1 U.S. Customs and Border Protection Textile Law Enforcement Challenges Department of Homeland...

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

Textile Law Enforcement ChallengesTextile Law Enforcement Challenges

Department of Homeland Security Customs and Border Protection

““And the Plot Thickens”And the Plot Thickens”California Fashion AssociationCalifornia Fashion Association

May 9, 2007May 9, 2007

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What is the Role of What is the Role of Customs?Customs?


• Enforce all Laws Involving the Enforce all Laws Involving the Imports of Textile and Clothing Imports of Textile and Clothing ProductsProducts• Correct DescriptionCorrect Description• QuantityQuantity• ValueValue• Country of OriginCountry of Origin

• Ensure the Compliance of all Ensure the Compliance of all Import TransactionsImport Transactions

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The Textile Import The Textile Import IndustryIndustry


CY 2001 CY 2002 CY 2003 CY 2004 CY2005 CY2006%CHG

CY05-06%CHG

CY01- 06Importers 56.9K 60.8K 62.1K 63.5K 73.6K 70.4K -4% 24%Lines 5.1M 5.8M 6.2M 6.7M 7.7M 9.0M 18% 76%Value $71.4B $75.7B $83.4B $91.2B $100.3B $104.2B 4% 46%Duty $8.2B $8.2B $8.7B $9.1B $10.1B $10.6B 5% 29%

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The Textile Import IndustryThe Textile Import Industry


CY06 Industry Total All Imports % OverallImporters 70.4K 357K 20%Lines 9.0M 97.7M 9%Value $104.2B $1.9T 6%Duty $10.6B $25.1B 42%

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Textile Trade PreferencesTextile Trade Preferences

•Free Trade AgreementsFree Trade Agreements•Guatemala Implemented July 1, 2006Guatemala Implemented July 1, 2006•Peru and Colombia Negotiations CompletedPeru and Colombia Negotiations Completed•Bahrain Implemented August 1, 2006 and Bahrain Implemented August 1, 2006 and

Oman CompletedOman Completed• Thailand Stopped Due to Coup d’EtatThailand Stopped Due to Coup d’Etat•South Korea and Malaysia Negotiations South Korea and Malaysia Negotiations

StartedStarted

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Textile Trade Textile Trade PreferencesPreferences

•Trade Preference LegislationTrade Preference Legislation•Haitian Hemispheric Opportunity through Haitian Hemispheric Opportunity through

Partnership Encouragement Act of 2006 aka Partnership Encouragement Act of 2006 aka Haiti HOPEHaiti HOPE• Allows Cumulation with All U.S. Free Trade and Allows Cumulation with All U.S. Free Trade and

Trade Preference PartnersTrade Preference Partners• Allows Third Country Fabric from China with a Allows Third Country Fabric from China with a

Capped LimitCapped Limit• Value-Based Rule of Origin as Opposed to a Tariff Value-Based Rule of Origin as Opposed to a Tariff

ShiftShift• Annual AggregationAnnual Aggregation

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Textile EnforcementTextile Enforcement

• Quota Eliminated for all WTO Quota Eliminated for all WTO Member Nations EXCEPT ChinaMember Nations EXCEPT China

• Safeguard Mechanism Safeguard Mechanism Replaced by Comprehensive Replaced by Comprehensive Quota AgreementQuota Agreement

• Textile Bilaterals ExpireTextile Bilaterals Expire• MOUs; CBP Instrumental in the MOUs; CBP Instrumental in the

Negotiation of Agreements with Negotiation of Agreements with Hong Kong, Macao, the Hong Kong, Macao, the Philippines and IndonesiaPhilippines and Indonesia

• Enforcement Focus Enforcement Focus UnchangingUnchanging

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Textile Enforcement Textile Enforcement FocusFocus• Textiles and Wearing Apparel Textiles and Wearing Apparel

Industry Designated As a Priority Industry Designated As a Priority Trade Issue for FY 07Trade Issue for FY 07

• Enforcement FocusEnforcement Focus• Origin Fraud; Illegal Transshipment; Quota Origin Fraud; Illegal Transshipment; Quota

Circumvention; Inadmissibility of MerchandiseCircumvention; Inadmissibility of Merchandise• Enforcement of Various Legislative Trade Enforcement of Various Legislative Trade

Initiatives and Free Trade Agreement Preference Initiatives and Free Trade Agreement Preference ClaimsClaims

• Protection of the RevenueProtection of the Revenue

• 5 Year Enforcement Strategy 5 Year Enforcement Strategy Reported to CongressReported to Congress

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Textile Enforcement FocusTextile Enforcement Focus

• RisksRisks• FTA and other Trade LegislationFTA and other Trade Legislation

• $22+ Billion in Trade Preference $22+ Billion in Trade Preference Claims out of a Universe of $104.2 Claims out of a Universe of $104.2 Billion in ImportsBillion in Imports

•China QuotaChina Quota• Illegal TransshipmentIllegal Transshipment• Misdescription of MerchandiseMisdescription of Merchandise• Smuggling; Unmanifested GoodsSmuggling; Unmanifested Goods

•General Misdescription to Avoid General Misdescription to Avoid Duties and QuotaDuties and Quota• 42% of Duties Collected Involve 42% of Duties Collected Involve

