a publication of the united StateS aSSociation of importerS of textileS & apparel
In this issue:
Proposed Legislation Would Add New Conditions to
Exports to the United States Proposed Legislation Would
By Jon Fee and BJ Shannon, Alston & Bird LLP Add New Conditions to
Exports to the United States
The Foreign Manufacturers Legal By Jon Fee and BJ Shannon,
Accountability Act, introduced Alston & Bird LLP
in the U.S. Senate (S. 1606) in
August 2009 and in the U.S. House
of Representatives (H.R. 4678) in Textile State Congressmen
February 2010, would require foreign Introduce Customs
manufacturers of many products that Enforcement Bill
wish to sell those products in the By David Spooner, Squire
Jon Fee BJ Shannon
United States to register an agent in the Sanders & Dempsey
United States for service of process and motor vehicles and motor vehicle
to consent to jurisdiction for civil and equipment. Foreign manufacturers
regulatory actions in the United States. that manufacture products below U.S. Customs & Border
The U.S. Department of Commerce minimum quantity, value, or frequency Protection Update
(DOC) would maintain a publicly thresholds established by responsible By John Pellegrini, McGuire
available registry of such agents. agencies would not be subject to the Woods LLP & USA-ITA
Covered products would be prohibited law. The law also would require a Customs Counsel
importation into or sale in the United study of the feasibility of extending
States unless the manufacturer had a coverage to imported food.
registered U.S. agent.
Currently, foreign manufacturers may U.S. Denim Production Sees
Covered products would be consumer be subject to the jurisdiction of U.S. Post-Recession Boost
products (including apparel);1 drugs, courts only pursuant to procedures of By International Data Systems
devices, and cosmetics;2 biological the Hague Convention on the Service
products;3 chemical substances;4 Abroad of Judicial and Extrajudicial paGe fiVe:
pesticides;5 and components of such Documents in Civil or Commercial USA-ITA Holds Seminar on
products (presumably including Matters or, in countries that are Customs Penalties
textiles for use in the production not signatories to this convention,
of apparel). An amended House pursuant to formal letters of request Sourcing at MAGIC
version of the bill would also cover from U.S. courts to foreign courts
asking the foreign court to effect
1 Consumer products are defined by the USA-ITA, established in 1989,
Consumer Product Safety Act. service. Resort to these procedures is the U.S. trade association for
2 Drugs, devices, and cosmetics are defined adds time, expense, and difficulty in importers and retailers of textile and
by the Federal Food, Drug, and Cosmetic actions attempting to hold foreign apparel products. Headquartered
Act. manufacturers liable for defective in Washington, DC, USA-ITA is
3 Biological products are defined by the
Public Health Service Act.
products sold in the United States. the voice for the industry before
4 Chemical substances are defined by the Congress, the Administration,
Toxic Substances Control Act. The Sense of Congress section in the business community and the
5 Pesticides are defined by the Federal the House bill emphasizes that all public, as well as industry groups
Insecticide, Fungicide, and Rodenticide Act. Continued on page 7 and governments around the world.
www.usaita.com International Affiliates Newsletter: July 2010 1
Textile State Congressmen Introduce Customs Enforcement Bill
uSa-ita analyzes the impact of the draft legislation
By David Spooner, Squire Sanders & Dempsey
In late May, the importer of record provides a false that have filed material and false
Congressman address or if the importer of record information on entry documents.
Larry Kissell of files inaccurate entry paperwork. Requires Treasury to publish a list of
North Carolina “high risk” countries through which
introduced Use of Funds: Treasury or Homeland entities have transshipped textiles or
legislation Security shall use monies from textile apparel to evade duty or quota.
that, if enacted, would broadly impact and apparel import enforcement fines
customs enforcement and entry and seizures to fund additional textile Electronic Verification System:
procedures for apparel imports into and apparel enforcement activity and Requires the U.S. Commerce
the United States. Representative to reward tipsters for information Department and Customs to establish
Kissell’s “Textile Enforcement and leading to arrests, convictions, fines, an electronic verification system
Security Act” (TESA or H.R. 5393) etc. to track textile and apparel articles
has attracted bi-partisan support, imported or exported under free trade
garnering twenty-four Republican Customs Staffing: Sets specific agreements to ensure compliance.
