U.S. Customs and Border Protection Textiles

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

TextilesTextiles

Department of Homeland Security Customs and Border Protection

November 2010November 2010

Qualifying Industrial Zones QIZQualifying Industrial Zones QIZCairo, EgyptCairo, Egypt

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U.S. Customs and Border U.S. Customs and Border Protection (CBP) QIZ SeminarProtection (CBP) QIZ Seminar

• Topic OutlineTopic Outline• Who Are We?Who Are We?• U.S. Textile Industry StatisticsU.S. Textile Industry Statistics• Preference Trade ProgramsPreference Trade Programs• Enforcement Focus/ConcernsEnforcement Focus/Concerns• CBP AuthoritiesCBP Authorities• Conducting the Textile Production Conducting the Textile Production

Verification Team VisitVerification Team Visit• QIZ RequirementsQIZ Requirements


CBPCBP• Part of the Department of Part of the Department of

Homeland SecurityHomeland Security• Formerly U.S. Customs Service Formerly U.S. Customs Service

•Part of the Department of Part of the Department of the Treasurythe Treasury

• Protection of the BordersProtection of the Borders• Anti-Terrorism at the Ports of Anti-Terrorism at the Ports of

Entry and between the Ports Entry and between the Ports of Entryof Entry

• Controls the Movement of all Controls the Movement of all People and Products Into and People and Products Into and Out of the United StatesOut of the United States


CBPCBP

• 42,000 Front Line Employees Strong42,000 Front Line Employees Strong• Patrolling 7,000 Miles of Our Patrolling 7,000 Miles of Our

Country’s Land BorderCountry’s Land Border• Processing $1.7 Trillion in Processing $1.7 Trillion in

Commercial Imports AnnuallyCommercial Imports Annually• Processing 361 Million Travelers Processing 361 Million Travelers

AnnuallyAnnually• Located at 327 Ports of EntryLocated at 327 Ports of Entry


CBP’s Dual MissionCBP’s Dual Mission

SecuritySecurity

• Stop TerrorismStop Terrorism• Prevent Illegal Entry Prevent Illegal Entry •Block Drug & Human Block Drug & Human

SmugglingSmuggling• Prevent Agricultural Prevent Agricultural

DiseaseDisease•Assist with Disaster Assist with Disaster

ReliefRelief

Trade Enforcement Trade Enforcement and Facilitationand Facilitation

• Collect Customs Collect Customs RevenueRevenue

• Process Incoming Process Incoming Travelers and Travelers and CargoCargo

• Inspect Imports Inspect Imports • Stop CounterfeitsStop Counterfeits•Regulate TradeRegulate Trade• Enforce Trade Enforce Trade

LawsLaws


CBP QIZ SeminarCBP QIZ Seminar

• Janet Labuda, Director, Janet Labuda, Director, Textile/Apparel Policy and Textile/Apparel Policy and Programs Division Programs Division • Manage Three BranchesManage Three Branches

• Textile Operations BranchTextile Operations Branch• Textile Policy BranchTextile Policy Branch•Quota Enforcement and Quota Enforcement and

Administration BranchAdministration Branch

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


2

TEXTILETEXTILESS

CY CY 20052005 CY 2006CY 2006 CY 2007CY 2007 CY 2008CY 2008

CY CY 20092009

%CHG %CHG CY08-CY08-

0909

ImporterImporterss 68.9K68.9K 70.4K70.4K 69.3K69.3K 68.3K68.3K 68.7K68.7K 1%1%

LinesLines 8.3M8.3M 9.0M9.0M 9.7M9.7M 10.2M10.2M 10.2M10.2M -0.1%-0.1%

ValueValue$100.3$100.3

BB $104.2B$104.2B $106.9B$106.9B $105.2B$105.2B $93.4B$93.4B -11%-11%

DutyDuty $10.0B$10.0B $10.6B$10.6B $11.2B$11.2B $11.1B$11.1B $10.0B$10.0B -10%-10%CY09CY09

