Category: Country of Origin

592 Penalties Liability; Smugglers Circumvent Duties

A recent story about the criminal conviction of 5 people for smuggling aluminum extrusions and circumventing anti-dumping and countervailing duty orders illustrates the point that importing into the United States requires due diligence. 592 penalties, and others, await those who importers who do not due their due diligence. Importing is not some casual business for the novice entrepreneur looking to make a fast buck. 

I am sharing and commenting on this story to pose the question: what if you got wrapped up in this (criminal) charade unintentionally? Imagine you were buying what you thought were Malaysian origin aluminum extrusions from a supplier in Malaysia that were, in reality, Chinese origin aluminum extrusions. That means rather than only being responsible for the normal duty applicable to the merchandise, they are subject to an additional duty of 374% ad valorem. What happens to you — the innocent importer?

You receive a duty demand or supplemental duty bill for the unpaid anti-dumping or countervailing duties. Maybe also an investigation or pre-penalty notice for potential violations of section 592 penalties, alleging 592 penalties for negligence or gross negligence in importing into the United States. Even though you did not know about it. The law does not require that you know the592 Penalties - Keep Calm and Contact Your Customs Attorney true country of origin to be responsible for duties owed because of the true country of origin.

In short, failure to perform due diligence and verify your supply chain and the true country of origin of the aluminum extrusions would leave you in an awful financial situation. It pays to investigate your supply chain, asks questions of your suppliers, verify all parts of the import transactions, and when in doubt, hire a customs lawyer.  Because in customs law, you can often held responsible for the mistakes of others.

On to the story below (original HERE):

SAN JUAN, Puerto Rico — Five defendants plead guilty Monday in Federal District court, to charges of conspiracy to smuggle aluminum extrusions into the United States, with the intent to avoid paying antidumping and countervailing duties.

[Five people] and PRP Trading Corporation, plead guilty before US District Court Judge Francisco Besosa, after reaching a plea agreement with Assistant US Attorney Scott Anderson. A sentencing hearing is scheduled for December 17, 2014.

The defendants were indicted by a grand jury after an investigation [ ]. According to the indictment, the defendants knowingly and willfully . . . conspired . . . to smuggle . . . merchandise imported from China . . . by passing false and fraudulent invoices and documents through the San Juan CBP customhouse with the intent to defraud the United States in lawful antidumping and countervailing (ADD/CVD) duties accruing upon said merchandise.

The object of the conspiracy was that [the] owners and/or principals of Sultana Screens & Aluminum Sales, PRP Trading, and Aluwest Industries, with the assistance of William Tang Piu Wong, would purchase aluminum from China, transship the aluminum to Malaysia, repackage the aluminum and create false invoices to make it appear as though the aluminum originated in Malaysia, and then import the aluminum into Puerto Rico in order to avoid payment of the antidumping and countervailing duties (ADD/CVD).

You can read the rest HERE. Usually people smuggle drugs, money, gold, jewelry, and other things we consider valuable. Aluminum extrusions are not in that category. But, the smuggling here dealt with avoiding paying extra duties. That gets the product in cheaper than competition. But how much duty savings is your freedom, or non-liability for 592 penalties worth?

If you need help conducting due diligence, or face duty or penalty liability with customs you should contact our office by e-mail or call (734) 855-4999. We are experienced in defending customs 592 penalties, disclosing potential violations through prior disclosures, responding to notices of penalties, and preparing detailed and well argued petitions for mitigation of penalties or liquidated damages. You can also make use of our other articles, such as:

Customs 592 penalties articles:

Customs Counterfeit Seizures; Counterfeit Guitars

Back in May, Customs made a large seizure of counterfeit guitars in Jersey City. We previously discussed, in a two article series, the dangers of importing counterfeit trademark merchandise into the United States; how it can result in seizure, monetary penalties, and how the importer can defend it. It also happens that this story deals with false country of origin marking on imported merchandise.

This story underscores the importance of everything we discussed in those articles: Importing Counterfeit Trademarks – Customs Seizures & Penalties; Part 1 and Part 2 and Importing Grey Market Goods (click to read). You should also review the articles we have published on country of origin marking, available Country of Origin Marking Requirements and Customs Country of Origin and Substantial Transformation. The story is below, with my emphasis in bold:

Jersey City, N.J. – U.S. Customs and Border Protection (CBP) officers working at the International and Counterfeit guitars seized in Jersey CityBulk Mail Center in Jersey City, N.J. discovered more than 185 counterfeit guitars with an estimated retail value of more than $1,000,000.

While examining oversize parcels, CBP officers discovered five guitars bearing the Gibson, Les Paul, Paul Reed Smith, and Martin trademarks, as well as the marking “Made in USA.”  The officers immediately suspected the guitars of being counterfeit based on the Counterfeit Guitar Seizurescountry of origin, poor craftsmanship, and packaging.

CBP has since identified more than 180 counterfeit guitars bearing additional trademarks of Epiphone, Fender, Taylor, and Ernie Ball—all being shipped through the same facility. Officers discovered business cards within the packaging, all referring to the same website. The website indicated these guitars could be purchased from China for about $200 to $500; but the manufacturer’s suggested retail price for authentic guitars range anywhere from $2,000 for basic models to $54,000 for signature models. The guitars were seized by officers and are scheduled for destruction.