and Democrat co-sponsors from personnel requirements for textile Requires the President to enter into
textile manufacturing States. Though enforcement activities at Customs and consultations and agreement, if
there may be no reason distinguish the Department of Justice. necessary, with free trade agreement
apparel from other high-tariff imports countries to implement this electronic
Affidavits: The importer of record verification system. Stipulates that
for special enforcement procedures, for textile and apparel articles must
congressional sources indicate that future free trade agreements should
file an affidavit for each importation include an electronic verification
an apparel enforcement measure may that includes the address of the
eventually move on the Hill, perhaps in system.
manufacturer, a contact person’s
tandem with Customs Reauthorization complete contact information, a Nonresident Importer Program:
legislation. USA-ITA is working to description of the fabric and yarn Requires the President to demand that
educate stakeholders on the true state content, the purchase order or invoice non-resident importers of textile and
of industry compliance, as well as on issued for the sale with quantity, apparel products identify a resident
the impact of TESA on the industry, the date of sale or shipment, and, if who will accept service of process
should the bill pass. available, the container number and and certify that the aforementioned
The following summary of bill of lading number for the articles resident has assets sufficient to cover
Congressman Kissell’s “Textile delivered to the customer. enforcement penalties. Requires non-
Enforcement and Security Act” may resident importers to furnish a copy
Bonding: Treasury shall require, or of the invoice accompanying the
help USA-ITA members evaluate authorize Customs officers to require,
the potential impact of this onerous shipment of textile and apparel articles,
importers of textile and apparel article including the name, address, and
legislation: to post a bond “equal to any duties, contact information for each person in
Coverage: Covers all products within fees, and penalties estimated to be the transaction. Requires non-resident
HTS Chapters 50 - 63 plus twenty- payable.” The bond amount shall importers to declare that they have
seven specific items from other be based on a risk assessment of the secured bond and established a power
Chapters (mostly Chapters 39, 42, 64, importer. of attorney. A non-resident importer
and 65). Expanded Definition of “Person”: who fails to abide by this portion of
Stipulates that the provision of law the bill faces civil penalty.
Seizure: Textile and apparel goods are
subject to seizure by U.S. Customs if that prohibits a “person” from making Justice Apparel Enforcement
trade preference is claimed and goods a material and false statement on entry Office: Creates a textile and apparel
are either misdescribed or the importer documents encompasses producers, enforcement office within the U.S.
of record does not verify actual country manufacturers, suppliers, sellers, Department of Justice. Requires all
of origin “for purpose of avoiding a importers and exporters. textile and apparel enforcement cases
duty or other obligation.” Textile and Publication of Violators: Requires to be tried in the Middle District of
apparel goods also subject to seizure if Treasury to publish a list of entities North Carolina.
www.usaita.com International Affiliates Newsletter: July 2010 2
U.S. Customs & Border Protection Update
By John Pellegrini, McGuire Woods LLP & USA-ITA Customs Counsel
cbp conference question on how to enhance the penalty sufficient
Customs and Border Protection (CBP) and collection process as well as what evidence to
Headquarters Office and field officials CBP is doing to enhance intellectual support the
met earlier this month. The conference property rights enforcement and change in
drew nearly 200 participants from enforcement of product safety rules classification.
CBP offices throughout the country. in conjunction with the Consumer
Product Safety Commission. Also, although
The purpose of conference was to
it was afforded an opportunity to show
exchange ideas and discuss CBP’s
claSSification deciSionS why the subject merchandise should
new and changing policies.
The following is a summary analysis be classified differently, the importer
One of the major presentations of recently published Headquarters failed to offer support for its position
shared the initial findings of a Office classification decisions. such as a sample from the shipment.
special enforcement operation
HQ H083655 (April 8, 2010) concerns The second ruling addressed here is
called “Operation Mirage”. The
the classification of women’s jeans HQ H022174 (proposed). This ruling
initiative, which started almost two
entered as in chief weight ramie. concerns the classification of a child’s
years ago, is operating in partnership
CBP classified the garments as in sweatshirt-styled jacket manufactured
with Immigration and Customs
chief weight cotton based upon a in Pakistan. The garment was
Enforcement in an attempt to
single Customs Laboratory test. The classified in HTS subheading
determine if textile products imported
importer challenged the classification 6101.20.00 (15.9%) as a boy’s
from China are undervalued and/or
by filing a protest. garment in NY N003933 (December
misclassified at entry. The initiative
5, 2006). The importer requested
was prompted by information from
The issue in the Headquarters Office reconsideration and the Headquarters
retailers who contacted CBP when
decision is whether the particular jeans Office proposes to revoke the New
they noted that entry documents
may be classified as in chief weight York ruling and reclassify the garment
provided by LDP sellers did not
cotton based upon a laboratory test of as a unisex garment in HTS subheading
reflect the goods they had purchased.
a single sample imported in a previous 6102.20.00 (15.9%).