Industry Industry TotalTotal

All All ImportsImports % Overall% Overall

ImportersImporters 68.7K68.7K 313.7K313.7K 22%22%

LinesLines 10.2M10.2M 95.9M95.9M 11%11%

ValueValue $93.4B$93.4B $1.7T$1.7T 6%6%

DutyDuty $10.0B$10.0B $21.5B$21.5B 47%47%



U.S. Textile/Apparel Supplier CountriesU.S. Textile/Apparel Supplier Countries

CY 2008CY 2008

RANKRANK COUNTRYCOUNTRY % of TEV% of TEV

11 CHINACHINA 36%36%

22 MEXICOMEXICO 6%6%

33 INDIAINDIA 5%5%

44 VIETNAMVIETNAM 5%5%

55 INDONESIAINDONESIA 4%4%

66 BANGLADESHBANGLADESH 3%3%

77 PAKISTANPAKISTAN 3%3%

88 HONDURASHONDURAS 3%3%

99 CANADACANADA 2%2%

1010 ITALYITALY 2%2%

1111 CAMBODIACAMBODIA 2%2%

1212 THAILANDTHAILAND 2%2%

1313 HONG KONGHONG KONG 2%2%

1414 EL SALVADOREL SALVADOR 2%2%

1515 SRI LANKASRI LANKA 1%1%

CY 2009CY 2009





44 INDIAINDIA 5%5%





99 CANADACANADA 2%2%






1515 GUATEMALAGUATEMALA 1%1%


Apparel Supplier Countries by Apparel Supplier Countries by ValueValue

CY 2008CY 2008







66 INDIAINDIA 4%4%









1515 PHILIPPINESPHILIPPINES 2%2%

CY 2009CY 2009







66 INDIAINDIA 4%4%








1414 PHILIPPINESPHILIPPINES 2%2%



Trade Preference ProgramsTrade Preference Programs

• Unilateral/Bilateral/Multilateral Unilateral/Bilateral/Multilateral Preference ProgramsPreference Programs• African Growth and Opportunity ActAfrican Growth and Opportunity Act• Qualifying Industrial Zones; Jordan/Israel/EgyptQualifying Industrial Zones; Jordan/Israel/Egypt• Caribbean Basin Trade Partnership ActCaribbean Basin Trade Partnership Act• Haiti HOPE 1 and 2 and Haiti HELPHaiti HOPE 1 and 2 and Haiti HELP• Andean Trade Promotion and Drug Eradication ActAndean Trade Promotion and Drug Eradication Act• Free Trade Agreements (Israel, NAFTA, Jordan, Free Trade Agreements (Israel, NAFTA, Jordan,

Chile, Singapore, Australia, Morocco, CAFTA, Chile, Singapore, Australia, Morocco, CAFTA, Bahrain, Oman, Peru)Bahrain, Oman, Peru)

• Unique Qualifying Rules for EachUnique Qualifying Rules for Each


Textile Trade PreferencesTextile Trade Preferences

• Free Trade AgreementsFree Trade Agreements

•South Korea, Colombia and Panama South Korea, Colombia and Panama Negotiations CompletedNegotiations Completed

• Trans-Pacific Partnership Under Trans-Pacific Partnership Under NegotiationNegotiation• (Peru, Australia, New Zealand, Chile, (Peru, Australia, New Zealand, Chile,

Singapore, Brunei, Vietnam, and Malaysia)Singapore, Brunei, Vietnam, and Malaysia)


Textile Trade Textile Trade PreferencesPreferences

• 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 10.5% Israeli Value AddedEgypt and Israel 10.5% Israeli Value Added

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


All Import Commodities: General Customs Value

for - W. Bank, Gaza & Qualifying

for ALL Countries

U.S. General Imports

Annual + Year-To-Date Data from Jan - Jun

TOTAL

2008 2009 2009 YTD 2010 YTD Percent Change

In Actual Dollars YTD2009 - YTD2010

Total 1,632,053,429 1,450,790,391 714,518,128 638,659,220 -10.60%

Sources: Data on this site have been compiled from tariff and trade data from the U.S. Department of Commerce and the U.S. International Trade Commission.

