cross border north america - translaw.org annual meeting/panel 9c... · duty free status motor...

CROSS BORDER NORTH AMERICA

REFRESHER ON THE BASICS OF CROSS-BORDER TRANSACTIONS:

PLAYERS DOCUMENTS AND APPLICATION OF LAWS

Dan Fulkerson Lorance & Thompson P.C. Houston, Texas [email protected]

Cross Border Compliance and Legal Issues

Basic Issues for the Importer / Exporter Compliance with CBP Regulations Other Government Agency (OGA) Issues NAFTA Duty Free Status Motor Carriers Customs Security Programs C-TPAT – Customs Trade Partnership Against Terrorism CSI - Container Security Initiative ACAS – Air Cargo Advanced Screening Customs and Trade Issues

Choice of Law and Venue in Cross Border Logistics Claims

Import Basics

Collection of Revenue • Duties • Harbor Maintenance Fees

Control of Trade • ADD/CVD issues – protection of U.S. businesses from goods sold at an

unfairly low or subsidized price. • Import Safety – protection from unsafe products • Intellectual Property Rights – counterfeit and copyright issues • Textiles – Quotas/counterfiet issues (40% of Customs revenue is

collected from textiles) • Enforcement of Free Trade Agreements, NAFTA, etc.

Security – (anti-terrorism)

Importing Basics – The Entry Process

• The Customs Entry

– Reporting the Type of Commodity, Quantity, Country of Origin

• An importer must use “reasonable care” to ensure that accurate information is provided to Customs

• The Customs Modernization Act, “Mod Act”

– The burden is on the importer/exporter to ensure accurate information is reported to Customs

Proper Cargo Handling

Routine Compliance Issues

Incorrect description of merchandise • The commodity must be properly described as per the tariff

schedule

• If a significant difference in the rate of duty between two tariff classifications the importer may obtain a binding ruling request from CBP.

Red Flags • Customs tracks manufacturers and wholesalers worldwide.

Incorrect descriptions of merchandise will lead to “red flags” and examinations of records and shipments.

Routine Compliance Issues NAFTA Country of Origin Criteria

There are four ways in which goods meet the NAFTA rule of origin:

A. Goods with "wholly produced or obtained" in the NAFTA region, i.e., they contain no non-NAFTA material (most often agriculture) B. Goods containing non-NAFTA content but that have undergone a process to advance the tariff classification (such as turning flour into bread) C. Goods manufactured from wholly originating NAFTA content in the NAFTA region. D. Goods produced in the NAFTA region that contain at least 50% of NAFTA originating materials.


Other Government Agency (OGA) Compliance • Each governmental agency has its own importation requirements

• Importers must file documentation with each agency that oversees a certain industry with each Customs entry

• Failure to register with OGA on importation may lead to delay of the entry or fines and penalties


Other Government Agency (OGA) Compliance

The U.S. Department of Transportation (DOT), National Highway Traffic Safety Administration (NHTSA), requires a Declaration for Importation of Motor Vehicles and Motor Vehicle Equipment Subject to Federal Motor Vehicle Safety, Bumper and Theft Prevention Standards (HS-7) be filed for merchandise subject to their review.


The Federal Communications Commission (FCC) requires that a FCC-740 (Statement Regarding the Importation of Radio Frequency Devices Capable of Causing Harmful Interference) be filed for merchandise identified as containing radio frequency devices.


The Food and Drug Administration requires supporting FDA documents be filed for merchandise subject to their review.

• FDA has dozens for forms required upon importation for each different type of food, and if that food will be processed or relabeled.

• Specific forms for drugs and medical devices—

Manufacturing facility must be approved prior to shipment of drugs/devices into the U.S.

Routine Compliance Issues U.S. Department of Fish and Wildlife • Over 1000 species are protected. No imports of products made from

these species are allowed

• Enforcement of CITES treaty - (Convention on International Trade in Endangered Species of Wild Flora and Fauna)

Enforcement of U.S. endangered species laws: African Elephant Conservation Act Airborne Hunting Act Antarctic Conservation Act Archaeological Resources Protection Act Bald and Golden Eagle Protection Act Endangered Species Act Lacey Act

Migratory Bird Hunting Stamp Act Migratory Bird Treaty Act Marine Mammal Protection Act National Wildlife Refuge System Rhinoceros and Tiger Conservation Act of 1998 Wild Bird Conservation Act


U.S. Department of Agriculture • Responsible for ensuring the health of livestock and poultry entering the US

- Certain geographic regions are subject to certain livestock diseases: Hoof and Mouth Disease, Bird Flu, etc.

