U.S. Customs and Border Protection Textiles

1. Department of Homeland Security  Customs and Border Protection U.S. Customs and Border ProtectionTextiles July 2006

2. Department of Homeland Security  Customs and Border Protection The Textile Import Industry Total Imports = $ 1.9 Trillion Textile Products = 43% of all Duties Collected Total Duties = $25 Billion Average Duty Rate 16% *K = Thousand M = Million B = Billion 2

3. Columbus Trade

4. Columbus Trade

5. Columbus Trade

6. Textile Supplier Countries Volume • China • Mexico • Pakistan • Canada • India • Korea • Indonesia • Bangladesh • Honduras • Taiwan Value • China • Mexico • India • Hong Kong • Indonesia • Pakistan • Canada • Vietnam • Honduras • Bangladesh

7. January 1, 2005 and Beyond • Quota Eliminated for all WTO Member Nations EXCEPT China • Safeguard Mechanism Replaced by Comprehensive Quota Agreement • Textile Bilaterals Expired • Authority to Conduct TPVTs Expire • MOUs (HK and Macao) • Enforcement Focus Unchanging

8. January 1, 2005 and Beyond • Changes to the Regulations • Elimination of the Paper Textile Declaration • Allows Electronic Filing of Entries; • Changes to the Construction of the Manufacturer Identification Code • The Entity that Performed the Origin Conferring Process • Not the Trading House, the Shipper, etc. • Remote Location Filing • Working on the Informal Value Limits/Not Revenue Neutral

9. Textile Enforcement Focus • Textiles and Wearing Apparel Designated As a Priority Trade Issue for FY 06 • Enforcement Focus • Origin Fraud; Illegal Transshipment; Quota Circumvention; Inadmissibility of Merchandise • Enforcement of Various Legislative Trade Initiatives and Free Trade Agreement Preference Claims • Protection of the Revenue • 5 Year Enforcement Strategy to Congress

10. Textile Enforcement Focus • Risks • FTA and other Trade Legislation • $22.4 Billion in Trade Preference Claims out of a Universe of $100.3 Billion in Imports • China Quota • Illegal Transshipment • Misdescription of Merchandise • Smuggling; Unmanifested Goods • General Misdescription to Avoid Duties and Quota • 43% of Duties Collected Involve Textile Goods

11. Textile Enforcement Focus • FTA Activity • Morocco Implemented on January 1, 2006 • CAFTA El Salvador Implemented on February 1; Nicaragua and Honduras April 1, 2006; Guatemala, July 1, 2006 • Thailand, ANDEAN Countries, Panama, UAE and SACU in Negotiation • Bahrain and Oman Completed • South Korea and Malaysia Negotiations Started

12. Enforcement Issues • Free Trade Agreement Enforcement • 2,164 Lines Valued at $66.4M Reviewed • 563 or 28% Found to Be Non-Compliant • $1.2 M in Additional Revenue Recovered • NAFTA Accounted for 79% of Revenues Recovered; CBTPA Accounted for 13% • Preference Claims Value $22.4 B in 2005

13. Training • Free Trade Agreement Training Initiative • New York, Miami, Los Angeles and Atlanta • 90% of Import Specialists Processing Textile FTA Goods Have Been Trained this Calendar Year • Extensive Training Materials Have Been Prepared

14. Textile Enforcement Focus • Chinese Quotas • U.S. Government Has Negotiated a Comprehensive Agreement which Became Effective on January 1, 2006; Expires December 31, 2008 • U.S. and China Resurrected ELVIS Links • China Issues a Paper Visa and a Certificate of Origin • Will Only Be Provided to CBP Upon Making the Request to the Importer

15. Textile Production Verification Teams • Since October 2005 TPVTS Were Conducted in: • Hong Kong • Macao • Swaziland • Vietnam • Egypt • Mauritius • South Africa • Thailand • Kenya

16. Textile Production Verification Teams • November 2005 Visit to Hong Kong • 167 Factories Targeted • 65 Closed • 24 Refused Admission • 46 High-Risk Designation • 3 Evidence of Transshipment • December 2005 Visit to Macao • 28 Factories Targeted • 5 Closed • 3 High-Risk Designation

