California Apparel News

U.S. customs inspectors at the ports of Los Angeles and Long Beach have begun to pore over apparel and textile imports coming in from Asia, trying to determine if the goods are undervalued or misclassified and should be slapped with higher tariffs.

Consequently, manufacturers and retailers shipping goods LDP, or landed-duty paid, which is raising a red flag, are paying thousands of dollars more in duties and seeing their shipments held up for days or weeks for inspection.

“The [customs] textile staff used to spend 95 percent of their time on apparel and textile quotas, which have expired. Now they have time to focus on other issues, including that proper duties are being paid,” said Los Angeles customs attorney Richard Wortman, who is with Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt.

According to Wortman, collecting proper duties has become a priority trade issue this year for the Customs and Border Protection team, in charge of inspecting cargo passing through the U.S. borders.

Because the port complex in Los Angeles and Long Beach receives about 45 percent of all the container cargo coming into the United States, these inspections, which have been limited to apparel and textiles, are concentrated here.

Apparel and textiles are a highly lucrative category for customs officials because the tariffs levied on clothing and fabric brought into the United States are some of the highest. Tariffs can run as much as 32 percent on a synthetic shirt. In 2008, apparel and textile importers paid 42 percent of the $26.2 billion in duties collected by customs, government officials said.

For more than two years, Janet Labuda, customs’ director of textile enforcement and operations, has been warning that LDP shipments—where the overseas factory arranges for shipment, customs inspection, duties, fees and transportation to an importer’s warehouse—would come under intense examination. Free on board (FOB) shipments—in which the U.S. importer arranges for the goods’ shipment, transportation and customs clearance—are not being tagged for eagle-eye review.

In her various warnings, Labuda explained that LDP shipping is frequently used for smuggling counterfeit items, transshipping goods to other countries with apparel quotas, or skirting duties by undervaluing goods or mislabeling them.

Labuda made these warnings several times at gatherings organized by the California Fashion Association, headed by Ilse Metchek.

These days, however, Labuda is keeping mum about customs’ latest campaign to ferret out illegal and undervalued shipments. “I can’t comment at this time,” she said from her Washington, D.C., office.Happy holidays

It was around last December that customs brokers and freight forwarders got wind that the ports’ customs teams would finally be readying their magnifying glasses to examine LDP shipping documents, making sure they matched the contents and value of goods inside the box.

Tom Gould, president of Tom Gould Customs Consulting, who works with a number of apparel importers, said he was at a holiday luncheon with several port and customs officials last year when he asked what was on customs’ agenda now that safeguard measures, or temporary quotas, on 34 categories of Chinese apparel and textiles were expiring at midnight on Dec. 31, 2008. “’Well, we haven’t looked at the value of apparel shipments for a while,’ was their reply,” he said.

Customs’ new direction started a few months ago, but it became more intense at the beginning of August.

“This is something that customs has always been concerned about,’ noted Brian Murphy, a customs attorney with Stein Shostak Shostak Pollack & O’Hara LLP in Los Angeles. “It’s just an issue that has gotten a lot more focused recently.”

Murphy said customs first concentrates on whether the importer of record—such as a freight forwarder, customs broker or agent—has the “right to make entry.” Customs has certain rules and regulations about this. Qualified importers are either the owners or purchasers of the apparel or a consignee, such as a licensed customs broker.

But this is where it gets sticky. Often, Chinese factories designate their own agents as the importer of record even though they have no financial link to the shipment. The agents receive a fee to get the goods through customs and onto a truck headed for a warehouse. There have been accusations that these agents don’t care about what is inside the boxes or whether they are misclassified.

If customs suspects the importer of recshy;ord is not valid, officials will start inspecting the goods and looking at their value. Or they will suggest the apparel importer hire a licensed customs broker, who is licensed by customs, to bring the goods through.

“There is a ’right to make entry’ issue, and then there is a ’value’ issue, and they dovetail,” Murphy said. “This can add a few days, a couple of weeks or even 30 days on getting goods through. It depends on how quickly the problem is resolved.”

Richard Wortman has been seeing the same thing. “The bottom line is customs has been scrutinizing whether these parties have the right to make entry. If they don’t have the right to make entry, they have been refusing and rejecting the entries and requiring either that the ultimate consignee [the importer] make entry, or, in some cases, a broker has made entry on behalf of the customer,” he said.

Shipping goods on an LDP basis has become increasingly popular among apparel importers. It eliminates importing staffs, and importers incur less risk.

All they do is pay the LDP price to the foreign factory, which takes care of everything, and the goods land in the importer’s warehouse.

Not only do apparel importers have fewer hassles, they don’t have to pay for the goods until they arrive. “LDP has become more common in the last couple of years because of financing,” said John Salvo, president of Carmichael International Service, a Los Angeles freight forwarder and customs brokerage firm that has a large apparel clientele. “Importers don’t want to pay until the goods get to their warehouses.”

Oftentimes, shipping FOB sets the payment clock ticking from the time the apparel leaves the factory. By shipping FOB, the U.S. apparel importer is responsible for trucking the garments from the foreign factory to the ship, getting it on the ship, through customs and trucking it to the warehouse. But there is less room for fudging import documents.

“Some [apparel] companies just don’t want the responsibility of shipping FOB,” Salvo said.

Government officials wouldn’t say how long this wave of inspections would last, but it is wise to say it won’t be going away soon. Recently, the Obama administration has been concentrating on fixing the economy and pushing for health care reform. But trade is finally gaining attention. On Sept. 11, the Obama administration used a general safeguard measure to impose a 35 percent punitive tariff on Chinese tires believed to be dumped into the U.S. market.

Apparel importers now fear that U.S. textile factories will lobby for the same safeguard measures, now that the tire safeguard has set a precedent.

“I think the Obama administration has been asleep at the wheel on trade issues while they focus on other things,” said Robert Krieger, president of Krieger Worldwide, an international freight forwarder and customs brokerage firm in the Los Angeles area. “And now trade is starting to become an issue.”