Textile GoodsTextile Goods

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Textile Production Verification Textile Production Verification TeamsTeams• In 2006 TPVTs Were Conducted in:In 2006 TPVTs Were Conducted in:

• Hong KongHong Kong• MacaoMacao• SwazilandSwaziland• VietnamVietnam• EgyptEgypt• MauritiusMauritius• South AfricaSouth Africa• ThailandThailand• KenyaKenya• ChileChile• El SalvadorEl Salvador• GuatemalaGuatemala• HondurasHonduras

428 Factories Visited428 Factories Visited

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Textile Production Verification Textile Production Verification Team Statistics 2006Team Statistics 2006

• 13 Countries Visited13 Countries Visited• 428 Factories Visited428 Factories Visited• 8 Transshipment Found8 Transshipment Found• 97 Permanently Closed97 Permanently Closed• 95 High Potential for 95 High Potential for

TransshipmentTransshipment• 20 Refused Admission to the Team20 Refused Admission to the Team• 51% Not Compliant for Illegal 51% Not Compliant for Illegal

TransshipmentTransshipment• 41% Not Compliant for Trade 41% Not Compliant for Trade

PreferencePreference

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$0

$20,000,000

$40,000,000

$60,000,000

$80,000,000

$100,000,000

$120,000,000

2004 2005 2006

YEAR Domestic Value Total Lines2004 $73,553,710 16612005 $17,668,348 8672006 $103,720,706 3674

Seizures for Quota Seizures for Quota CircumventionCircumvention

Quota Eliminated January 1, 2005

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Current InvestigationCurrent Investigation• Seizure of $46 Million in Smuggled Seizure of $46 Million in Smuggled

TextilesTextiles• Criminal Organization Based in Hong Criminal Organization Based in Hong

KongKong• Goods Declared as Furniture; C/O ChinaGoods Declared as Furniture; C/O China• Undercover Investigation/OperationUndercover Investigation/Operation• China Quota Circumvention and Duty China Quota Circumvention and Duty

CircumventionCircumvention• Loss of Revenue in Excess of $50 MillionLoss of Revenue in Excess of $50 Million• Landed Duty Paid Transactions; Landed Duty Paid Transactions;

Middlemen Acting As Importers/Ultimate Middlemen Acting As Importers/Ultimate Consignees Buying from a “Domestic” Consignees Buying from a “Domestic” SupplierSupplier

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Textile EnforcementTextile Enforcement• Thailand Ghost FactoriesThailand Ghost Factories

• 8 Factories Existed on Paper Only8 Factories Existed on Paper Only• Were Shipping to the U.S.Were Shipping to the U.S.• Goods Suspected c/o ChinaGoods Suspected c/o China• CBP Working Closely with CBP Working Closely with

ThailandThailand• 328,802 Pieces T-shirts, 328,802 Pieces T-shirts,

Underwear, Pants, Jackets, Baby Underwear, Pants, Jackets, Baby GarmentsGarments

• $727,796 Value of Garments$727,796 Value of Garments• CBP Requested Redeliveries for CBP Requested Redeliveries for

Shipments Valued at $3.2 Million Shipments Valued at $3.2 Million Entered from March – May 2006Entered from March – May 2006

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• Identity Theft of U.S. Identity Theft of U.S. FirmsFirms

• Shipments of Denim Shipments of Denim Jeans Stopped at Jeans Stopped at Numerous Ports of EntryNumerous Ports of Entry

• Goods Chinese in Origin Goods Chinese in Origin Claiming Made in the Claiming Made in the U.S.A.U.S.A.

• Seized by CBPSeized by CBP

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Textile Textile EnforcementEnforcement• Use of Counterfeit Certificates Use of Counterfeit Certificates

of Originof Origin• Russia, the PhilippinesRussia, the Philippines

• Use of Forged Government Use of Forged Government CommunicationsCommunications• RussiaRussia

• Most of the Counterfeits Link Most of the Counterfeits Link Back to Korean, Hong Kong Back to Korean, Hong Kong Trading Houses/MiddlemenTrading Houses/Middlemen

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• Last Year vs. This YearLast Year vs. This Year• 64% Increase in 64% Increase in

Enforcement ActionsEnforcement Actions• 7100% Increase in the 7100% Increase in the

Number of Liquidated Number of Liquidated Damages PenaltiesDamages Penalties

• Exclusions of Merchandise Exclusions of Merchandise Increased by 368%Increased by 368%

• Detentions Increased by Detentions Increased by 1000%1000%

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Trade Preference Trade Preference EnforcementEnforcement• Additional 1,377 Targeted Additional 1,377 Targeted

Verifications PerformedVerifications Performed• $53.6 Million in Value$53.6 Million in Value• 37% Non-Compliance Rate37% Non-Compliance Rate• $1.7 Million in Additional $1.7 Million in Additional

Revenues CollectedRevenues Collected

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Textile PenaltiesTextile Penalties

• 502 Liquidated Damages 502 Liquidated Damages Penalties Issued Totaling Penalties Issued Totaling $ 21.8 Million$ 21.8 Million

• 65 Penalties Issued 65 Penalties Issued Totaling $6.5 MillionTotaling $6.5 Million

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• Thank YouThank You

• Questions??????Questions??????

1 U.S. Customs and Border Protection Textile Law Enforcement Challenges Department of Homeland...

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