Duty $8.2B $8.2B $8.7B $9.1B $10.1B 23%


4


Textile Trade PreferencesTextile Trade Preferences

• Qualifying Industrial Zones (QIZ)Qualifying Industrial Zones (QIZ)• Special Provision of Trade within the Special Provision of Trade within the

U.S. Israel Free Trade AgreementU.S. Israel Free Trade Agreement• Allows QIZs in Egypt and JordanAllows QIZs in Egypt and Jordan

• 35% Value Added/Additional Agreement between 35% Value Added/Additional Agreement between Egypt and Israel 11.7% Israeli Value AddedEgypt and Israel 11.7% Israeli Value Added

• Rules of Origin Must Be MetRules of Origin Must Be Met• Direct Ship RulesDirect Ship Rules

5


6



•U.S. Customs and Border U.S. Customs and Border Protection, By Law, Must Protection, By Law, Must Enforce the Requirements of Enforce the Requirements of Each Agreement/ProgramEach Agreement/Program

7


Enforcement Enforcement Authorities/ToolsAuthorities/Tools• Detentions at U.S. Ports of Detentions at U.S. Ports of

Entry If CBP Import Specialists Entry If CBP Import Specialists Have Concerns about the OriginHave Concerns about the Origin

• Seizure of Merchandise at Time Seizure of Merchandise at Time of Attempted Entry If Origin of Attempted Entry If Origin Fraud Is DeterminedFraud Is Determined

• Duty Preference Claims May Be Duty Preference Claims May Be DeniedDenied

• Penalties Issued to ImportersPenalties Issued to Importers

8


EnforcementEnforcement• If the Goods Do Not Meet the If the Goods Do Not Meet the

Requirements of the Preferential Requirements of the Preferential ProgramProgram• The Preference is Denied; Appropriate Duty Is The Preference is Denied; Appropriate Duty Is

CollectedCollected• Penalties May Be Issued to the U.S. ImporterPenalties May Be Issued to the U.S. Importer

• If the Importer Is Also Claiming the If the Importer Is Also Claiming the Incorrect Country of Origin e.g. Egypt Incorrect Country of Origin e.g. Egypt Instead of ChinaInstead of China• The Goods May Be Seized and DestroyedThe Goods May Be Seized and Destroyed• Penalties May Be Issued to the U.S. ImporterPenalties May Be Issued to the U.S. Importer

9


EnforcementEnforcement

• Why Is Enforcement Important?Why Is Enforcement Important?• Protects the Economic Interest of the Protects the Economic Interest of the

Bilateral Trading PartnersBilateral Trading Partners• Ensures that Benefits Are Received by the Ensures that Benefits Are Received by the

Countries that Agree to the Requirements Countries that Agree to the Requirements and No Other Country and No Other Country

• Supports the Good Faith Negotiation of Supports the Good Faith Negotiation of the Bilateral Agreementthe Bilateral Agreement

• Ensures Access to the U.S. Market if the Ensures Access to the U.S. Market if the Goods Are in Compliance with the Goods Are in Compliance with the Agreements RequirementsAgreements Requirements

10


Textile Production Verification Textile Production Verification Teams (TPVT)Teams (TPVT)


11


Enforcement Enforcement Authorities/ToolsAuthorities/Tools• Textile Production Verification Textile Production Verification

Team (TPVT) VisitsTeam (TPVT) Visits• Visit on Average 12-13 Countries Visit on Average 12-13 Countries

Per YearPer Year• Conduct In-Factory ReviewsConduct In-Factory Reviews• Determine Production CapacityDetermine Production Capacity• Determine If Goods that Entered Determine If Goods that Entered

the U.S. Where Made in the the U.S. Where Made in the Country as DeclaredCountry as Declared

• Determine If a Preference Is Determine If a Preference Is Claimed that the Preference Claimed that the Preference Requirements Are MetRequirements Are Met

12


Purpose of TPVT Purpose of TPVT VisitsVisits• Ensure Goods Are Not Ensure Goods Are Not

Circumventing the Laws Governing Circumventing the Laws Governing the Importation of Textile Productsthe Importation of Textile Products• Illegal Transshipment to Avoid Illegal Transshipment to Avoid

Chinese QuotaChinese Quota• Illegal Transshipment to Take Illegal Transshipment to Take

Advantage of Trade Preference Advantage of Trade Preference Programs Such as the QIZPrograms Such as the QIZ

• Smuggling to Avoid Duty Payments Smuggling to Avoid Duty Payments and China Quotaand China Quota

13


TPVT CompositionTPVT Composition

• Import SpecialistImport Specialist• Individual Who Is Knowledgeable about Individual Who Is Knowledgeable about

the Commoditythe Commodity• Classification, Value, Country of Origin; the Classification, Value, Country of Origin; the

Way the Goods Are Manufactured; the Way the Goods Are Manufactured; the Importers, Manufacturers, etc.Importers, Manufacturers, etc.

• Criminal InvestigatorCriminal Investigator• Individual Who Is Knowledgeable about Individual Who Is Knowledgeable about

the Collection of Information, Evidence, the Collection of Information, Evidence, the Pursuit of Prosecution in U.S. Courts the Pursuit of Prosecution in U.S. Courts of Lawof Law

• Other DisciplinesOther Disciplines• Data AnalystsData Analysts

14


TPVTTPVT• What Does the TPVT Do?What Does the TPVT Do?