63865922071451812814507903911632053429


Textile Trade Textile Trade PreferencesPreferences

• Each Agreement is DifferentEach Agreement is Different• Different Requirements Must Be Met to Different Requirements Must Be Met to

Obtain Preferential Access to the U.S. Obtain Preferential Access to the U.S. MarketMarket

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


Textile Enforcement FocusTextile Enforcement Focus

• Textiles and Wearing Apparel Designated Textiles and Wearing Apparel Designated As a Priority Trade Issue for FY 11As a Priority Trade Issue for FY 11

• 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 Initiatives and Free Trade Agreement Preference ClaimsPreference Claims

• Protection of the RevenueProtection of the Revenue

• 5 Year Enforcement Strategy Submitted 5 Year Enforcement Strategy Submitted to Congressto Congress


Textile Enforcement Textile Enforcement FocusFocus

• RisksRisks• FTA and other Trade Legislation e.g. FTA and other Trade Legislation e.g.

QIZ Claims of PreferenceQIZ Claims of Preference• $17.5 Billion in Trade Preference Claims $17.5 Billion in Trade Preference Claims

out of a Universe of $95 Billion in Textile out of a Universe of $95 Billion in Textile ImportsImports

•China Trade IssuesChina Trade Issues• Illegal TransshipmentIllegal Transshipment• Misdescription of MerchandiseMisdescription of Merchandise• Smuggling; Unmanifested Goods; Falsifying Smuggling; Unmanifested Goods; Falsifying

DocumentsDocuments• UndervaluationUndervaluation

•General Misdescription to Avoid Duties General Misdescription to Avoid Duties • 47% of Duties Collected Involve Textile 47% of Duties Collected Involve Textile

GoodsGoods


Enforcement Enforcement Authorities/ToolsAuthorities/Tools• Use of Textile Production Use of Textile Production

Verification Teams to Visit Verification Teams to Visit Foreign Factory LocationsForeign Factory Locations

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

• Penalties Issued to Importers if a Penalties Issued to Importers if a Pattern of Non-Compliance Is Pattern of Non-Compliance Is Detected or Intent to Circumvent Detected or Intent to Circumvent the Law or Defraud the the Law or Defraud the Government Is DiscoveredGovernment Is Discovered


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


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. Were Made in the Country the U.S. Were Made in the Country as Declaredas Declared

• Determine Whether the Determine Whether the Requirements to Claim a Requirements to Claim a Preference Are MetPreference Are Met


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

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


Purpose of TPVT VisitsPurpose of TPVT Visits

• Ensure Goods Are Not Circumventing Ensure Goods Are Not Circumventing the Laws Governing the Importation the Laws Governing the Importation of Textile Productsof Textile Products• Illegal Transshipment to Take Advantage Illegal Transshipment to Take Advantage

of Trade Preference Programs and Obtain of Trade Preference Programs and Obtain Duty-free BenefitsDuty-free Benefits

• False Declaration of Eligibility for Duty-False Declaration of Eligibility for Duty-Free Benefits, i.e. Goods Assembled in the Free Benefits, i.e. Goods Assembled in the Country, but Do not Meet the Country, but Do not Meet the Rules/Requirements Under the Claimed Rules/Requirements Under the Claimed ProgramProgram


TPVT CompositionTPVT Composition

• Import SpecialistImport Specialist• Knowledgeable about the Knowledgeable about the

CommodityCommodity• Classification, Value, Country of Origin; Classification, Value, Country of Origin;

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

• Criminal InvestigatorCriminal Investigator• Knowledgeable about the Collection Knowledgeable about the Collection

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

• Other disciplinesOther disciplines• Data AnalystsData Analysts• AuditorsAuditors

What Should You Do?What Should You Do?

Establish Self-Policing Mechanisms•Know Your Industry

• What Commodities Are Manufactured• How Are Goods Manufactured?• What Types of Processes Occur?• What Types of Machines Are Used?• What Types of Skills Are Needed?• What Types of Raw Materials Are

Needed?• Where Are Raw Materials Obtained• How Much Does It Cost to Produce?• Look at Trade Trends from Year to

Year• Old Players/New Players

(exporters/importers)

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


What Should You Do?Develop Manufacturer Develop Manufacturer

Profiles:Profiles:• Owners/ManagersOwners/Managers• LocationLocation• Machinery/EquipmentMachinery/Equipment• Date EstablishedDate Established• Product Line & CapabilityProduct Line & Capability• SubcontractorsSubcontractors• Renew YearlyRenew Yearly• EmployeesEmployees• Joint Venture RelationshipsJoint Venture Relationships



What Should You Do?What Should You Do?