According to the speaker, Janet
shipment. The Headquarters Office
Labuda: “The goods were described The subject merchandise is composed
held that a classification based upon
differently, were grossly undervalued, of a knit 80/20 cotton/polyester fabric,
the test of the earlier shipment was
and the quantities were not the same.” has a full-front zipper opening a hood,
appropriate under the circumstances.
two side entry pockets, rib knit cuffs,
This information led CBP to visit
This decision is based upon the fact and a rib knit waistband.
importers selected from a nationwide
that the garments at issue were made
sample. The visits revealed that In determining whether garments
by the same manufacturer and supplier,
fraud was rampant. According to Ms. are classified as for boys or for girls,
covered by the same purchase order,
Labuda: “The importers are fly-by- CBP considers a number of factors
and had the same stated fiber content
night bogus shell companies. Some including sizing, construction, styling
as the sample tested. Also, the sample
of these people have already morphed as well as packaging, labeling and
tested was entered only six days prior
into the next identity. This is going to marketing. According to the ruling,
to entry of the merchandise at issue.
be an ongoing initiative.” the sizing of the subject jacket covers
The style numbers and price were
substantially similar although not both boys and girls. This is based upon
Retailers and distributors who
identical. Given these facts and the fact a review of the importer’s various
purchase goods from importers who do
that there was a substantial discrepancy buyer guides and catalog information.
not have a significant presence in the
between the claimed and actual fiber The ruling views the construction
United States should take appropriate
content (75.4% cotton, 23.8% poly of the jacket as neutral in terms of
steps to ensure that the transactions
and .8% spandex as opposed to the gender characterization. The garment
are domestic, meaning that orders
claimed fiber content of 55% ramie, is provided in dark navy blue and
should be placed and payment made
22% cotton, 23.8% poly and .8% most styles in black and dark green.
in the United States.
spandex [as stated in the ruling]) was According to the ruling, there are no
The conference also addressed the deemed by the Headquarters Office Continued on page 8
www.usaita.com International Affiliates Newsletter: July 2010 3
U.S. Denim Production Sees Post-Recession Boost
By International Data Systems
U.S. preference programs and Free Trade Agreements (FTAs) – particularly in the Western Hemisphere
– are designed to promote the use of U.S. fabric. One of the major U.S. fabric exports to the Western
Hemisphere is blue denim. This arrangement has led to some tension in recent years as U.S. denim
production decreases and Western Hemisphere apparel suppliers struggle to remain cost competitive. The tables below
illustrate the changes in U.S. denim production and exports since 2002.
As shown below, U.S. denim production has fallen steadily in recent years, declining precipitously in 2005 and 2006.
However, production seems to have leveled off in 2008 and 2009 despite the global economic crisis.
U.S. Denim Production 2002-2009
Million Square Meters
20 20 20 20 20 20 20 20
02 03 04 05 06 07 08 09
The data above shows full year production through 2009. Although there is not 1st Million Jan-Mar %
a full year comparison, current data is available through the first quarter of 2010. Quarter SME Change
The table below shows that U.S. denim production actually grew during the first 2002 141.1 -
three months of 2009 (in the midst of the retail slump); and production grew by 2003 144.8 2.64%
double digits during 2010 (at the start of the economic recovery).
2004 123.1 -14.99%
U.S. denim exports show a similar pattern, but with a later peak. Although 2005 130.3 5.84%
overall production peaked prior to 2002, exports reached a high point in 2004 2006 79.1 -39.24%
– immediately before the end of the global quota regime. As we saw with the
2007 50.8 -35.84%
first quart production data, exports are up in early 2010. During the first four
months of the year, U.S. producers shipped twenty percent more denim fabric 2008 32.7 -35.62%
abroad than during the same period the previous year. Exports to CAFTA are 2009 34.0 4.04%
up by ninety-one percent, and shipments to the Western Hemisphere as a whole 2010 37.4 10.10%
grew by twenty-two percent.