• Reviews the Factory OperationReviews the Factory Operation• Verifies Production CapacityVerifies Production Capacity

• Reviews and Verifies Two Entries of Reviews and Verifies Two Entries of Merchandise that Were Imported by a Merchandise that Were Imported by a U.S. CustomerU.S. Customer• Reviews all the Documents to Show the Reviews all the Documents to Show the

Manufacturing of the Individual Purchase Manufacturing of the Individual Purchase OrderOrder

• The TPVT Team Prepares an Extensive The TPVT Team Prepares an Extensive Report of the Visit to Each FactoryReport of the Visit to Each Factory

• The TPVT Puts Each Factory into a Risk The TPVT Puts Each Factory into a Risk CategoryCategory

15


TPVTTPVT• What Are the Risk CategoriesWhat Are the Risk Categories

• No Risk: All Documents and Production No Risk: All Documents and Production Was VerifiedWas Verified

• Low Risk: Some Minor Documents May Low Risk: Some Minor Documents May Be Missing; There May Be a Joint Be Missing; There May Be a Joint Venture that Needs Review Venture that Needs Review

• High Risk: Documents Are Missing So High Risk: Documents Are Missing So Production Cannot Be Verified; Factory Production Cannot Be Verified; Factory Refused the VisitRefused the Visit

• Evidence of Transshipment: Documents Evidence of Transshipment: Documents or Interview with Factory Manager or Interview with Factory Manager Reveal that the Goods Were Reveal that the Goods Were Manufactured in a Different CountryManufactured in a Different Country

16


TPVTPVTT

• What Are the Risk Category Actions TakenWhat Are the Risk Category Actions Taken• No Risk: All Goods Clear U.S. Customs ImmediatelyNo Risk: All Goods Clear U.S. Customs Immediately• Low Risk: Spot Checks May Be Performed on Low Risk: Spot Checks May Be Performed on

Certain ShipmentsCertain Shipments• High Risk: All Shipments Will Be Stopped at the High Risk: All Shipments Will Be Stopped at the

Port of Entry Until the Level of Risk Decreases or Is Port of Entry Until the Level of Risk Decreases or Is Eliminated; Customs Will Ask for All Production Eliminated; Customs Will Ask for All Production Documents to Be Verified at the U.S. PortDocuments to Be Verified at the U.S. Port

• Evidence of Transshipment: See High Risk ResultsEvidence of Transshipment: See High Risk Results

• Overall Risk May Be Changed When the Overall Risk May Be Changed When the Company Comes into ComplianceCompany Comes into Compliance

What Should You What Should You Do?Do?

• Establish a Factory Profile• This Profile Should Include the

Following:• What Types of Goods are

Manufactured/Produced?• How Are Goods Manufactured?• What Types of Processes Occur?• What Types of Machines Are Used?• How Many Employees Do You Have?• What Are the Individual Skill Sets?• What Is Your Annual Production

Capability; What Is Your Average Monthly Production

• Who Owns the Factory?• Do You Have a Joint Venture

Investment?• How Many Shifts Do You Use?• Who Are Your Customers?

Department of Homeland Security Customs and Border ProtectionDepartment of Homeland Security Customs and Border Protection

17


What Should You Do?Develop Factory Profile:Develop Factory Profile:• Who are the Who are the

Owners/Managers?Owners/Managers?• What is the Location? Are What is the Location? Are

Any other Factories Owned?Any other Factories Owned?• What Date Was the Factory What Date Was the Factory

Established?Established?• Do You Use Subcontractors?Do You Use Subcontractors?• Renew and Update Profile Renew and Update Profile

YearlyYearly


18


ProductionProduction• EmployeesEmployees

• How Many Employees Are How Many Employees Are There?There?

• How Skilled Are the How Skilled Are the Employees? Employees?

• How Fast Do They Work?How Fast Do They Work?• Do the Employees Do the Employees

Specialize? If So, This Specialize? If So, This Generally Improves Their Generally Improves Their Efficiency.Efficiency.

What Is Verified?What Is Verified?Factory InspectionsFactory Inspections


19


•Raw MaterialsRaw Materials•Fabric, Thread, LabelsFabric, Thread, Labels

•Does the Factory Stock Does the Factory Stock the Materials or Is the the Materials or Is the Material Brought in by Material Brought in by Order? Order?



20


Raw MaterialsRaw Materials• Fabric, Thread, LabelsFabric, Thread, Labels

• Do They Have the Do They Have the Appropriate Type and Appropriate Type and Quantity of Quantity of Fabric/components to Match Fabric/components to Match the Type and Quantity of the Type and Quantity of Merchandise They Produce?Merchandise They Produce?

• Are the Raw Materials in New Are the Raw Materials in New

and in Good Condition? and in Good Condition?



21


MachineryMachinery•Cutting Tables/SpreadersCutting Tables/Spreaders•Markers/PatternsMarkers/Patterns

• Cut Components - Does the Cut Components - Does the Factory Cut Their Own Fabric? If Factory Cut Their Own Fabric? If So, Do They Have Patterns and So, Do They Have Patterns and Markers to Make the Components?Markers to Make the Components?

• Is There Waste/Scraps Resulting Is There Waste/Scraps Resulting From Cutting? (Either in Bags or From Cutting? (Either in Bags or Floor Depending on Time of Visit)Floor Depending on Time of Visit)



22


• NumberNumber• Is It Sufficient for the Is It Sufficient for the

Production Claimed? Production Claimed? • ConditionCondition

• Are Most Machines in Are Most Machines in Workable Condition? Workable Condition?

• AppropriatenessAppropriateness• Are the Type of Machines Are the Type of Machines

Appropriate for the Type of Appropriate for the Type of Merchandise Being Merchandise Being ProducedProduced

What Is Verified?What Is Verified?Factory Inspections - Factory Inspections - MachineryMachinery


23


Machinery Machinery •Sewing MachinesSewing Machines

•Do They Have Enough for Do They Have Enough for Their Claimed Production?Their Claimed Production?

•How Many Are in Use? How Many Are in Use?

•How Many Are Idle? How Many Are Idle?

What Is Verified?What Is Verified? Factory Inspections Factory Inspections


24


MachineryMachinery• Specialty MachinesSpecialty Machines

• Does the Factory Have the Does the Factory Have the Necessary Specialty Machines for Necessary Specialty Machines for the Merchandise They Produce? the Merchandise They Produce? (I.E. Waistband, Buttonhole)(I.E. Waistband, Buttonhole)

• If Not, Why?If Not, Why?• Is There a Subcontractor Who Is There a Subcontractor Who

Does This Step? Does This Step? •Otherwise, How Is Production Otherwise, How Is Production

Accomplished?Accomplished?



25


ProductionProduction• Assembly Area/Line Assembly Area/Line

GroupsGroups• Is the Production Area Is the Production Area

Organized in a Logical, Organized in a Logical, Efficient Manner?Efficient Manner?

