What In-House Counsel Needs to Know about Trade Compliance

Transcription

1 What In-House Counsel Needs to Know about Trade Compliance Randy Rucker Partner Drinker Biddle & Reath LLP Joan Koenig Counsel Drinker Biddle & Reath LLP Jennifer Quinn Associate General Counsel Omron Management Center of America, Inc. 1

2 Import Regulations U.S. Customs Laws and Regulations. Administered by U.S. Customs and Border Protection (Department of Homeland Security). Focus on tariff classification, valuation, and country of origin of imported merchandise. Dual mission: - Trade compliance Determine admissibility of merchandise Assess duties and fees Collect trade statistics Administer Trade Agreements - Trade security Counter terrorism Border security Protection of international supply chain Monitors and enforces other federal agency requirements. 2

3 Importer Obligations Include... Declarations to CBP - What is it? Tariff classification - How much is it worth? Valuation - Where is it from? Origin All Must Be Done with Reasonable Care Will impact duty owed 3

4 Reasonable Care No black and white definition - depends on facts and circumstances of each case Reasonable care commensurate with size and sophistication of importer For example, the failure to follow a binding Customs ruling issued to an importer constitutes a de facto violation of the reasonable care standard Opinion from expert satisfies requirement 4

5 If the Importer Gets It Wrong? Primary civil penalty statute, 19 U.S.C covers material false statement, act, or omission made at entry Material violations do not require revenue impact (i.e., Without regard to whether the United States is deprived of any lawful duty, tax, or fee. ) Culpability Fraud Gross Negligence Negligence Violations Resulting in Revenue Loss up to the domestic value of the entry(ies) 4 times the loss of revenue 2 times the loss of revenue Non-Revenue Loss Violations up to the domestic value of the entry(ies) 40% of the dutiable value of the entry(ies) 20% of the dutiable value of the entry(ies) 5

6 Are You High Risk? CBP focuses on Priority Trade Issues High-risk areas that can cause significant revenue loss, harm the U.S. economy, or threaten the health and safety of the American people Current Priority Trade Initiatives: - Antidumping and Countervailing Duty (AD/CVD) - Import Safety - Intellectual Property Rights - Revenue - Textiles/Wearing Apparel - Trade Agreements Penalties are off the list, but don t be fooled. - Trade penalty assessments increased by 140% from $385M in Fiscal Year 2011 to $926M in Fiscal Year Five year Statute of Limitations. 6

7 Value of Imported Goods Typically Transaction Value - Sales price in arm s length transaction (Invoice). - Must have sale (no consignment shipments). WATCH FOR UNDECLARED VALUE ISSUES Certain statutory additions to the price must be included. - Assists, Commissions (paid by buyer), Royalty or license fees (paid by buyer), Packing costs (paid by buyer), Proceeds of any subsequent resale of the goods transmitted to the seller. - Generally all payments from the buyer to the seller are dutiable. Related-Party Is it a valid transfer price? - all costs plus a profit or - comparable sales to unrelated parties in the U.S. 7

8 Country of Origin Marking and Made in USA Customs laws govern the requirements related to foreign country of origin markings. - Substantial Transformation. Markings referencing domestic processing is generally governed by the FTC. - FTC is charged with, among other things, protecting consumer rights and preventing deceptive trade practices. FTC rules strictly limit Made in USA claims. - All or virtually all standard. 8

9 Introduction to Duty Preference Programs > Preference programs allow for special duty/fee treatment. > Programs are optional!! > There are specific steps to qualify Rules of origin. > Doesn t necessarily mean free or easy. > Requires affirmative steps/internal controls. > Processes to prove qualification. > Written certifications from foreign suppliers. > Common area of importer non-compliance. > Most rules are provided in General Notes to the HTSUS. 9

10 U.S. Antidumping/Countervailing Duty Law U.S. antidumping (ADD) and countervailing (CVD) duty law is designed as a trade remedy to help U.S. companies compete with foreign industry. Intended to level the playing field. Government has the right to impose ADD and/or CVD duties in order to provide relief to domestic industries injured by unfair import competition. No private right of action 10

11 When Are ADD/CVD Duties Imposed? > Antidumping duties are imposed when imported merchandise is sold at less than fair value and causes material injury, or threatens to cause material injury, to the domestic industry producing a comparable product. Goods sold at a price that is below that producer s sales price in its home market or lower than its cost of production > Countervailing duties are imposed when foreign producers receive governmental subsidies, and when the importation of their subsidized goods causes material injury, or threatens to cause material injury, to the domestic industry producing a comparable product. Financial assistance provided to foreign producer to benefit production, manufacture, or exportation. 11