• Conducting a Textile Production Verification Visit to the Manufacturing Operation

1. Conduct an Interview with Knowledgeable Staff/Management2. Conduct a Tour of the Factory Facility

Establish Production Capacity

3. Select an Order that Has Been Exported and Trace the Production Process through the Factory’s Books and Records



• What Does This Factory Claim to What Does This Factory Claim to Do?Do?• Cutting?Cutting?• Sewing/Assembly?Sewing/Assembly?• Dyeing/Printing?Dyeing/Printing?• Fabric Production?Fabric Production?

•Woven? Knit?Woven? Knit?

• Garment Manufacture?Garment Manufacture?• Does the Factory Machinery/Skill Does the Factory Machinery/Skill

Sets/Number of People Support the Sets/Number of People Support the Process?Process?

Establishing a Base LineEstablishing a Base LineDepartment of Homeland Security Customs and Border ProtectionDepartment of Homeland Security Customs and Border Protection


Containers•Does the Factory Have

Containers on the Premises Waiting to Be Unloaded?

• If So, Check What Is in Them. •Fabric? •Cut Components?•Finished Goods?

What Should You Verify?



What Should You What Should You Verify?Verify?

• Conduct Regular Conduct Regular Inspections of Textile Inspections of Textile Factory Plant FacilitiesFactory Plant Facilities• Number of WorkersNumber of Workers• Types of Workers (skill Types of Workers (skill

sets) and Machinessets) and Machines• Inventory StockInventory Stock• Overall Factory Overall Factory

OrganizationOrganization



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 Should You Verify?What Should You Verify?Factory InspectionsFactory Inspections



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

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

•Who Does the Factory Use Who Does the Factory Use As Suppliers?As Suppliers?

•What Are the Countries of What Are the Countries of Origin?Origin?




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?




MachineryMachinery•Cutting Cutting

Tables/SpreadersTables/Spreaders• Cut Components - Does the Cut Components - Does the

Factory Cut Its Own Fabric? Factory Cut Its Own Fabric? If So, Does It Have Patterns If So, Does It Have Patterns and Markers to Make the and Markers to Make the Components?Components?

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




• NumberNumber• Sufficient for the Sufficient for the

Production Claimed? Production Claimed? • ConditionCondition

• Are Most Machines in Are Most Machines in Working Condition? Working Condition?

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

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

What Should You Verify?What Should You Verify?Factory Inspections - Factory Inspections -

MachineryMachinery



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?

• Any Specialty Sewing Any Specialty Sewing Machines?Machines?

What Should You Verify?What Should You Verify? Factory Inspections Factory Inspections



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? (e.g. Waistband, Buttonhole)(e.g. 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?

What Should You Verify?What Should You Verify? Factory Inspections Factory Inspections



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? How Efficient Manner? How Many Production Lines?Many Production Lines?

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




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?

• Is There Excess Is There Excess Inventory?Inventory?


Factory InspectionsFactory Inspections



ProductionProduction• Does the Factory Maintain Does the Factory Maintain

a Record Keeping System a Record Keeping System to Track What Is Produced to Track What Is Produced on the Factory Floor?on the Factory Floor?


Factory InspectionsFactory Inspections




Document Review and Document Review and VerificationVerification

• Select a Shipment that Has Select a Shipment that Has Been Exported and Verify Been Exported and Verify the Steps Using the the Steps Using the Factory’s Books and RecordsFactory’s Books and Records

Documents and RecordsDocuments and Records

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

• A List of Production A List of Production Machinery Used in Machinery Used in the Factory Is the Factory Is NeededNeeded

• Sufficient Production Records Must Be Provided to Establish Country of Origin

• Records Should Be Understandable





• Where to BeginWhere to Begin• Establish a Systematic Approach Establish a Systematic Approach

to the Reviewto the Review• The Purchase Order—Review What The Purchase Order—Review What

the Customer Has Ordered from the the Customer Has Ordered from the Factory/ManufacturerFactory/Manufacturer• QuantitiesQuantities• Types of GoodsTypes of Goods• StylesStyles• Value of the OrderValue of the Order• Delivery DatesDelivery Dates• Special Instructions from the BuyerSpecial Instructions from the Buyer