Continued on page 4
www.usaita.com International Affiliates Newsletter: July 2010 4
Denim Production from page 3
U.S. Denim Exports 2002-2009
Million Square Meters
So where are these exports going? The pie chart below shows the division of U.S. denim exports by destination country
for the year-to-date April 2010. Nine of the top ten destinations are Western Hemisphere countries – and represent ninety-
seven percent of the U.S. denim exports. Seventh-ranked Turkey accounts for another one percent. By value, the top
seven destinations remain the same, but Ecuador,
U.S. Denim Exports YTD April 2010
Honduras, and Chile are replaced by Korea, the
1.03% 0.32% honduras
Philippines, and Hong Kong.
dominican rep other
Over time, U.S. denim exports have concentrated
more heavily in the Western Hemisphere. In 2002,
colombia Belgium imported ten percent of the U.S. denim, and
the Philippines and Hong Kong also ranked among
the top ten. However, Mexico remains the dominant
buyer, accounting for sixty-five percent of U.S. exports
10.52% in 2010, compared to seventy-four percent in 2002.
During the peak export period in 2004, Guatemala
surged to import twenty percent of the U.S. denim.
South Africa also entered the top ten export markets,
65.50% although none of the U.S. denim exports so far in 2010
report South Africa as the destination.
www.usaita.com International Affiliates Newsletter: July 2010 5
USA-ITA Holds Seminar on Sourcing at MAGIC
Customs Penalties is further expanding with new show environments
and even more exhibiting countries from the world’s top
Last month in New York, USA- apparel producing regions
ITA hosted a seminar entitled
Customs Penalties – Recent August 16-19, 2010 at the Las Vegas Convention Center
Developments. Presented by Arthur Sourcing at MAGIC continues to be the largest and most
Bodek of Grunfeld, Desiderio, comprehensive sourcing event in North America, representing
Lebowitz, Silverman & Kelstadt, the entire fashion supply chain. This August, the show will
LLP., the seminar was attended feature more than 700 exhibitors from 40 countries, including
by representatives from apparel China, India, Mexico, Vietnam, Taiwan and Romania. New
importers, customs brokers, law sourcing environments include Design Elements, a juried
firms, and logistics providers. With an in-depth look at section showcasing original design manufacturers (ODM).
the current status of customs compliance, Bodek delved
into the details surrounding the regulations and the types USA-ITA will host two sessions at MAGIC, and both will
of violations. be moderated by USA-ITA President Julie Hughes. While
details are not yet finalized, below is a sneak-peek at the
More than 40 percent of the duties collected by U.S. session descriptions:
Customs involve imports of textile articles. Penalties,
the collection of revenue and the enforcement of textile Sourcing from Emerging Locations
restrictions, have been designated by Customs as priority The search for new sourcing options never ends. While China
trade issues. remains the largest producer of apparel, key sourcing and
policy executives will talk about their experience developing
According to Bodek, “The best way to avoid Customs successful sourcing strategies from emerging locations.
penalties is to have an effective compliance program. Speakers: Mark D’Sa, The Gap; Ruth Sommers, NOI
U.S. importers and foreign exporters should develop Solutions LLC
recordkeeping systems that can document any and all
claims being made (whether it relates to classification, Managing Your Sourcing Risks: From Cotton to
duty-free tariff programs or otherwise).” Compliance in Your Global Strategy
This session offers insights about how to handle risks that
Seminar attendees learned that, depending upon the can disrupt your sourcing options. Speakers will cover issues
particular facts and circumstances, the legal challenge ranging from how to plan for fluctuations in Cotton prices,
of a penalty claim may result in substantial mitigation how to build partnerships with key vendors and how to
or even outright cancellation. Penalty exposure may manage global compliance.