• Animal Produce Health Inspection Service (APHIS)

- Wooden packaging materials (e.g., pallets, crates, boxes, and dunnage) imported into the United States must be heat treated or fumigated with methyl bromide and marked with the International Plant Protection Convention (IPPC) logo and appropriate country code designating the location of treatment.

Routine Compliance issues

• USDA Compliance: APHIS

• International Plant Protection Convention (IPPC) logo that must appear on all pallets and wooden packing materials:

Forklift Compliance

Customs Modernization Act

• Part of NAFTA

• “Shared Responsibility” and “Informed Compliance” These concepts are premised on the idea that to maximize voluntary compliance with Customs laws and regulations, the trade community needs to be clearly and completely informed of its legal obligations. Accordingly, the Mod Act imposes a greater obligation on Customs to provide the public with improved information concerning the trade community's responsibilities and rights under Customs and related laws. In addition, both the trade and Customs share responsibility in carrying out import requirements.


The Modernization Act requires an importer to use “Reasonable Care” in the Customs transaction. The Basic Reasonable Care Checklist: • Consult with a Customs "expert" (e.g., lawyer, Customs broker, accountant, or

Customs consultant) to assist in the description and/or classification of the merchandise.

• A responsible and knowledgeable individual within your organization must be accountable for the review of Customs documentation prepared by you or your expert to ensure that it is full, complete and accurate.

• If you use an expert to assist you in complying with Customs requirements, have

you discussed your importations in advance with that person and have you provided that person with full, complete and accurate information about the import transactions?


Reasonable Care to Ensure the Proper Tariff Classification:

• Must establish reliable procedures in your organization to ensure that the merchandise is accurately described on the commercial invoice and the tariff classification.

• Consider obtaining a “ruling” from Customs that the merchandise is classified correctly.

• Develop a program to ensure that your organization follows the established procedures

Customs Modernization Act Are you reporting the proper value for the goods?

What are the terms of sale? FOB, Ex Works, CIS?

• Depending on the terms of sale the cost of freight and insurance should be deducted before declaring a value to Customs.

Is the transaction between “related” business? • Do you have a procedure in place to ensure that the proper value is

calculated in a “related” transaction?

What are the terms of sale? FOB, Ex Works, CIS? • Depending on the terms of sale the cost of freight and insurance should be

deducted before declaring a value to Customs.

• Are there rebates or commissions to deduct from the sale price?


Country of Origin/Marking/Quota Merchandise

• All goods must be properly marked with a Country of Origin

• To determine proper origin it must be a product of that country or have undergone substantial manipulation in that country. This is normally a manufacturing process that results in a change in the tariff classification number.

Marking of Merchandise

Country of Origin Markings must appear on each item.

• The marking must be legible and permanent enough for the ultimate purchaser to be made aware of the goods origin.

• The ultimate purchaser is the person who will last purchase or receive the article in the condition in which it was imported.

• If marking is inadequate the goods cannot pass the border.

Penalties for Non-Compliance The U.S. Customs Service assesses civil penalties against importers for goods

that are imported into the United States in violation of law. Customs may also assess penalties on exports from the U.S. for false or negligent drawback claims and false NAFTA certificates of origin.

Civil penalties range from two to four times the loss of revenue for negligence or gross negligence cases, and up to the domestic value of the goods in cases where fraud is alleged. Penalties for non-revenue loss violations can range from 20 to 40 percent of the value of the merchandise for negligence or gross negligence cases, and up to the domestic value of the goods in cases where fraud is alleged.

Penalties for Non Compliance

Civil penalties Section 592 of the Tariff Act of 1930 is the basic and most widely used

customs penalty provision for the importation of goods. It prescribes monetary penalties against any person who imports, attempts the importation of merchandise by means of false or fraudulent documents, statements, omissions or practices, concerning any material fact. Penalties may be applied even in situations where there is no loss of revenue.

Section 592 infractions are divided into three categories of culpability, each giving rise to a different maximum penalty:

Fraud, an act or omission done intentionally to defraud the United States Department of Revenue. The maximum civil penalty for a violation is the domestic value of the merchandise in the entry or entries concerned.

Penalties for Non Compliance

Gross negligence, an act or omission with actual knowledge of, or wanton disregard for, the relevant facts and a disregard of section 592 obligations. The maximum civil penalty is the lesser of the domestic value of the merchandise or four times the loss of revenue (actual or potential). IF the infraction does not affect revenue, the maximum penalty is 40% of the dutiable value of the good.

Negligence, involving a failure to exercise due care in ascertaining the material facts or in ascertaining the obligations under section 592. The maximum civil penalties are the same for gross negligence, except the lesser of twice the domestic value of the merchandise or twice the loss of revenue is used. The penalty cannot exceed 20% of the dutiable value.