• 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.• Production RecordsProduction Records• Shipping Arrangements and PaymentShipping Arrangements and Payment• Factory Inspection Reports by Customer or Factory Inspection Reports by Customer or

AgentAgent• Export Invoices and Packing ListsExport Invoices and Packing Lists• Payment RecordsPayment Records

What Should You Verify?What Should You Verify?Document ReviewDocument Review



Documents and Records

• Type of Work Performed Should Be Type of Work Performed Should Be Traceable Through the RecordsTraceable Through the Records

• Must Reflect the Must Reflect the Ordered Style and Ordered Style and Quantity of the Quantity of the ShipmentShipment

• Timeframes Should Timeframes Should Make SenseMake Sense

• Work Performed Work Performed Outside of the Factory Outside of the Factory by Subcontractors by Subcontractors Should Be Should Be DocumentedDocumented




• Types of RecordsTypes of Records• Payments for Raw Material PurchasesPayments for Raw Material Purchases• Export Documentation/Shipping RecordsExport Documentation/Shipping Records• Contracts/SubcontractsContracts/Subcontracts• Payroll RecordsPayroll Records• Cutting RecordsCutting Records• Assembly RecordsAssembly Records• Letters of CreditLetters of Credit• Subcontracting RecordsSubcontracting Records• Customs Clearance DocumentsCustoms Clearance Documents



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

Materials, Transportation Materials, Transportation DocumentDocument

• Entry Documents for Raw Entry Documents for Raw Materials (Receiving Records)Materials (Receiving Records)• Verify Type of Raw Materials Verify Type of Raw Materials

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

• Verify Where Raw Materials Are Verify Where Raw Materials Are From (Imported, Domestic, Both)From (Imported, Domestic, Both)




Raw Materials •Verify the Shipping Documents•Verify When Imported or Received in

Relation to Production of Order•Verify Fabric Shown Was Actually

Used in Production•Does the Factory Store the Fabric in

Bulk or Just Import/Store by Order?•Who Pays for the Fabric? (Factory,

Customer)




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.




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?




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




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.




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?




• Subcontracting and Out-Subcontracting and Out-processingprocessing• Does the Country Permit Part of Does the Country Permit Part of

the Processing in Another 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 Capability What Is the Size and Capability of Other Factories Used?of Other Factories Used?


Document ReviewDocument Review



• Out-processing/SubcontractingOut-processing/Subcontracting• Trace the Movement of the Trace the Movement of the

MerchandiseMerchandise• Is It in Production Sequence?Is It in Production Sequence?•Time Frame for Movement of Time Frame for Movement of

Goods:Goods:• Is It Reasonable to Complete Is It Reasonable to Complete

the Process?the Process?





Egypt QIZ Rules for Egypt QIZ Rules for TextilesTextiles

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

November 2010November 2010


Egypt QIZ Legal Egypt QIZ Legal ReferencesReferences

• Expiration Date: noneExpiration Date: none• General Note in HTSUS: GN 3(a)General Note in HTSUS: GN 3(a)(v)(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


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 Ensure The Agreed Ensure The Agreed Amount of Israeli Content Is Present Amount of Israeli Content Is Present (10.5%)(10.5%)


Egypt QIZ BenefitsEgypt QIZ Benefits

Duty Free Entry into the U.S. MarketDuty Free Entry into the U.S. Market


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


Product of Product of EgyptEgyptAssemblyAssembly

• 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.• e.g. Joining major components like front and back panels and sleeves

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



Knit 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.



Knit to Shape Components


Value Value AddedAdded

• 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.


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)


Value AddedValue Added

• 35% Value Added by Double 35% Value Added by Double Substantial TransformationSubstantial Transformation• If a producer transforms fabric into cut If a producer transforms fabric into 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 fabric By virtue of having transformed the fabric into cut components and then sewing the into cut components and then sewing the components into an apparel article, the components into an apparel article, the value of the fabric is included in the value value of the fabric is included in the value calculation of the finished garment.calculation of the finished garment.


ExampleExample

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

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

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


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



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



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



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:



(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


THANK YOUTHANK YOUSHUKRANSHUKRAN

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U.S. Customs and Border Protection Textiles

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