•Time in Motion Study - Time in Motion Study - Time the Most Time the Most Complicated Steps in Complicated Steps in Order to Estimate Daily Order to Estimate Daily Production.Production.

What Is Verified?What Is Verified?Factory Factory InspectionsInspections


26


Finishing OperationsFinishing Operations• Washing & DryingWashing & Drying

•Does the Factory Do Does the Factory Do Their Own Pressing, Their Own Pressing, Washing, And/or Washing, And/or Packing? Packing?

• If Not, Who Does This If Not, Who Does This Operation for Them? Operation for Them?

What Is Verified?What Is Verified? Factory InspectionsFactory Inspections


27


What Is Verified?What Is Verified?Documents and RecordsDocuments and Records

• The Steps of Production The Steps of Production Should Be ClearShould Be Clear

• A List of Production A List of Production Machinery Used in the Machinery Used in the Factory Is NeededFactory Is Needed

• The Records Need to Be Kept The Records Need to Be Kept for Two Yearsfor Two Years

• The Factory Needs to Maintain Sufficient Production Records Must Be Provided to Establish Country of Origin


28


What is Verified?Documents and Records• Number of Workers/Type of Work Number of Workers/Type of Work • Actual Goods Should Be Actual Goods Should Be

Traceable Via RecordsTraceable Via Records• Must Reflect the Quantity Must Reflect the Quantity

of the Shipment and the of the Shipment and the Type of Goods ProducedType of Goods Produced

• Work Performed Outside Work Performed Outside of the Factory (OPA) of the Factory (OPA) Should Be DocumentedShould Be Documented


29


What Is Verified?What Is Verified?Documents and RecordsDocuments and Records• Types of RecordsTypes of Records

• Orders and Payments for Raw Material Orders and Payments for Raw Material PurchasesPurchases

• Bills of Lading/Customs Clearance Bills of Lading/Customs Clearance DocumentsDocuments

• Export Documentation/Shipping RecordsExport Documentation/Shipping Records• Contracts/SubcontractsContracts/Subcontracts• Payroll RecordsPayroll Records• Cutting RecordsCutting Records• Assembly RecordsAssembly Records• Letters of CreditLetters of Credit• Out-processing RecordsOut-processing Records


30


Raw MaterialsRaw Materials• Invoices/Bill of Lading for Raw Invoices/Bill of Lading for Raw

MaterialsMaterials• Entry Documents for Raw Entry Documents for Raw

MaterialsMaterials• Verify Type of Raw Materials Verify Type of Raw Materials

(Fabric, Cut Components, Partially (Fabric, Cut Components, Partially Assembled Merchandise, Etc.)Assembled Merchandise, Etc.)

• Verify Where Raw Materials Are Verify Where Raw Materials Are From (Imported, Domestic, Both, From (Imported, Domestic, Both, also Made at the Factory Being also Made at the Factory Being Reviewed)Reviewed)

What is Verified?What is Verified?Documents and RecordsDocuments and Records


31


ProductionProduction• Contracts/SubcontractsContracts/Subcontracts

• How Busy Is the Factory When You Visit?How Busy Is the Factory When You Visit?• What Are They Currently Working on?What Are They Currently Working on?• When Do They Expect to Finish Current When Do They Expect to Finish Current

Production?Production?• What Orders Are Waiting to Be Produced?What Orders Are Waiting to Be Produced?• Compare Previous Few Months Total Compare Previous Few Months Total

Production Against Claimed Production Production Against Claimed Production (Higher? Lower? At Capacity?)(Higher? Lower? At Capacity?)

• Are Subcontractors Used? If So, Verify Are Subcontractors Used? If So, Verify Production of Subcontractors.Production of Subcontractors.



32


ProductionProduction• Production Time LineProduction Time Line

• Check Whether the Production Time Line Is Check Whether the Production Time Line Is Reasonable Based on the Factory’s Reasonable Based on the Factory’s Production Capacity:Production Capacity:•When Was the Order Received?When Was the Order Received?•When Did Production Start/finish?When Did Production Start/finish?•Can the Factory Produce in That Time Can the Factory Produce in That Time

Frame?Frame?•Were Other Orders Being Worked at the Were Other Orders Being Worked at the

Same Time?Same Time?•What Was Total Daily Production (All What Was Total Daily Production (All

Orders) in That Time Frame?Orders) in That Time Frame?



33


ProductionProduction• Cutting Tickets/Cutting Cutting Tickets/Cutting

RecordsRecords• Sewing Tickets/Sewing Sewing Tickets/Sewing

RecordsRecords• Verify Daily Cutting and Verify Daily Cutting and

Daily Sewing RecordsDaily Sewing Records• Compare Daily Records Compare Daily Records

Against Summary RecordsAgainst Summary Records



34


ProductionProduction• Cutting RecordsCutting Records• Sewing Tickets/Sewing Sewing Tickets/Sewing

RecordsRecords• If Workers Are Paid by the If Workers Are Paid by the

Piece, Verify Amount Paid Piece, Verify Amount Paid to Worker Against Payroll to Worker Against Payroll Records. Records.

• If Paid by Hourly Rate, If Paid by Hourly Rate, Verify Hours Paid Against Verify Hours Paid Against Time Cards. Time Cards.



35


ProductionProduction• Employee Time CardsEmployee Time Cards• Payroll RecordsPayroll Records

• Review Time Cards and Review Time Cards and Payroll Records to See If Payroll Records to See If Days/hours Match PaymentDays/hours Match Payment

• Review Time Cards and Review Time Cards and Payroll Records Against Daily Payroll Records Against Daily Production Records to Check Production Records to Check Out Claimed Production of Out Claimed Production of Workers. Workers. • Is the Amount Produced Is the Amount Produced

Reasonable?Reasonable?