Exporting Basics

Goals of Export Regulations

Control of Trade

Safety and Security

- Individuals and institutions that may divert technology to those hostile to the United States.

- Enforcement of country embargos

Exporting Basics • The main issues with export regulations are to prevent U.S.

goods from the wrong hands Three main areas of enforcement:

• Denied persons Must check the lists of individuals and institutions that are not available

to receive U.S. technology.

• Controlled products (technology) In Texas, most often oilfield equipment

• Denied countries: Afghanistan, Burma, Belarus, China, Ivory Coast, Cuba, Cypress, Democratic Republic of the Congo, Eritrea, Fiji, Guinea, Haiti, Iran, Iraq, Kyrgyzstan, Liberia, Libya, North Korea, Somalia, Sri Lanka, Sudan, Syria, Venezuela, Vietnam, Zimbabwe

Exporting Basics

Tips for Faster Export Clearance 1. Include all information required on your customs invoices.

2. Prepare your invoices carefully. Type them clearly. Allow sufficient space between lines. Keep the data within each column.

3. Your invoice should contain the information that would be shown on a well-prepared packing list.

4. Mark and number each package so it can be identified with the marks and numbers appearing on your invoice.

5. Detailed description on your invoice of each item of merchandise contained in each individual package.

6. Conspicuous Country of Origin Markings

7. Comply with the provisions of any special laws of the United States that may apply to your goods, such as laws relating to food, drugs, cosmetics, alcoholic beverages, radioactive materials, and others. Continued…

Exporting Basics

Tips for Faster Export Clearance 8. Observe the instructions closely with respect to invoicing, packaging, marking,

labeling, etc., sent to you by your customer in the United States. He or she has

probably made a careful check of the requirements that will have to be met when

your merchandise arrives.

9. Work with CBP to develop packing standards for your commodities.

10. Establish sound security procedures at your facility and while transporting your goods for shipment.

11. Consider shipping on a carrier participating in the Automated Manifest System (AMS).

12. Use a Customs Broker that participates in the Automated Broker Interface (ABI).

Exporting Basics

Most important method to speed your paperwork through Customs:

• Participate in the partnership programs! You paperwork is more likely to be cleared electronically if there are no “red flags” for improperly prepared Customs forms.

• Members of the trade community who participate in the industry programs go to the “front of the line” (or so they tell us)

Record Keeping Requirements

19 U.S.C. §1509(a)(1)(A) Requires all records necessary for the entry of merchandise must be kept for five years, including but not limited to:

• Bills of lading

• Power of attorney

• Invoices

• Packing lists

• Bonds

• Customs forms

• Country of Origin Certificates

• Quota documents

Penalties for Violation of Export Regulations

Penalties for non-compliance with export regulations include:

• Monetary penalties

• Possible loss of export control privileges

• Employee termination and imprisonment

Ignore the list and go to jail

Penalties for Violation of Export Regulations

Penalties for a company that “willfully” or “knowingly” violates the Export Administration Act are:

• Potentially a $1,000,000 fine or five times the value of the export, whichever is greater, per violation.

• An employee committing the same violation is potentially subject to a $1,000,000 fine and up to twenty years imprisonment, per violation.

• Civil penalties of up to $250,000 and a denial of export privileges may be imposed in addition to or in place of any criminal penalties

Section 764.3 of the Export Administration Regulations.

Trade Programs - An Overview What do the Modernization Act and CTPAT have in common? Shifts the burden of compliance and security from the agency to the trade community.

• Offers rewards and incentives to participate

• Best practices reduce the need for enforcement

• More reliance on technology

• Computer profiling – red flags. Don’t be on the “problem” list

• We are the eyes and ears for security

Customs Security Programs

Customs Programs

CTPAT – Customs Trade Partnership Against Terrorism CSI – Container Security Initiative ACAS – Air Cargo Advanced Screening IPP – Industry/Partnership Program s CIP - Carrier Initiative Program BASC – Business Alliance for Secure Commerce ICSI - Americas Counter Smuggling Initiative LBCIP – Land Border Carrier Initiative Program

Goals: Automation, Increased Compliance to reduce manpower and save resources while also fulfilling the mission of CBP more effectively

Customs Security Programs- CTPAT

• Customs Trade Partnership Against Terrorism CTPAT

What is CTPAT? • Not about duties/tariffs, valuation, quotas, classification • Not a statute • Not a regulation • Not an executive order • Can’t find it in the CFR or US Code • No registration fees • Not available to pure “broker” only those who handle cargo • Strictly a “Voluntary” program (for now).

