In recent years, costs arising from the importation of goods into the United States have declined steadily. Import duty has been eliminated or reduced on many imported products, entries can be filed electronically, and many archaic reporting requirements have been eliminated. However, recent Congressional action suggests that the cost of compliance will rise in the future. Three new statutes requiring increased reporting to Customs are discussed below.
I. Safe Ports Act Of 2006: Data Must Be Submitted To Cbp At Time Of Exportation
The Safe Ports Act of 2006 (PL 109-347; H.R. 4954) mandates that Customs and Border Protection ("CBP") gather additional data elements before goods are shipped to the United States. As soon as CBP publishes final regulations regarding "Importer Security Filing and Additional Carrier Requirements" ("ISF"), importers will be required to submit certain information to CBP before goods are exported to the U.S.
CBP is currently in the process of revising its initial reporting requirement proposal, in response to more than 200 comments received from interested parties. While there is no definitive date for CBP to issue final regulations, CBP plans to implement the ISF requirement in the near future. The ISF program will become effective 90 days after notice is published in the Federal Register, with enforcement phased in over a period of several months. When implemented, ISF will fundamentally alter both the timeline and manner in which import related information is provided to CBP.
In its proposed rulemaking, CBP advised that the following data elements would need to be submitted to CBP through either the Automated Broker Interface ("ABI") or Automated Manifest System ("AMS") electronic data systems at least 24 hours before cargo is laden on board an ocean vessel bound for the United States:
1. Manufacturer (or supplier) name and address;
2. Seller name & address;
3. Buyer name & address;
4. Ship to name & address;
5. Container stuffing location;
6. Consolidator name & address;
7. Importer of record number;
8. Consignee number;
9. Country of origin of goods; and
10. Harmonized Tariff Schedule ("HTS") number (6 digit).
As proposed, this information must be provided on a "line item level" so that shipments which contain merchandise subject to multiple classifications will require multiple ISF submissions. In addition, the carrier must provide CBP with: (1) Vessel stow plan; and (2) Container status messages. Thus, the ISF requirement is often referred to as the "10+2 Rule."
All freight passing through the territory of the United States will be subject to the new ISF requirement, including merchandise moving in-bond through the United States and freight which remains on board the vessel and merely transit the coastal waters of the United States. Failure to make a complete ISF filing 24 hours prior to lading may result in the assessment of liquidated damages when the shipment arrives.
ISF dramatically alters supply chain information requirements. Importers need to decide who will make the filing, and then provide that party with the necessary information in a timely manner. Importers will have options in the type of filings that they make. They can make an ISF and a regular entry when the goods arrive OR they can make a combined ISF/Entry before the goods are loaded into the container. Where importers opt for two filings, they will have to insure that data submitted with the ISF is consistent with data submitted upon entry. Either way, tariff classifications will have to be assigned much earlier in the product logistics cycle. Although CBP has indicated that it will phase-in the ISF requirement, significant decisions must be made well in advance of this new requirement in order to avoid supply chain disruption.
II. Farm Bill Of 2008: New Reporting Requirements For "Plants And Plant Products" And First Sale Value Programs
A. Plants And Plant Products
The Farm Bill of 2008 (P.L. 110-234; H.R. 2419), contains a significant revision to the Lacey Act (16 U.S.C. § 3371), establishing a new import declaration requirement for "plants and plant products." This declaration currently is scheduled to take effect for goods arriving on or after December 15, 2008. After that date, any person importing any plant or plant product must report the following information to CBP at time of entry.
1. The scientific name (i.e., genus and species) of any plant or scientific name of the plant from which a product is derived that is contained within the shipment. If unknown, the declaration should include the name of each species of plant that may have been used to produce the plant product.
2. The plant species country of origin (i.e., the country where the plant was harvested, cut, logged, or removed). If unknown, the declaration should include the name of each country from which the plant may have been taken.
3. A description of the value of the importation and quantity (including the unit of measure) of the plant/plant product.
4. In the case where a paper or paperboard plant product includes recycled plant product, the average percent recycled content without regard for the species or country of origin of the recycled plant product, in addition to the information for the non-recycled plant content otherwise required.
