CBP Looking into Textile & Apparel Fraud in "Right to Make Entry" & NAFTA

(“Textiles and Apparel” is a Priority Trade Issue (PTI), and continues to be a politically and economically sensitive commodity. Complex regulations and the increasing number of free trade agreements and trade preference programs (each with unique requirements) create these opportunities for fraud.)

$94B in Textiles and Apparel Imports, Average Duty Rate of 16%

CBP states it facilitates the legitimate importation of textiles and apparel, while combating the rising number of textile imports that are undervalued or misclassified, or illegally transshipped or entered. There are approximately 68,000 importers of textile products. The industry represents more than $94 billion in annual imports and about 47% of all duties collected by CBP. The average duty rate for textile products is 16%.

CBP Visits Foreign Factories to Confirm Preference, FTA Adherence

Of the $94 billion in annual textile and apparel imports, more than $17 billion claim preferential tariff treatment.

CBP utilizes Textile Production Verification teams (TPVTs) to conduct on-site verification of foreign textile and wearing apparel manufacturers. These teams review and verify production capability and compliance with the terms of FTAs and trade preference programs. The TPVT visits help deter circumvention of the preference program requirements, as well as educate foreign governments and manufacturers.

In 2010, CBP visited 221 factories in 11 countries. 32% of the reviews showed a violation of the trade preference program claimed on the entry and 19% showed a discrepancy related to illegal transshipment.

CBP Combating Undervaluation by Entities with No Legal Right to Make Entry

In addition to non-compliance with trade preference programs, CBP is also combating the undervaluation of textile and wearing apparel by entities with no legal right to make entry. Goods are being imported under false identities and addresses, hindering CBP’s efforts to collect additional duties or penalties.

CBP sources note that they have heightened concern when customs brokers do business with freight forwarders, as in this case the importer could be nothing more than a shell company. In addition, such shipments may have unrealistically low entry values that trigger Census rejects. If both these situations occur, CBP may deny entry to the merchandise.

Sources note that customs brokers should be asking for purchase orders and other documents, in order to determine if the listed importer is a valid “importer of record,” etc.

CBP has lost a significant amount of revenue due to this shell company/undervaluation problem, adding that the same type of fraud has been seen in the circumvention of dumping and health and safety laws.

(See ITT's Online Archives or 08/05/10 news, 10080512, for most recent BP summary on CBP's "Operation Mirage," which identified over $419 million in potentially undervalued apparel from China, found that half of the importers investigated did not have the right to make entry, and that importers were paid for the use of their importer of record (IOR) number.)

CBP Looking at Illegal Transshipment of Goods thru U.S. into Mexico, False NAFTA Claims

Another area of risk is the misclassification of wearing apparel, often to circumvent high U.S. rates of duty.

CBP is also looking closely at the illegal transshipment of goods through the U.S. into Mexico. These goods, falsely claiming U.S. origin, are exported to Mexico under false NAFTA claims. The exports can range from completed apparel that is using a U.S. origin claim to circumvent Mexico’s dumping duties against China, to fabric. Subsequently, the fabric exports are used in production of apparel imported back to the U.S., under false NAFTA claims.

(See ITT’s Online Archives or 05/26/11 news, 11052616, for BP summary of CBP’s FY 2010 textile and apparel enforcement statistics.)

(See ITT’s Online Archives or 05/25/11 news, 11052515, for BP summary of Senator Hagan announcing that she is working to reintroduce the bipartisan Textile Enforcement Security Act (TESA).

See ITT’s Online Archives or 02/10/10 news, 10021025, for BP summary of CBP’s FY 2009 textile foreign factory visit results.

See ITT’s Online Archives or 05/13/08 news, 08051315, for textile and apparel enforcement statistics for the first half of FY 2008.)