What Is VerifiedWhat Is VerifiedDocuments and RecordsDocuments and Records


36


• Factory FilesFactory Files• Review All Files Relating to the Review All Files Relating to the

Production of the Merchandise:Production of the Merchandise:•Purchase OrdersPurchase Orders•Confirmation of OrdersConfirmation of Orders•Correspondence - Letters, Faxes, Etc.Correspondence - Letters, Faxes, Etc.•Shipping Arrangements and PaymentShipping Arrangements and Payment• Factory Inspection Reports by Customer Factory Inspection Reports by Customer

or Agentor Agent• Export Invoices and Packing ListsExport Invoices and Packing Lists•Payment RecordsPayment Records



37


• Out-processingOut-processing• Does the Country Permit Part Does the Country Permit Part

of the Processing in Another of the Processing in Another Country?Country?

• If So, What Controls Are in If So, What Controls Are in Place? What Documents Are Place? What Documents Are Required?Required?

• Verify Payment of All Out-Verify Payment of All Out-Processed WorkProcessed Work

• What Is the Size and What Is the Size and Capability of Other Factories Capability of Other Factories Used?Used?



38


•Out-processingOut-processing• Trace the Movement of Trace the Movement of

the Merchandisethe Merchandise• Is It in Production Is It in Production

Sequence?Sequence?•Time Frame for Time Frame for

Movement of Goods:Movement of Goods:• Is It Reasonable to Is It Reasonable to

Complete the Complete the Process?Process?



39


40


TextilesTextiles



Qualifying Industrial Zones QIZQualifying Industrial Zones QIZCairo, EgyptCairo, Egypt


41



• The United States The United States Represents the Represents the Largest Import Largest Import Market for Textile Market for Textile and Clothing and Clothing Products in the Products in the WorldWorld


42



Total for All Imports = $ 1.9 TrillionTotal for All Imports = $ 1.9 TrillionTextile Products = 43% of all Duties CollectedTextile Products = 43% of all Duties CollectedTotal Duties = $25 BillionTotal Duties = $25 BillionAverage Textile Duty Rate 16%Average Textile Duty Rate 16%Average Duty Rate for other Products< 2%Average Duty Rate for other Products< 2%

*K = Thousand M = Million B = Billion

CY 2001 CY 2002 CY 2003 CY 2004 CY2005% CHG

CY01-05Importers 56.9K* 60.8K 62.1K 63.5K 73.6K 29%Lines 5.1M 5.8M 6.2M 6.7M 7.7M 51%Value $71.4B $75.7B $83.4B $91.2B $100.3B 40%Duty $8.2B $8.2B $8.7B $9.1B $10.1B 23%


43



• Qualifying Industrial Zones (QIZ)Qualifying Industrial Zones (QIZ)• Special Provision of Trade within the Special Provision of Trade within the

U.S. Israel Free Trade AgreementU.S. Israel Free Trade Agreement• Allows QIZs in Egypt and JordanAllows QIZs in Egypt and Jordan

• 35% Value Added/Additional Agreement between 35% Value Added/Additional Agreement between Egypt and Israel 11.7% Israeli Value AddedEgypt and Israel 11.7% Israeli Value Added

• Rules of Origin Must Be MetRules of Origin Must Be Met• Direct Ship RulesDirect Ship Rules

44


45



•U.S. Customs and Border U.S. Customs and Border Protection, By Law, Must Protection, By Law, Must Enforce the Requirements of Enforce the Requirements of Each Agreement/ProgramEach Agreement/Program

46


Enforcement Enforcement Authorities/ToolsAuthorities/Tools• Detentions at U.S. Ports of Detentions at U.S. Ports of

Entry If CBP Import Specialists Entry If CBP Import Specialists Have Concerns about the OriginHave Concerns about the Origin

• Seizure of Merchandise at Time Seizure of Merchandise at Time of Attempted Entry If Origin of Attempted Entry If Origin Fraud Is DeterminedFraud Is Determined

• Duty Preference Claims May Be Duty Preference Claims May Be DeniedDenied

• Penalties Issued to ImportersPenalties Issued to Importers

47


EnforcementEnforcement• If the Goods Do Not Meet the If the Goods Do Not Meet the

Requirements of the Preferential Requirements of the Preferential ProgramProgram• The Preference is Denied; Appropriate Duty Is The Preference is Denied; Appropriate Duty Is

CollectedCollected• Penalties May Be Issued to the U.S. ImporterPenalties May Be Issued to the U.S. Importer

• If the Importer Is Also Claiming the If the Importer Is Also Claiming the Incorrect Country of Origin e.g. Egypt Incorrect Country of Origin e.g. Egypt Instead of ChinaInstead of China• The Goods May Be Seized and DestroyedThe Goods May Be Seized and Destroyed• Penalties May Be Issued to the U.S. ImporterPenalties May Be Issued to the U.S. Importer

48


EnforcementEnforcement

• Why Is Enforcement Important?Why Is Enforcement Important?• Protects the Economic Interest of the Protects the Economic Interest of the

Bilateral Trading PartnersBilateral Trading Partners• Ensures that Benefits Are Received by the Ensures that Benefits Are Received by the

Countries that Agree to the Requirements Countries that Agree to the Requirements and No Other Country and No Other Country

• Supports the Good Faith Negotiation of Supports the Good Faith Negotiation of the Bilateral Agreementthe Bilateral Agreement

• Ensures Access to the U.S. Market if the Ensures Access to the U.S. Market if the Goods Are in Compliance with the Goods Are in Compliance with the Agreements RequirementsAgreements Requirements

49


Textile Production Verification Textile Production Verification Teams (TPVT)Teams (TPVT)


50


Enforcement Enforcement Authorities/ToolsAuthorities/Tools• Textile Production Verification Textile Production Verification

Team (TPVT) VisitsTeam (TPVT) Visits• Visit on Average 12-13 Countries Visit on Average 12-13 Countries

Per YearPer Year• Conduct In-Factory ReviewsConduct In-Factory Reviews• Determine Production CapacityDetermine Production Capacity• Determine If Goods that Entered Determine If Goods that Entered

the U.S. Where Made in the the U.S. Where Made in the Country as DeclaredCountry as Declared

• Determine If a Preference Is Determine If a Preference Is Claimed that the Preference Claimed that the Preference Requirements Are MetRequirements Are Met

