Are You Getting a CBP Form 28 or 29 for the Right Reason?

Earlier this month, U.S. Customs and Border Protection (CBP) issued a memorandum to the ports to remind import specialists about the proper use of CBP Form 28 Request for Information and CBP Form 29 Notice of Action. The memorandum stemmed from the inconsistent use among the ports and misuse by import specialists who were issuing these notices for purposes for which the notices were not intended.

In the memorandum, the ports were advised that it was appropriate to issue a CBP Form 28 to an importer when there were questions about admissibility, classification or valuation of the imported goods. CBP can also request information about the imported merchandise, such as brochures, descriptive language, blueprints and samples. In addition, CBP can seek proof of payment information or affidavits about manufacturing to determine eligibility of special tariff program, for example. In other words, if the entry summary package contained insufficient information about the imported merchandise, CBP can request information by issuing a CBP Form 28 to the importer.

On the other hand, the ports were instructed not to continue to use CBP Form 28 for a variety of purposes. First, for example, the ports are not to issue a Form 28 to notify the importer that CBP commenced a formal investigation “as a matter of enforcement policy, not a matter of law.” Instead, CBP instructed the import specialists to notify an importer of such an investigation either by letter on CBP letterhead, or issuing a CBP Form 29.

Additionally, import specialists are not permitted to use Form 28 to request proof of a properly executed power of attorney. When requesting such proof of a valid power of attorney, the ports were advised to seek such proof in writing by submitting an individualized letter on CBP letterhead, or in person during a broker compliance visit.

Finally, the memorandum reminded the ports to avoid warning importers about penalties or investigations For example, CBP does not want import specialists to state that failing to provide the information requested could lead to penalties under 19 U.S.C. § 1592. Similarly, import specialists should not state that “this office is investigating the classification of…” when CBP has not really started an investigation. CBP is concerned that using this type of language will lead to fewer prior disclosures and defeat the goal of informed compliance.

It’s How Much in Duty?

Many importers believe mistakenly that the price of their goods is simple to determine: cost of goods (manufacture plus materials), general expenses, profit, duty and fees. What happens when the duty bill turns out to be higher than anticipated and the goods are already sold? This can happen in three common ways:

(1) the importer did not know that there was anti-dumping duty on the products imported;
(2) the importer brought the goods in conditionally duty-free under a duty preference program, but then the duty-free treatment was denied by Customs and
(3) the importer misclassified the products.

How do we avoid these problems? Due diligence and internal controls.

First is the situation where an importer ships goods that are subject to an anti-dumping duty order (ADD) and the importer did not realize it at the time of entry. How can this happen? Here is an example. There is an ADD order on petroleum wax candles from China. An importer contracts with a Chinese manufacturer for soy wax candles, assuming that soy wax candles are outside the scope of the ADD order. Post entry of the soy wax candles, Customs sends a CBP Form 28 Request for Information, asking for a sample and description of the candle. Customs tests the sample and determines that the candles are 99% soy wax and 1% petroleum wax. Because the candles contain petroleum wax, and are Chinese-origin, they are subject to ADD.

You may ask how this happened. The importer relied on the manufacturer’s oral guarantee that the candles were 100% soy wax. However, the importer never tested the candles prior to importation—he simply accepted the manufacturer’s statement. The importer should have tested the candles prior to importation to ensure that they were 100% soy wax. If the importer knew that they were not 100% soy wax, he could have (1) priced the candles to account for the ADD, (2) sourced the candles from a different country or (3) prepared and submitted a scope ruling request to the Department of Commerce to try to obtain a ruling stating that candles that contain only 1% petroleum wax, which is considered de minimis, should not be within the scope of the order.

Next is the situation where an importer brings the goods in duty-free under a duty preference program, but then the duty-free treatment is denied by Customs. Let’s say the importer is a jewelry company that sources jewelry in India. Some jewelry imported from India is conditionally duty-free under the Generalized System of Preferences (GSP).

Customs issues a CPB Form 28 Request for Information, asking for an explanation of the manufacturing process in India, including information about where the gold is sourced and the processing steps taken in India. The jewelry company cannot obtain this information from the Indian manufacturer. Customs denies the GSP claim. Jewelry that was duty-free under GSP is no longer entitled to the duty preference and thus, the importer must pay duty on the imported jewelry. The importer could have avoided this situation had the company obtained the proper records from the manufacturer at the time it purchased the jewelry. Recordkeeping is an important part of good internal controls.

Last is probably the most common situation—the importer misclassified the goods. A supplier of rolls of polyurethane misclassified the goods, thinking the goods were duty-free only to find out after the goods were imported and sold that they were classified under a different provision that had 6.5% duty. The potential liability is large: (1) the importer owes duty plus interest on the previous entries; (2) the importer may be subject to penalties and (3) the goods have been sold and thus, the importer cannot recoup any of the increased duty costs.