The language of the Lacey Amendments is vague. While the new reporting requirement could be confined to obvious wood and plant-related items, such as flooring, furniture, paperboard and plywood, it arguably encompasses products with trace amounts of wood byproducts, such as apparel, footwear, etc. Also uncertain is the exact declaration format and method of filing; thus, the possibility exists that a paper declaration would have to be filed along with a paper Customs entry. Importers have proposed a two year moratorium on implementation of this law. Whether these efforts will be successful remains to be seen.
B. First Sale Value Reporting
Where there is more than one sale of goods for exportation to the U.S. (i.e. one sale from the producer to a trading company, and a second sale from a trading company to an importer), an importer is able to enter the goods at the lower price if it can show that the lower priced sale was a "sale for exportation to the U.S." This program has resulted in the elimination of millions of dollars in customs duties to knowledgeable importers. The Farm bill states that Customs should not tamper with this value program before January 2011, but that importers have to annotate their entries to indicate which filings involve the first sale program. This new reporting requirement will permit Customs to evaluate the impact of this program on the revenue of the U.S.
III. Consumer Product Safety Improvement Act Of 2008: Toys And Other Children's Products Subject To New Safety And Reporting Requirements
The Consumer Product Safety Improvement Act of 2008 (P.L. 110-314; H.R. 4040) ("Act") enacted into law on August 14, 2008, implements new and more vigorous consumer product safety standards for children's toys and other products used by children.
A. Lead Paint/Lead Ban
Under the Federal Hazardous Substance Act, a product that contains more lead than the legally mandated ceiling is considered a banned hazardous substance and its manufacture, offer for sale and/or distribution in commerce, or importation into the United States is prohibited. The Act broadens the scope of banned hazardous substances by creating more stringent lead content ceilings for children's products, both for products which incorporate lead paint and with respect to elemental lead in product components.
B. Products Containing Phthalates
Phthalates are chemical compounds that are added to plastics in order to make them more flexible, but can be toxic for human beings. Beginning on February 10, 2009, it will be unlawful to manufacture, offer for sale, distribute in commerce, or import into the United States any children's toy or childcare article containing concentrations of more than 0.1 percent of di-phthalate, dibutyl phthalate or benzyl butyl phthalate.
C. Third Party Testing
Under existing law, manufacturers of children's products (including distributors and importers of children's products manufactured abroad) are required to provide a self-certification verifying compliance with consumer product safety rules and regulations. The Act mandates that, beginning 90 days after publication by the Commission of accreditation standards for each product, manufacturers must supply third party certification (i.e., reports from independent testing laboratories) on all children's products that are distributed into commerce. The first accreditation standard for third party testing will be published for lead paint on September 13, 2008.
D. Tracking, Registration And Labeling
The Act requires that any advertisement or label for a children's toy for which a cautionary statement is required on the product or its packaging must also appear on or adjacent to the advertisement. For manufacturers that sell their children's product over the internet, the internet warning label law goes into effect in December 2008; the warning label rule for printed catalogues goes into effect in February 2009.
By August 14, 2009 the Commission will provide guidance to all manufacturers of children's products regarding the placement of permanent tracking labels on their products and packaging. From that point forward, all children's products must contain these labels. Tracking labels enable the manufacturer to determine the date, location and production run (e.g., lot or run number) of a product, in the event of a problem/need to recall the item. Additionally, the label must allow the ultimate purchaser to identify the manufacturer and same production information.
E. Toy Safety Standards
Beginning in February 2009, the Commission will establish additional toy standards as they relate to test methods and safety requirements for children's products containing heavy metals and leads. The new standards apply to children's products that contain magnets, toxic substances, toys with spherical ends, hemispherical shaped objects, cords/straps/elastics, and battery operated toys. These new standards will supersede any other standards previously issued including those in other statutes. However, state laws which are more stringent than the federal ones can remain as controlling law for that territory.
F. Import/Export Provisions
The Act provides that consumer products that are refused admission into the United States as non-conforming must be destroyed unless the Secretary of Treasury approves an application for exportation, in lieu of destruction. The Commission may also prohibit a party from exporting from the United States products that do not conform to the product safety rules under the Act. An exception to the latter exists where the company can demonstrate to the Commission that the country of intended destination will accept the non-conforming good.
As the number of reporting requirements continues to grow, it is more difficult for importers to ensure that they are in full compliance with the law. The failure to comply can result in the assessment of substantial penalties. Importers must grin and bear it because importing continues to be a privilege and not a right.
Robert B. Silverman is a Partner with Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, a firm primarily concentrating in customs and international trade matters.