also be avoided or minimized by filing a prior disclosure Speakers: Peter Gabbe, EVP and COO of the Carole Hochman
with Customs before, or without knowledge of, the Design Group; Mark Messura, Cotton Incorporated; Richard
commencement of an investigation. An issue of current Coyle
dispute between Customs and the trade is what type
of “writing” will constitute the commencement of an Sourcing at MAGIC opens at noon on August 16th, one day
investigation. In certain cases, Customs has maintained before MAGIC starts. On the opening day, Apparel magazine
that a document as innocuous as a Request for Information will present the 4th Annual Excellence in Sourcing Summit.
or a Notice of Action was enough to commence an Registration is complimentary for qualified apparel, brand
investigation. and retail executives. Other show features include F/W
2011-12 trend galleries and complimentary industry seminars
With all of the recent developments, and with pending featuring top industry experts from companies such as The
legislation such as the proposed Textile Enforcement Doneger Group, Edun, Pantone, Jockey, Fashion Snoops, and
and Security Act of 2010 (see page X for more on this many others.
legislation), understanding and complying with the
regulations is paramount. Seminar attendees heard To register for Sourcing at MAGIC, please go to
several accounts of real-life customs cases, often where www.sourcingatmagic.com
the government prevailed and steep fines were levied.
This seminar now is available for sale on DVD. If you are
interested in purchasing a copy, please visit our website
for the order form.
www.usaita.com International Affiliates Newsletter: July 2010 6
at the time of importation, but, even possibly six, U.S. federal agencies
Proposed Legislation from page 1
if foreign manufacturers are subject to would be responsible for implementing
U.S. manufacturers are subject to the jurisdiction of U.S. courts, those the proposed legislation.
the jurisdiction of U.S. courts, and judgments might not be enforceable.
As described above, CPSC, FDA, and
that fairness dictates that foreign
Under the regime created by the EPA would each be responsible for
manufacturers should also be
proposed law, foreign countries establishing their own requirements
accountable for the products they
might have no obligation to enforce and publishing their own regulations
produce and sell to the United
judgments issued by U.S. courts governing registration of foreign
States. The Congressional Findings
or agencies. Several members of producers of products within each
section in the House bill notes that
the House Energy and Commerce agency’s jurisdiction. The House
U.S. consumers and businesses have
Committee’s Subcommittee on bill’s inclusion of motor vehicles and
been harmed by defective products
Commerce, Trade, and Consumer equipment would also require NHTSA
manufactured by foreign producers.
Protection have also raised this to publish regulations establishing
Moreover, U.S. distributors and concern, including Rep. Cliff Stearns such requirements. Then, DOC would
other business may be harmed if (R-FL) and Rep. Ed Whitfield (R- be responsible for establishment
they face liability because foreign KY). and management of the database
manufacturers cannot be held liable. of registered agents for all covered
A second question is what burden products, including publication
The same Findings section notes that
the law could place even on foreign of a further set of implementing
U.S. producers are put at a competitive
manufacturers that sell only safe regulations. The U.S. Department
disadvantage when foreign producers
products and are never subject of Homeland Security (DHS) would
are not held accountable for these
to a lawsuit. Requirements for be responsible for regulating the
manufacturers to designate registered prohibition of imports from foreign
While it may seem inherently fair that agents and for minimum thresholds, manufacturers without registered
all producers of defective products as well as associated regulations, agents, and DHS would also be
should be held accountable for those would be established and published by required to publish yet another set of
defects, and while foreign producers CPSC, FDA, the U.S. Environmental regulations.
of safe products may view such Protection Agency (EPA), or the
legislation as inapplicable to them, National Highway Traffic Safety Although an amended version of
the pending legislation raises several Administration (NHTSA), depending the House bill would require these
important questions. on the type of product involved. agencies to consult with the goal of
establishing consistent requirements,
The first such question is whether The statutory language says nothing this consultation requirement is not in
the law actually creates the desired about the registration process or the Senate bill, and even consultation
level of accountability. The National any requirements for updating might not eliminate inconsistency
Customs Brokers and Forwarders registrations. The 2008 Consumer in requirements and interpretation,
Association of America (NCBFAA) Product Safety Improvement Act which could increase burdens on
recently expressed concern that simply (CPSIA) may have provided a costly foreign manufacturers.
requiring foreign manufacturers to lesson about legislation that deprives
establish registered agents might an agency of flexibility to implement A fourth question, which would
not make those manufacturers statutory requirements, but legislation affect U.S. manufacturers more than
accountable. NCBFAA noted that that grants maximum flexibility to foreign manufacturers, is whether
several U.S. agencies, including implementing agencies also has an other countries would reciprocate.