51


Purpose of TPVT Purpose of TPVT VisitsVisits• Ensure Goods Are Not Ensure Goods Are Not

Circumventing the Laws Governing Circumventing the Laws Governing the Importation of Textile Productsthe Importation of Textile Products• Illegal Transshipment to Avoid Illegal Transshipment to Avoid

Chinese QuotaChinese Quota• Illegal Transshipment to Take Illegal Transshipment to Take

Advantage of Trade Preference Advantage of Trade Preference Programs Such as the QIZPrograms Such as the QIZ

• Smuggling to Avoid Duty Payments Smuggling to Avoid Duty Payments and China Quotaand China Quota

52


TPVT CompositionTPVT Composition

• Import SpecialistImport Specialist• Individual Who Is Knowledgeable about Individual Who Is Knowledgeable about

the Commoditythe Commodity• Classification, Value, Country of Origin; the Classification, Value, Country of Origin; the

Way the Goods Are Manufactured; the Way the Goods Are Manufactured; the Importers, Manufacturers, etc.Importers, Manufacturers, etc.

• Criminal InvestigatorCriminal Investigator• Individual Who Is Knowledgeable about Individual Who Is Knowledgeable about

the Collection of Information, Evidence, the Collection of Information, Evidence, the Pursuit of Prosecution in U.S. Courts the Pursuit of Prosecution in U.S. Courts of Lawof Law

• Other DisciplinesOther Disciplines• Data AnalystsData Analysts

53


TPVTTPVT• What Does the TPVT Do?What Does the TPVT Do?

• Reviews the Factory OperationReviews the Factory Operation• Verifies Production CapacityVerifies Production Capacity

• Reviews and Verifies Two Entries of Reviews and Verifies Two Entries of Merchandise that Were Imported by a Merchandise that Were Imported by a U.S. CustomerU.S. Customer• Reviews all the Documents to Show the Reviews all the Documents to Show the

Manufacturing of the Individual Purchase Manufacturing of the Individual Purchase OrderOrder

• The TPVT Team Prepares an Extensive The TPVT Team Prepares an Extensive Report of the Visit to Each FactoryReport of the Visit to Each Factory

• The TPVT Puts Each Factory into a Risk The TPVT Puts Each Factory into a Risk CategoryCategory

54


TPVTTPVT• What Are the Risk CategoriesWhat Are the Risk Categories

• No Risk: All Documents and Production No Risk: All Documents and Production Was VerifiedWas Verified

• Low Risk: Some Minor Documents May Low Risk: Some Minor Documents May Be Missing; There May Be a Joint Be Missing; There May Be a Joint Venture that Needs Review Venture that Needs Review

• High Risk: Documents Are Missing So High Risk: Documents Are Missing So Production Cannot Be Verified; Factory Production Cannot Be Verified; Factory Refused the VisitRefused the Visit

• Evidence of Transshipment: Documents Evidence of Transshipment: Documents or Interview with Factory Manager or Interview with Factory Manager Reveal that the Goods Were Reveal that the Goods Were Manufactured in a Different CountryManufactured in a Different Country

55


TPVTPVTT

• What Are the Risk Category Actions TakenWhat Are the Risk Category Actions Taken• No Risk: All Goods Clear U.S. Customs ImmediatelyNo Risk: All Goods Clear U.S. Customs Immediately• Low Risk: Spot Checks May Be Performed on Low Risk: Spot Checks May Be Performed on

Certain ShipmentsCertain Shipments• High Risk: All Shipments Will Be Stopped at the High Risk: All Shipments Will Be Stopped at the

Port of Entry Until the Level of Risk Decreases or Is Port of Entry Until the Level of Risk Decreases or Is Eliminated; Customs Will Ask for All Production Eliminated; Customs Will Ask for All Production Documents to Be Verified at the U.S. PortDocuments to Be Verified at the U.S. Port

• Evidence of Transshipment: See High Risk ResultsEvidence of Transshipment: See High Risk Results

• Overall Risk May Be Changed When the Overall Risk May Be Changed When the Company Comes into ComplianceCompany Comes into Compliance

56


What Should You What Should You Do?Do?

• Establish a Factory Profile• This Profile Should Include the

Following:• What Types of Goods are

Manufactured/Produced?• How Are Goods Manufactured?• What Types of Processes Occur?• What Types of Machines Are Used?• How Many Employees Do You Have?• What Are the Individual Skill Sets?• What Is Your Annual Production

Capability; What Is Your Average Monthly Production

• Who Owns the Factory?• Do You Have a Joint Venture

Investment?• How Many Shifts Do You Use?• Who Are Your Customers?


56

57


What Should You Do?Develop Factory Profile:Develop Factory Profile:• Who are the Who are the

Owners/Managers?Owners/Managers?• What is the Location? Are What is the Location? Are

Any other Factories Owned?Any other Factories Owned?• What Date Was the Factory What Date Was the Factory

Established?Established?• Do You Use Subcontractors?Do You Use Subcontractors?• Renew and Update Profile Renew and Update Profile

YearlyYearly


57

58


ProductionProduction• EmployeesEmployees

• How Many Employees Are How Many Employees Are There?There?

• How Skilled Are the How Skilled Are the Employees? Employees?

• How Fast Do They Work?How Fast Do They Work?• Do the Employees Do the Employees

Specialize? If So, This Specialize? If So, This Generally Improves Their Generally Improves Their Efficiency.Efficiency.



58

59


•Raw MaterialsRaw Materials•Fabric, Thread, LabelsFabric, Thread, Labels

•Does the Factory Stock Does the Factory Stock the Materials or Is the the Materials or Is the Material Brought in by Material Brought in by Order? Order?



