California Apparel News

In recent months, U.S. customs officials have mounted a campaign to make sure apparel coming in from Central America really does qualify for duty-free status.

Import specialists with U.S. Customs and Border Protection are asking for extensive documentation to verify that goods aren’t fashioned out of fabric from China or other Asian countries but instead adhere to free-trade-agreement regulations stipulating that apparel be made from regional fibers, yarns and fabric coming from the United States or Central America.

“We noticed the change a few months ago,” said John Salvo, president of Carmichael International Service, a Los Angeles customs broker and freight forwarder with a number of apparel clients.

Los Angeles customs attorney Richard Wortman of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt has had several clients who have had to roll out reams of documents explaining the origins of fabric, pocket linings and thread. “They have been looking at many of the free-trade agreements lately. But the biggest focus at the moment is on CAFTA along with NAFTA,” Wortman said, referring to the Dominican Republic–Central American Free Trade Agreement—a free-trade pact among the United States, Guatemala, Honduras, Costa Rica, Nicaragua, El Salvador and the Dominican Republic—and the North American Free Trade Agreement, among Canada, the United States and Mexico.

DR-CAFTA has been in effect for five years, and NAFTA has been around since 1994. But in the past, customs officials concentrated more on making sure apparel from China didn’t go over stringent quotas set to protect U.S. apparel manufacturers.

But when quotas on Chinese-made goods expired on Dec. 31, 2008, customs turned its attention to its next target— apprehending scofflaws who liberally interpret free-trade agreements.

“Now, customs is looking at free-trade agreements, but for textiles and apparel, CAFTA is getting the most focus right now,” said Elise Shibles, a former U.S. customs apparel and textiles policy expert who is now an attorney in the San Francisco office of Sandler, Travis & Rosenberg.

Customs and Border Protection officials deny they are taking extra steps to look at Central American apparel imports. In an email from CBP spokesperson Erlinda Byrd, she said there has been “no increased focus on the CAFTA verifications or increased ’scrutiny.’”

Yet, the CAFTA region, she noted, is considered a high-risk region, so duty-free claims under CAFTA would be considered high-risk.

She noted that 44 percent of all targeted inspections on CAFTA goods seeking duty-free entrance are found not to be eligible. “Some of the fabric producers are purchasing yarn from third countries, which would not be eligible for CAFTA treatment,” Byrd wrote in her email. “Importers are making CAFTA claims without confirming CAFTA requirements, and then when a verification is done, they scramble to determine if they qualify.”

By the numbers

Customs’ concerns on what kind of yarns and fabrics are going into apparel coming from Central America surfaced in 2009 when U.S. yarn makers reported that Central American factories were able to buy U.S. combed cotton yarn for only $3 per kilo (2.2 pounds) instead of the prevailing $4 per kilo.

The industry suspected illegal trafficking of yarn in the CAFTA region when the government reported that more combed cotton yarn was exported from the United States to Central America than was actually produced.

That pattern held true in 2010. According to the National Council of Textile Organizations, the United States exported 86 million kilos of combed cotton yarn to the world while the U.S. government reported we produced 58.6 million kilos.

According to the Central American free-trade agreement, U.S. or regional yarns must be used in apparel and woven fabric made in Central America, and U.S. or regional fibers must be used in knit fabric to qualify for duty-free status into the United States.

Fabric or inputs not made in the United States or Central America can be placed on a short-supply list that allows textiles from China, South Korea or other areas to be used and still receive duty-free classification. The savings can be huge because duties reach as high as 32 percent on some manmade fabrics. The average duty rate for apparel is 16 percent.

With apparel and textiles accounting for 42 percent of all the U.S. duties paid by importers, customs officials feel it is important to make sure apparel imports adhere to all the rules.

So importers should make sure their paperwork is in order. “If you are missing one piece of paper, customs can fail you. It is a precise thing,” Wortman said. “In a CAFTA verification, you have to show where the yarns, fabrics and trims are coming from and have bills of lading.”

Often, customs officials don’t take an extensive look at the documents until after the shipment has cleared customs and gained duty-free status. They have the right to go back weeks later, examine the documents and then send you a bill for the unpaid duties if they say the apparel didn’t qualify for duty-free status.

“Under CAFTA, we haven’t seen a lot of delays in getting goods,” Wortman said. “We are seeing a lot of post-entry reviews.”

Shibles recommends her clients keep their records for five years in case any reviews or questions pop up later. She also warns to watch out for subcontracting. If that occurs, there should be documentation to trace who did the subcontracted production, when it went out, when it went in and proof of payment.

“My advice to clients is to make sure their i’s are dotted and their t’s are crossed and that all their materials are traceable throughout the documentation,” Shibles said. “And that they can identify all the parties that provided the materials and a timeline for everything.”

Bill Introduced to Better Police Textile Imports

Some members of Congress would like to see more textile-import specialists on the borders and the names of companies that violate the rules and regulations set down in free-trade agreements published.

On Aug. 1, U.S. Representatives Larry Kissell (D–N.C.) and Walter Jones (R–N.C.), along with a host of other congressional representatives, mostly from North Carolina, introduced the Textile Enforcement and Security Act of 2011, which would give customs officials more enforcement tools to apprehend and punish textile and apparel importers who violate the various free-trade agreements giving duty-free status to certain goods. A companion bill is expected for consideration in the Senate before the end of the year.

Introduction of the bill was praised by the National Council of Textile Organizations, which is concerned about non-regional yarns and fabric making their way into goods produced in countries that have free-trade agreements with the United States. Some manufacturers are listing non-regional inputs as regional to gain duty-free status into the United States.

Cass Johnson, NCTO’s president, said customs officials need to enforce U.S. trade laws to keep jobs in the small towns and communities where U.S. textile mills and plants operate.

The bill, which must be passed by both the House and the Senate, would:

bull; Increase the number of trained import specialists in textile andapparel verifications at the 15 largest U.S. ports.

bull; Mandate the government publish names of companies that intentionallyviolate the rules of trade agreements.

bull; Allow the Department of Homeland Security and the Departmentof the Treasury to use amounts from the fines and penaltiescollected to pay for expenses directly related to investigations and/or training.

bull; Instruct the U.S. government to establish an electronic verificationprogram that tracks yarn and fabric inputs in free-trade-agreementcountries.

bull; Establish a Textile and Apparel New-Importer Program and aNonresident-Importer Program

bull; Establish a Textile and Apparel Manufacturing and SupplierRegistry.

bull; Require the president to publish the names of high-risk countries in which illegal activities designed to evade duties or violate trade-preference programs are occurring.