U.S. Customs and Border Protection, uncertainty cost. Thus, the full impact NCBFAA’s recent letter highlighted
the U.S. Consumer Product Safety of the law on foreign manufacturers that U.S. exporters could become
Commission (CPSC), and the U.S. would remain unclear until responsible targets of similar laws by other
Food and Drug Administration (FDA), agencies published regulations. countries. Rep. Bob Latta (R-
already have the power to seize, detain, OH) also expressed concern about
A third question is whether the number “unintended consequences” of
or refuse entry to defective products.
of U.S. federal agencies that would the pending legislation. Marianne
Subjecting foreign producers to U.S.
be tasked with enforcing the law has Rowden, president and CEO of the
court jurisdiction could offer redress
the potential to create unnecessary
for product defects that are not evident Continued on page 8
complication. At least five, and
www.usaita.com International Affiliates Newsletter: July 2010 7
Proposed Legislation from page 6 Customs Update from page 3
American Association of Exporters pending tax extenders bill, thereby physical characteristics or styling
and Importers, has also predicted increasing the chances for passage characteristics which suggested use by
that the law could cause similar of foreign manufacturer registration either boys or girls. Accordingly, the
requirements to be imposed on U.S. requirements. Since the current tax styling was considered neutral.
exporters. Given President Obama’s extenders bill has been withdrawn
goal of doubling U.S. exports in five from Senate consideration, it is Given that the physical characteristics
years, this concern may receive further unclear when, and in connection with were neutral, the marketing information
attention. what other legislation, Congress might proved dispositive. The importer’s
consider foreign agent registration buyer guide indentified garment as
A fifth question is whether, despite requirements, but the House held a a unisex garment in connection with
political popularity in the United markup at the subcommittee level on a line of school uniform clothing. It
States, the bill might violate the U.S. June 30, and it seems possible that appears that the particular garments
Constitution or U.S. commitments Congress eventually will act on this are advertised as unisex and that the
under international law. The primary or similar legislation. Thus, foreign importer did not have a separate line
constitutional question is whether manufacturers should remain aware based upon gender for any type of
the United States can require foreign of how registration requirements school outerwear. Not surprisingly,
manufacturers to consent to service could impact them, even if they never the Headquarters office classified the
of process as a condition to selling sell defective products and are never garment as unisex.
products in the United States. subject to a U.S. lawsuit. You might ask why the importer
Professor Andrew Popper of requested reconsideration given that
American University’s Washington Jon Fee and BJ Shannon are there is no difference in duty. The
College of Law recently told the attorneys at Alston & Bird and request was made in 2007 when the
House Energy and Commerce concentrate their practice on MOU with China was in effect. That
Committee’s Subcommittee on international trade matters. still leaves the question of why CBP
Commerce, Trade, and Consumer decided to answer at all.
Protection, however, that he believes
the law is “constitutionally sound”
and consistent with U.S. commitments
to trading partners. Nonetheless, the
attention these issues received at
the recent congressional hearing is a
reminder that there are questions about
constitutionality and about whether
World Trade Organization member
countries might object.
Despite these questions, the pending Stay Connected with USA-ITA
legislation has bipartisan support, with Renew Your International Affiliates Membership
15 co-sponsors in the Senate and 62 co-
sponsors in the House. Furthermore, It is membership renewal season, and notices were recently emailed. Please
Jeremy Baskin, an attorney with contact Heidi Weber at email@example.com if you have not received your
CPSC, stated that the lack of registered notice.
agents for foreign manufacturers
is an obstacle in CPSC’s efforts to If your company has already renewed its International Affiliates membership,
locate foreign manufacturers, and he thank you! For those who still need to renew, we encourage you to send
has asked Congress to give CPSC your payment soon so that you stay connected to the information USA-ITA
authority to require registered agents provides: our monthly newsletter and updates with important summaries
for foreign manufacturers. about U.S. regulatory issues, customs discussions, and trade negotiations.
At one point, it seemed possible All of us at USA-ITA and in the industry appreciate your support and look
that bill might be attached to the forward to continuing to work with your company in the coming year.
www.usaita.com International Affiliates Newsletter: July 2010 8