59

60


Egypt QIZ Rules for Egypt QIZ Rules for TextilesTextiles

Prepared by US Customs and Border Prepared by US Customs and Border ProtectionProtection


61


Egypt QIZ Legal Egypt QIZ Legal ReferencesReferences• Legal References in U.S. Law Code, Legal References in U.S. Law Code, the Harmonized Tariff Schedule and in the Harmonized Tariff Schedule and in U.S. Customs and Border Protection U.S. Customs and Border Protection Regulations Regulations

•Expiration Date: noneExpiration Date: none• General Note in HTSUS: GN 3(a)(v)General Note in HTSUS: GN 3(a)(v)• Special Indicator in HTSUS: NSpecial Indicator in HTSUS: N• US Code: 19 USC 2112US Code: 19 USC 2112• Public Law 99-47Public Law 99-47

62


Egypt QIZ Rule of OriginEgypt QIZ Rule of Origin• ““Product of” Egypt = Product of” Egypt = AssemblyAssembly or or

Knitting to Shape (19 CFR 102.21)Knitting to Shape (19 CFR 102.21)• 35% Value Added35% Value Added in Israel, Gaza Strip, in Israel, Gaza Strip,

West Bank or Egypt QIZ (or Double West Bank or Egypt QIZ (or Double Substantial Transformation)Substantial Transformation)

• May Include 15% or Less U.S. Content May Include 15% or Less U.S. Content in Order to Meet the 35% Value Addedin Order to Meet the 35% Value Added

• Israel and EgyptIsrael and Egypt Assure Their Agreed Assure Their Agreed Amount of Israeli Content Is Present, Amount of Israeli Content Is Present, Not the United StatesNot the United States

63


Egypt QIZ Egypt QIZ BenefitsBenefits

Duty Free Entry into US!Duty Free Entry into US!

64


Product of EgyptProduct of Egypt

• Yarn = Spinning or ExtrusionYarn = Spinning or Extrusion• Fabric = Weaving or KnittingFabric = Weaving or Knitting• Apparel = Assembly or Apparel = Assembly or

Knitting to ShapeKnitting to Shape• Made-ups = Weaving or Made-ups = Weaving or

KnittingKnitting

65


Product of EgyptProduct of EgyptAssemblyAssembly• When assembly occurs in more When assembly occurs in more than one country, the country of than one country, the country of origin is where the most origin is where the most important assembly or important assembly or manufacturing process occurred.manufacturing process occurred.• For ExampleFor Example, joining major joining major components like front and back components like front and back panels and sleevespanels and sleeves

• Minor assembly includes attaching Minor assembly includes attaching a collar or pre-assembly of a a collar or pre-assembly of a trouser waistbandtrouser waistband

66


Product of EgyptProduct of EgyptKnit to shape vs. products of knitted fabricKnit to shape vs. products of knitted fabric

Knit to shapeKnit to shape = 50% or more of the exterior = 50% or more of the exterior surface area is formed by major parts surface area is formed by major parts (not collars, cuffs, waistbands, etc.) (not collars, cuffs, waistbands, etc.) knitted or crocheted directly to shape, knitted or crocheted directly to shape, regardless of minor cutting. Components regardless of minor cutting. Components are linked and looped to form final are linked and looped to form final product.product.

Products of knitted fabricProducts of knitted fabric = fabric is = fabric is formed on a knitting machine and cut to formed on a knitting machine and cut to shape to form components for assembly shape to form components for assembly into final product.into final product.

67


Product of EgyptProduct of Egypt

Knit to Shape Components

68


Value AddedValue Added

• 35% Value Added in a Single 35% Value Added in a Single Substantial TransformationSubstantial Transformation

• Value of Assembly of Previously Value of Assembly of Previously Cut Components into a Garment Is Cut Components into a Garment Is 35% or More of the Value of the 35% or More of the Value of the Garment.Garment.

69


ExampleExample•Cotton Fabric Woven and Cotton Fabric Woven and

Cut in Korea (63% of Cut in Korea (63% of value)value)

•Sewing Thread, Zippers, Sewing Thread, Zippers, Waistband Lining & Waistband Lining & Pocketing Formed in Pocketing Formed in Israel (17% of value)Israel (17% of value)

•Sewn into Pants in Egypt Sewn into Pants in Egypt QIZ (20% of value)QIZ (20% of value)

70


Value AddedValue Added• 35% Value Added by Double 35% Value Added by Double

Substantial TransformationSubstantial Transformation• If a producer transforms fabric to cut If a producer transforms fabric to cut

components and then cut components to components and then cut components to assembled garment, that is 2 substantial assembled garment, that is 2 substantial transformations (cutting and sewing).transformations (cutting and sewing).

• By virtue of having transformed the By virtue of having transformed the fabric into cut components and then fabric into cut components and then sewing the components into an apparel sewing the components into an apparel article, the value of the fabric is included article, the value of the fabric is included in the value calculation of the finished in the value calculation of the finished garment.garment.

71


ExampleExample

• Cotton fabric made in China Cotton fabric made in China (68% value)(68% value)

• Interfacing and trim made in Interfacing and trim made in Israel (11% value)Israel (11% value)

• Fabric cut and assembled Fabric cut and assembled into babies’ dresses in Egypt into babies’ dresses in Egypt (21% value)(21% value)

• Because the fabric was cut Because the fabric was cut into components in Egypt the into components in Egypt the value of the fabric can be value of the fabric can be includedincluded

72


Egypt QIZ Direct ShipmentEgypt QIZ Direct Shipment

There Are 3 Methods in which There Are 3 Methods in which Products Can Meet the Direct Products Can Meet the Direct Shipment Requirement.Shipment Requirement.

GN 3(a)(v)(G)GN 3(a)(v)(G)

HTSUSHTSUS

73



1.1. Shipped Directly from the Shipped Directly from the West Bank, West Bank, the Gaza Strip, a QIZ or Israelthe Gaza Strip, a QIZ or Israel into the into the US Without Passing through the US Without Passing through the Territory of Any Intermediate CountryTerritory of Any Intermediate Country

GN 3(a)(v)(G)HTSUS

74



2.2. If the Shipment Is through the Territory If the Shipment Is through the Territory of an Intermediate Country, the Articles of an Intermediate Country, the Articles in the Shipment Do Not Enter into the in the Shipment Do Not Enter into the Commerce of Any Intermediate Country Commerce of Any Intermediate Country and the Invoices, Bills of Lading, and and the Invoices, Bills of Lading, and other Shipping Documents, Show the other Shipping Documents, Show the U.S. as the Final DestinationU.S. as the Final Destination