17. Textile Production Verification Teams • Seizure of Goods from Closed Factories • $2.6 Million to Date • Production Records Being Requested on Previous Shipments Involving $38.3 Million in Value • Penalties Being Pursued • Since October 2005 More than $42 Million Seized

18. Textile Enforcement • Audit of Textile Importers FY 2005 • 42 Audits Completed • 34 Had Positive Enforcement Findings • $4.97 Million in Additional Revenues Collected • Classification Errors $928,831 • Singapore FTA Findings $43,265 • Caribbean Basin Trade Partnership Act $510,944

19. Common Broker Errors • Incorrect ISO Codes • Incorrect Construction of the Manufacturer Identification Code (MID) • Incorrect Country of Origin • Bras • Incorrect Entry Types • 01s Instead of 02s

20. Common Broker Errors • Just Because a Product Was Exported from an FTA or Trade Preference Country Doesn’t Make It Eligible for Duty-Free Treatment • Don’t Rely Solely on the Bill of Lading/Review All Documents Presented For Entry • Learn to Read

21. Enforcement Issues • A Search of Chapters 50-63, for Jan 2004 - July 2005 Revealed $84 Million in Imports. • $18.5 Million, or 22% of that Value Reveals a Mismatch between Country of Origin and Country of Export or MID Origin. • Over $1 Million Shows Obvious Admissibility Issues.

22. Enforcement Issues • Filing of Incorrect Entries • 02 Quota/Paper Entries Continue to Be Required for the Following: • AGOA Preference • Tariff Preference Level Claims in NAFTA, CAFTA, Chile, Singapore and Morocco FTAs • China Comprehensive Quota Agreement • CBTPA & ATPDEA Claims under the Cap • Non-WTO Country Imports e.g. Vietnam • Worsted Wool (Chapter 99)

23. Textile Enforcement • Operation “X” • 5 Days over a 5 Week Period (Nov-Dec. 2005) • 2,121 Additional Examinations of Goods Claiming Country of Origin China; Focus on Misdescription • 131 Violations Found • 63 Incorrect Country of Origin Declared • 23 Incorrect Information on Manifest • 22 Incorrect Classification of Goods • 4 Intellectual Property Rights Violations • 4 Health and Safety Violations • 3 Incorrect Quantities Declared • 1 Smuggling, etc. • Violations Totaled $2.5 Million in Value • 5 Seizures Totaling $88,441 • 7 Penalties Being Pursued

24. Enforcement Issues • Misdescription/Misclassification of Imported Products • Ramie vs. Cotton and Manmade Fiber Products • Circumvents Chinese Quota Restraints • Ramie 0-2% Duty Rate • Cotton 16% Duty Rate • Manmade 32% Duty Rate • Loss in Duties Exceeds $12 Million • 68 Bogus Companies in the Mix to Defraud the Government and Evade Quotas

25. Detentions • Policy Is Not Set In Stone • Each Transaction Stands on Its Own • Generally: • 4 Compliant Reviews and the Manufacturer is Removed from Scrutiny • Manufacturer May Have Problems with One Importer and Not Another; Compliant Importer May Be Removed From Further Scrutiny • Information from other Sources e.g. Foreign Government May Cause Removal of Manufacturer Immediately from Further Scrutiny

26. CAFTA Implementation Issues • USTR Announced El Salvador Receiving CAFTA Retroactive Benefits on March 6, 2006 Ref. 71 FR 11235; Honduras and Nicaragua Added in April • CBP Publishes Interim Regulation on March 7, 2006 Ref 71 FR 11304 • Required Documents • Pursuant to the Legislation • CBP Can Locate the Entry or the Entry Can Be Reconstructed; • Satisfies the Conditions of Preferential Treatment Under CAFTA

27. CAFTA Implementation Issues • Time Limits • By December 31, 2006 , or 90 Days after the Date of Entry into Force for that Country; • Being Changed to “90 Days after Last Country Enters into Force”.