Customs Security Programs- CTPAT

THEN - What is CTPAT? CBP is pushing security responsibilities onto the trade community. The goal is to develop trusted partners for every link of the supply chain to reduce the threat of terrorism. Who is eligible? any member of the supply chain that handles the goods. This begins with the shipper, packers, carriers, warehouses and drayage. The program is not limited to large importer/exporters as CBP recognizes that small and medium-sized companies are integral parts of maintaining secure borders Who is not eligible? Any business that does not handle the goods. Brokers, 3PL’s or other non asset based businesses that do not actually handle the goods.

Customs Programs -FAST Free and Secure Trade Program The FAST Lane – If every link in the supply chain is CTPAT Certified you qualify for the FAST lane. The Canadian Border Services Agency also participates in FAST

Canadian Customs Programs

NEXUS –

• Trusted traveler program

• Low risk, preapproved travelers

• Special lanes at border crossings

PIP – Partners in Protection

• Facilities inspected by CBSA for security

• Lower risk score, recognized as a Trusted Trader

CSA – Customs Self Assessment

• Necessary to Participate in FAST

• Promise of faster clearance times

• Low risk, preapproved importers and drivers

Canadian/U.S. Motor Carriage

• In 2013, Canadian for-hire carriers moved roughly 224 billion tonne-kilometres of freight. (240,000,000 U.S. tons).

• 40% of Canadian Motor Carriage is for the import/export market.

• In 2012, the value of Canada-U.S. trade (inbound and outbound) increased by 4 per cent to a total of $551 billion. Close to 57 per cent of this trade was shipped by trucks ($325 billion) and nearly 78 per cent of Canada-U.S. total road-based trade passed through Ontario and Quebec border crossings with the United States.

• In 2012, two-way car and truck traffic crossing the Canada-U.S. border rose from 2011, reaching 63.7 and 10.8 million vehicles respectively, up 4% since 2011. Car traffic increased by 4% over 2011 figures while truck traffic increased 2%.

Canadian/U.S. Motor Carriage

57% per cent of Canada – U.S. trade was shipped by trucks ($325 billion) and nearly 78% of Canada-U.S. total road-based trade passed through Ontario and Quebec border crossings with the United States. In 2012, two-way car and truck traffic crossing the Canada-U.S. border rose from 2011, reaching 63.7 and 10.8 million vehicles respectively, up 4 per cent since 2011. Car traffic increased by 4 per cent over 2011 figures while truck traffic increased 2%. In 2012, the level of truck activity at the Windsor-Ambassador Bridge increased 5 per cent over 2011. Eleven of the 20 largest border crossings recorded higher truck traffic from the previous year.

Cross-Border Liability Issues

Two Threshold Issues:

Choice of Venue Issues

Choice of Law Issues

Is there a “through” bill of lading?

Cross Border Logistics Liability

Choice of Law Issues: where did the loss occur? Tempel Steel v. Landstar, 211 F.3d 1029 (7th Cir. 2000) The loss occurred in Mexico and the motor carrier was held

liable for the full amount of the shipment. Case deals with notice of tariff terms.

49 U.S.C. § 14706(a) • “The liability imposed under this paragraph is for the actual

loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States or from a place in the United States to a place in an adjacent foreign country when transported under a through bill of lading…”

Laws Controlling Cross Border Logistics Liability

Contrast Tempel Steel with Northern Marine Underwriters:

N. Marine Underwriters v. FBI Express, (S.D. Tex. 2009) Theft occurred in Mexico. Carmack Amendment applies only where the Surface Transportation Board exercises jurisdiction. Therefore, choice of law factors apply: (a) the place where the injury occurred; (b) The place where the conduct causing in the injury occurred; (c) the domicile, residence, nationality or place of business of the parties; (d) the place where the relationship between the parties is centered.


Apparel Production v. Indiana Transport: “The only way a carrier can be liable under Carmack

for a loss in Mexico is if the loss occurred during transport under a written through bill of lading.”

“Whether a particular document is a through bill of lading is determined by examining various factors such as the final destination indicated on the document, the conduct of the shipper and the carriers, and whether the connecting carriers were compensated by payment made to the initial carrier or by a separate consideration from the shipper.”


• U.S. Courts are reluctant to transfer a case to Mexico

• To transfer a case a Court generally looks at:

– Where is the evidence

– Where are the witnesses

– Does the lawsuit have a connection with the court where it was filed

– The court’s familiarity with the law of the case

– Plaintiff’s choice of forum is given deference

cross border north america - translaw.org annual meeting/panel 9c... · duty free status motor...

Documents