GN 3(a)(v)(G)GN 3(a)(v)(G)HTSUSHTSUS

75



3.3. If Shipment is through an If Shipment is through an Intermediate Country and Intermediate Country and the Invoices and other the Invoices and other Documents Do Not Show Documents Do Not Show the U.S. as the Final the U.S. as the Final Destination, then the Destination, then the Articles in the Shipment, Articles in the Shipment, upon Arrival in the US, Are upon Arrival in the US, Are Imported Directly Only if Imported Directly Only if They:They:

76



(A) Remain under the (A) Remain under the Control of the Customs Control of the Customs AuthorityAuthority in an Intermediate Country; in an Intermediate Country;

(B) (B) Do Not Enter into the CommerceDo Not Enter into the Commerce of an of an Intermediate Country Except for the Purpose of a Sale Intermediate Country Except for the Purpose of a Sale other than at Retail, Provided that the Articles are other than at Retail, Provided that the Articles are Imported as a Result of the Original Commercial Imported as a Result of the Original Commercial Transaction between the Importer and the Producer Transaction between the Importer and the Producer or the Latter's Sales Agent;or the Latter's Sales Agent;

(C) (C) Have Not Been Subjected to OperationsHave Not Been Subjected to Operations other other than Loading and Unloading, and other Activities than Loading and Unloading, and other Activities Necessary to Preserve the Article in Good Condition.Necessary to Preserve the Article in Good Condition.

GN 3(a)(v)(G)GN 3(a)(v)(G)

HTSUSHTSUS

77


SummarySummary

• Be Mindful of the Rules of Origin for Be Mindful of the Rules of Origin for Claiming a QIZ PreferenceClaiming a QIZ Preference

• Ensure that All Goods Leaving the Factory Ensure that All Goods Leaving the Factory Meet the Requirements and Are Marked Meet the Requirements and Are Marked with the Correct Country of Origin in the with the Correct Country of Origin in the LabelLabel

• Keep All Documents in Order; Many U.S. Keep All Documents in Order; Many U.S. Importers Are Including in Contracts that Importers Are Including in Contracts that if the Goods Do Not Clear U.S. Customs if the Goods Do Not Clear U.S. Customs and Border Protection They Will Not Pay and Border Protection They Will Not Pay for the Orderfor the Order

78


Raw MaterialsRaw Materials• Fabric, Thread, LabelsFabric, Thread, Labels

• Do They Have the Do They Have the Appropriate Type and Appropriate Type and Quantity of Quantity of Fabric/components to Match Fabric/components to Match the Type and Quantity of the Type and Quantity of Merchandise They Produce?Merchandise They Produce?

• Are the Raw Materials in New Are the Raw Materials in New

and in Good Condition? and in Good Condition?



78

79


MachineryMachinery•Cutting Tables/SpreadersCutting Tables/Spreaders•Markers/PatternsMarkers/Patterns

• Cut Components - Does the Cut Components - Does the Factory Cut Their Own Fabric? If Factory Cut Their Own Fabric? If So, Do They Have Patterns and So, Do They Have Patterns and Markers to Make the Components?Markers to Make the Components?

• Is There Waste/Scraps Resulting Is There Waste/Scraps Resulting From Cutting? (Either in Bags or From Cutting? (Either in Bags or Floor Depending on Time of Visit)Floor Depending on Time of Visit)



79

80


• NumberNumber• Is It Sufficient for the Is It Sufficient for the

Production Claimed? Production Claimed? • ConditionCondition

• Are Most Machines in Are Most Machines in Workable Condition? Workable Condition?

• AppropriatenessAppropriateness• Are the Type of Machines Are the Type of Machines

Appropriate for the Type of Appropriate for the Type of Merchandise Being Merchandise Being ProducedProduced

What Is Verified?What Is Verified?Factory Inspections - Factory Inspections - MachineryMachinery


80

81


Machinery Machinery •Sewing MachinesSewing Machines

•Do They Have Enough for Do They Have Enough for Their Claimed Production?Their Claimed Production?

•How Many Are in Use? How Many Are in Use?

•How Many Are Idle? How Many Are Idle?



81

82


MachineryMachinery• Specialty MachinesSpecialty Machines

• Does the Factory Have the Does the Factory Have the Necessary Specialty Machines for Necessary Specialty Machines for the Merchandise They Produce? the Merchandise They Produce? (I.E. Waistband, Buttonhole)(I.E. Waistband, Buttonhole)

• If Not, Why?If Not, Why?• Is There a Subcontractor Who Is There a Subcontractor Who

Does This Step? Does This Step? •Otherwise, How Is Production Otherwise, How Is Production

Accomplished?Accomplished?



82

83


ProductionProduction• Assembly Area/Line Assembly Area/Line

GroupsGroups• Is the Production Area Is the Production Area

Organized in a Logical, Organized in a Logical, Efficient Manner?Efficient Manner?

•Time in Motion Study - Time in Motion Study - Time the Most Time the Most Complicated Steps in Complicated Steps in Order to Estimate Daily Order to Estimate Daily Production.Production.

What Is Verified?What Is Verified?Factory Factory InspectionsInspections


83

84


Finishing OperationsFinishing Operations• Washing & DryingWashing & Drying

•Does the Factory Do Does the Factory Do Their Own Pressing, Their Own Pressing, Washing, And/or Washing, And/or Packing? Packing?

• If Not, Who Does This If Not, Who Does This Operation for Them? Operation for Them?