This can occur when an importer does not conduct annual internal reviews of the company’s import operations and does not conduct regular post entry reviews. Both annual review and post entry reviews are considered best practices by Customs and are a necessary part of the exercise of reasonable care.

Don’t be surprised and find yourself asking, “It’s how much in duty?”

Recent News In International Trade

CBP Requests Comments on CBP Form 28

On November 17, 2010, U. S. Customs and Border Protection issued a request for comments regarding CBP Form 28. The Request for Information, CBP 28, is used as an informal method for CBP to request and review import records when they need additional information not provided by the documentation submitted.

The comments should address:
(a) Whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility;
(b) the accuracy of the agency's estimates of the burden of the collection of information;
(c) ways to enhance the quality, utility, and clarity of the information to be collected;
(d) ways to minimize the burden including the use of automated collection techniques or the use of other forms of information technology; and
(e) the annual costs burden to respondents or record keepers from the collection of information (a total capital/startup costs and operations and maintenance costs).

Comments should be submitted to U.S. Customs and Border Protection, Attn: Tracey Denning, Regulations and Rulings, Office of International Trade, 799 9th Street, NW., 5th Floor, Washington, DC 20229-1177.

H.R. 6410 Introduced - Requires 100% Screening on All-Cargo Aircraft

On November 16, 2010, a new air cargo security bill was introduced into the House of Representatives. H.R. 6410, the "Air Cargo Security Act," would require systems to be established for the inspection and screening of cargo traveling on all-cargo aircraft "operated by an air carrier or foreign air carrier in air transportation or interstate air transportation." The bill would require that the screening for cargo intended for all-cargo aircraft "provide a level of security commensurate with the level of security for the screening of passenger checked baggage." The bill also provides for training for air cargo handlers and regular inspection of air cargo facilities. consequences imposed for a facility not in compliance

If the bill is approved, 50 percent of the cargo intended for all-cargo aircraft will be inspected no later than 18 months after enactment and 100 percent screening of the cargo within three years of enactment.



Failure to Comply with OFAC Subpoena Results in $225,000 Fine

OFAC issued a subpoena to Pinnacle Aircraft Parts, Inc. related to an investigation into the company’s involvement in the sale of a jet engine that may have been ultimately destined for Iran. In response to the subpoena, Pinnacle did not supply a copy of an email that indicated the engine was destined for Iran. Obviously, the email might have shown awareness by the company, which could have provided the basis for criminal prosecution.

Although the email in question was provided to Pinnacle’s attorney, it was not included in the submission of documents requested by OFAC. Pinnacle decided not to produce the email based on the advice of counsel; however, they are legally responsible for compliance with the subpoena and the actions of their agents. The end result – a $225,000 fine issued by OFAC. The penalty was slightly mitigated based on Pinnacle’s reliance on the advice of counsel and prior good record.



FTA Update

The Generalized System of Preferences (GSP) and the Andean Trade Preference Act/Andean Trade Promotion and Drug Eradication Act (ATPA/ATPDEA) are scheduled to expire on December 31, 2010. Possible extension of these acts is being discussed in the House and Senate.

The U.S and Korea have not reached a final agreement on the U.S. - Korea FTA. Terms that have been subject of much discussion include unrestricted imports of automobiles and beef into South Korea. Given the impasse, an agreement will not likely be reached this year. President Obama pledges to keep moving forward so that this agreement may be ready for Congress in early 2011.

SAVE Award Winner

In 2009, President Obama introduced the SAVE Award (Securing American’s Value and Efficiency). The program seeks ideas from federal employees on how the make government more effective and efficient. Over 18,000 entries were received. The winner was Trudy Givens who works for the bureau of Prisons in Wisconsin. Trudy suggested“opt in” features for the approximately 8,000 copies of the Federal Register being mailed every day. Statute requires the government to make hard copies available; however, most of the public views them online. If recipients are allowed to opt-in to receive hard copies, the government could save printing and postage costs.

As this year’s winner, Trudy will have an opportunity to meet the President to discuss her idea with him. All of the SAVE Award submissions have been sent to the agencies for potential action and inclusion in the 2012 Budget. Last year, a total of 20 SAVE ideas representing millions of dollars in savings made it into the President’s FY2011 budget.



"If You See Something, Say Something"

The Department of Homeland Security announced the expansion of the “"If You See Something, Say Something" campaign. The phrase was originally implemented by New York City’s Metropolitan Transportation Authority after 9/11 and has spread to other cities across the country. The newest campaign encourages travelers and employees in the hotel industry to report indicators of terrorism, crime and other threats to the proper law enforcement authorities.