12 ADD/CVD Deposit Requirements After an ADD/CVD Order is issued, IMPORTERS must make cash deposits in the amount of estimated ADD/CVD liability on entries of the subject merchandise. Foreign producers/exporters are not liable for the payment of ADD or CVD duties. Foreign producers/exporters cannot reimburse the importer for ADD or CVD duties. 12

13 Compliance Strategies Robust corporate compliance program. - Clear corporate policy against trade fraud. - Dedicated trade compliance staff. - Detailed internal controls/processes. Periodic audits of import declarations to test compliance. Supplier verifications (e.g., origin claims). Training programs (all levels). Effective system/process for addressing violations found. - Specific reporting and follow-up procedures. 13

14 Trade Under Trump - The first 200 days and beyond Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) - likely to be killed or significantly renegotiated Export Sanctions - Iran, Cuba, Russia, N. Korea likely some unilateral tightening of sanctions against Iran and/or Cuba NAFTA - full withdrawal is unlikely, but some updates are possible China Trade likely to see saber rattling and perhaps negotiation on trade policies and alleged currency manipulation Bilateral FTAs potential review of existing FTAs and negotiation of new agreements Section 301 options for Executive Branch actions against unfair trade practices Antidumping and Countervailing Duties (AD/CVD) likely enhanced AD/CVD enforcement to fight duty evasion and circumvention, as well as increase in new cases World Trade Organization (WTO) withdrawal is unlikely 14

15 Export Controls What are Export Controls? - The U.S. and other industrialized nations place restrictions on the transfer of articles and technology to: Protect and promote national security Promote foreign policy Comply with international obligations 15

16 U.S. Jurisdiction U.S. Persons U.S. citizens or permanent residents (green card holders) Companies in the U.S. Companies organized under U.S. law Non-U.S. companies owned or controlled by a U.S. parent U.S. Items Goods or technology in the United States Goods or technology made in the U.S. Some non-u.s. made goods that contain U.S. materials or technology Don t forget business partners! 16

17 Subject License Required Exports may require government approval based on: - What s being exported (classification) Military articles or technology Production technologies for making defense articles - Where it s going (destination) - To whom it is being exported - What you know (or have reason to know) the recipient intends to do with it 17

18 Not All Countries Are Treated the Same 18

19 Embargoes and Sanctions Two main types of sanctions: - Country based sanctions - List based sanctions (named parties) Each sanctions regime is unique, but - Usually, no exports, imports, or transshipments allowed Although there are often exceptions for humanitarian products - Most Transactions by U.S. persons prohibited Facilitation of activities by foreign persons commonly prohibited: If a U.S. person could not do something directly, they cannot provide support to a foreign person doing the same thing 19

20 Jurisdiction over U.S. Goods Goods may be considered to be subject to U.S. jurisdiction where: - A transaction involves goods of U.S. origin i.e. goods manufactured in the U.S. - Certain goods previously exported from the U.S. i.e. goods sitting in inventory outside the U.S. - Goods contain more than a de minimis percentage of controlled U.S. content by value. 20

21 Primary U.S. Embargoes Cuba Crimea Syria Iran North Korea Sudan 21

22 Russia Not a true embargo - License requirements for Russia have not changed much, but, - Policy of denial for high tech products. Things you used to be able to get a license for, you no longer can - Primarily aimed at Specially Designated Nationals Sectoral sanctions - New licensing requirement for certain items used in oil and gas exploration - Prohibition on providing, servicing debt in excess of 90 days 22

23 End-users Names, some identifying information published You know who they are Examples OFAC Specially Designated Nationals (Narcotics Traffickers, Terrorists) Any party more than 50% owned or controlled by SDNs is itself a SDN EAR Denied Parties List Entities List EU Consolidated List of Persons, Groups and Entities 23

24 WMD end-uses require a license regardless of item exported Nuclear proliferation Missile technology End-Uses Chemical/Biological weapons 24

25 Compliance Policies and Procedures Tone from the top Manual explaining that we comply Trained staff responsible for compliance Training required for those in responsible functional areas Communication to affected entities Compliance procedures Classification of exported goods and technologies Destination and Denied Parties Screening Compliance Monitoring Maintain records 25

26 Non-compliance Serious consequences for violations: - Civil violations penalties of up to $284,000 per violation - Other: Loss of export privileges Debarment and loss of ability to be involved in government contracts Forfeit items being exported Government will not approve export licenses Very bad P.R. 26