What Is Verified?What Is Verified? Factory InspectionsFactory Inspections


84

85



• The Steps of Production The Steps of Production Should Be ClearShould Be Clear

• A List of Production A List of Production Machinery Used in the Machinery Used in the Factory Is NeededFactory Is Needed

• The Records Need to Be Kept The Records Need to Be Kept for Two Yearsfor Two Years

• The Factory Needs to Maintain Sufficient Production Records Must Be Provided to Establish Country of Origin


85

86


What is Verified?Documents and Records• Number of Workers/Type of Work Number of Workers/Type of Work • Actual Goods Should Be Actual Goods Should Be

Traceable Via RecordsTraceable Via Records• Must Reflect the Quantity Must Reflect the Quantity

of the Shipment and the of the Shipment and the Type of Goods ProducedType of Goods Produced

• Work Performed Outside Work Performed Outside of the Factory (OPA) of the Factory (OPA) Should Be DocumentedShould Be Documented


86

87


What Is Verified?What Is Verified?Documents and RecordsDocuments and Records• Types of RecordsTypes of Records

• Orders and Payments for Raw Material Orders and Payments for Raw Material PurchasesPurchases

• Bills of Lading/Customs Clearance Bills of Lading/Customs Clearance DocumentsDocuments

• Export Documentation/Shipping RecordsExport Documentation/Shipping Records• Contracts/SubcontractsContracts/Subcontracts• Payroll RecordsPayroll Records• Cutting RecordsCutting Records• Assembly RecordsAssembly Records• Letters of CreditLetters of Credit• Out-processing RecordsOut-processing Records


87

88


Raw MaterialsRaw Materials• Invoices/Bill of Lading for Raw Invoices/Bill of Lading for Raw

MaterialsMaterials• Entry Documents for Raw Entry Documents for Raw

MaterialsMaterials• Verify Type of Raw Materials Verify Type of Raw Materials

(Fabric, Cut Components, Partially (Fabric, Cut Components, Partially Assembled Merchandise, Etc.)Assembled Merchandise, Etc.)

• Verify Where Raw Materials Are Verify Where Raw Materials Are From (Imported, Domestic, Both, From (Imported, Domestic, Both, also Made at the Factory Being also Made at the Factory Being Reviewed)Reviewed)

What is Verified?What is Verified?Documents and RecordsDocuments and Records


88

89


ProductionProduction• Contracts/SubcontractsContracts/Subcontracts

• How Busy Is the Factory When You Visit?How Busy Is the Factory When You Visit?• What Are They Currently Working on?What Are They Currently Working on?• When Do They Expect to Finish Current When Do They Expect to Finish Current

Production?Production?• What Orders Are Waiting to Be Produced?What Orders Are Waiting to Be Produced?• Compare Previous Few Months Total Compare Previous Few Months Total

Production Against Claimed Production Production Against Claimed Production (Higher? Lower? At Capacity?)(Higher? Lower? At Capacity?)

• Are Subcontractors Used? If So, Verify Are Subcontractors Used? If So, Verify Production of Subcontractors.Production of Subcontractors.



89

90


ProductionProduction• Production Time LineProduction Time Line

• Check Whether the Production Time Line Is Check Whether the Production Time Line Is Reasonable Based on the Factory’s Reasonable Based on the Factory’s Production Capacity:Production Capacity:•When Was the Order Received?When Was the Order Received?•When Did Production Start/finish?When Did Production Start/finish?•Can the Factory Produce in That Time Can the Factory Produce in That Time

Frame?Frame?•Were Other Orders Being Worked at the Were Other Orders Being Worked at the

Same Time?Same Time?•What Was Total Daily Production (All What Was Total Daily Production (All

Orders) in That Time Frame?Orders) in That Time Frame?



90

91


ProductionProduction• Cutting Tickets/Cutting Cutting Tickets/Cutting

RecordsRecords• Sewing Tickets/Sewing Sewing Tickets/Sewing

RecordsRecords• Verify Daily Cutting and Verify Daily Cutting and

Daily Sewing RecordsDaily Sewing Records• Compare Daily Records Compare Daily Records

Against Summary RecordsAgainst Summary Records



91

92


ProductionProduction• Cutting RecordsCutting Records• Sewing Tickets/Sewing Sewing Tickets/Sewing

RecordsRecords• If Workers Are Paid by the If Workers Are Paid by the

Piece, Verify Amount Paid Piece, Verify Amount Paid to Worker Against Payroll to Worker Against Payroll Records. Records.

• If Paid by Hourly Rate, If Paid by Hourly Rate, Verify Hours Paid Against Verify Hours Paid Against Time Cards. Time Cards.



92

93


ProductionProduction• Employee Time CardsEmployee Time Cards• Payroll RecordsPayroll Records

• Review Time Cards and Review Time Cards and Payroll Records to See If Payroll Records to See If Days/hours Match PaymentDays/hours Match Payment

• Review Time Cards and Review Time Cards and Payroll Records Against Daily Payroll Records Against Daily Production Records to Check Production Records to Check Out Claimed Production of Out Claimed Production of Workers. Workers. • Is the Amount Produced Is the Amount Produced

Reasonable?Reasonable?



93

94


• Factory FilesFactory Files• Review All Files Relating to the Review All Files Relating to the

Production of the Merchandise:Production of the Merchandise:•Purchase OrdersPurchase Orders•Confirmation of OrdersConfirmation of Orders•Correspondence - Letters, Faxes, Etc.Correspondence - Letters, Faxes, Etc.•Shipping Arrangements and PaymentShipping Arrangements and Payment• Factory Inspection Reports by Customer Factory Inspection Reports by Customer

or Agentor Agent• Export Invoices and Packing ListsExport Invoices and Packing Lists•Payment RecordsPayment Records



94

95


• Out-processingOut-processing• Does the Country Permit Part Does the Country Permit Part

of the Processing in Another of the Processing in Another Country?Country?

• If So, What Controls Are in If So, What Controls Are in Place? What Documents Are Place? What Documents Are Required?Required?

• Verify Payment of All Out-Verify Payment of All Out-Processed WorkProcessed Work

• What Is the Size and What Is the Size and Capability of Other Factories Capability of Other Factories Used?Used?



95

96


•Out-processingOut-processing• Trace the Movement of Trace the Movement of

the Merchandisethe Merchandise• Is It in Production Is It in Production

Sequence?Sequence?•Time Frame for Time Frame for

Movement of Goods:Movement of Goods:• Is It Reasonable to Is It Reasonable to

Complete the Complete the Process?Process?



96

1 u.s. customs and border protection textiles department of homeland security customs and border...

Documents

border protectionaugust

border protectiontotal

border protectionenforcementif

preference requirements

chinathe goods

largest import market

average duty rate

incorrect country of