“CBP is on the forefront of protecting the American economy and trademark holders. Counterfeit goods pose a serious threat to the consumer and economic loss to American business,” said Robert E. Perez, director of CBP’s New York Field Operations. “Enforcing intellectual property rights (IPR) remains a priority for U.S. Customs and Border Protection.”

CBP protects businesses and consumers every day through an aggressive IPR enforcement program.

Information about internet purchases is available. Additional information on CBP’s IPR enforcement efforts can be found at CBP IPR.

Notice how the false country of origin marking may have raised the suspicions of customs and caused them to investigate the legitimacy of trademark further. Trouble never travels alone. You should read about your liability for customs violations for things you purchase on the Internet.

If you have merchandise seized by customs and either lose your opportunity to get the merchandise back, abandon the merchandise, or ignore the notice of seizure, it may not be the end of trouble for the importer. In general, customs has the authority to fine or penalize anyone who violates the laws enforced by customs. This means that, weeks or months after the property is seized and forfeited, you may get notice of penalty in the mail from customs that demands payment of thousands of dollars in penalties! It could also mean you get a letter from the trademark holder threatening you with further legal action.

If you have had money or merchandise seized by customs because they allege it is counterfeit and contains trademark violations, call our office at (734) 855-4999 to speak to a customs lawyer, or e-mail us through our contact page. We are able to assist petitions for customs seizures nationwide.

Customs Country of Origin & Substantial Transformation

Determining country of origin for U.S. Customs marking purposes can at times be easy but other times it can be very difficult. This depends largely on the number of countries involved and the processes the merchandise undergoes in those countries. We have previously discussed how to properly mark country of origin on imported merchandise in another article (READ IT HERE).

In this article, we will try to briefly explain how country of origin is determined for customs marking purposes for merchandise imported from countries that the U.S. does not have a special trade agreement with. ((Different laws often apply for determining country of origin when there is a free trade agreement in place, as of this writing, the U.S. has free trade agreements with Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore.)) At the time of posting this article, then, these rules for determining country of origin is appropriate for countries such as China, Germany, Switzerland, England, Italy, and some others where there is no special, overriding, trade agreement.

How is country of origin determined?

For customs purposes, country of origin is the country of manufacture, production, or growth of any article. If only one country is involved in the production, manufacture, or growth of the article, that is the country of origin.

However, for articles that are manufactured or produced with materials from more than one country, or which undergo further production or manufacture in more than one country, the country of origin is the country where the article last underwent a “substantial transformation.” Substantial transformation is defined as the process whereby the article is turned into a new and different article of commerce, with a different and distinct name, character, and use from the article as it was previously. ((19 CFR 134.1(d); In United States v. Gibson-Thomsen Co., 2 Cust. Ct. 172 (1938); U.S. Rules of Origin, CBP (2004), p. 9.))

Again, these rules are only for countries that the U.S. does not have a special trade agreement with. So, for example, there are different country of origin marking rules for NAFTA.

When is merchandise “substantially transformed” for country of origin purposes?

What constitutes a “substantial transformation” for any particular article depends on the specific type and amount of production and manufacturing that the article undergoes. For this reason, no general guideline beyond creating a “new and different article of commerce, with a different and distinct name, character, and use” is possible.

For that reason, each article’s country of origin must be determined on a case-by-case basis. If it is difficult to determine country of origin for a particular article, it might be necessary to get formal guidance from customs through a request for a prospective ruling, which usually results in customs issuing a formal ruling letter that they are obliged to honor. It can also be helpful to review previously issued ruling letters to find similar cases, and get a sense for how the law is applied to a particular situation. This should only be done by a customs lawyer or an experienced broker, who understands the law and the exact phases of production of the imported merchandise.

What happens if imported merchandise has an incorrect country of origin marking?Keep Calm and Contact Your Customs Attorney

If country of origin marking is wrong, Customs will deny release of imported products, or if already released from Customs custody, they will be required to be returned via redelivery notice. Customs may impose and collect an additional duty of 10% of the article’s value before allowing release (“marking duties”), an amount in addition to any other duties normally owed, if any. Before release, Customs will  require that the article be marked with the correct country of origin and until marked duties paid.

Customs Attorney Consultation for Country of Origin and Marking Requirements

If you have a question about proper country of origin marking, identifying the actual country of origin, otherwise determining how to comply with the Customs rules concerning proper country of origin marking for imported merchandise, or if your competitor is not marking or mis-marking country of origin on their products, you should contact our office at 734-855-4999 or send us a message on our contact page. We can always help.

Country of Origin Marking Requirements

In a global economy where a person can find products from every corner of the globe consumers are sometimes inclined to make their purchasing decisions based on the country of origin (meaning where the product is made and where it is imported from). Americans, for sure, like to base their decision of whether to buy certain products based on country of origin. We have all probably, at one time or another, been told to buy American, to look for a made in U.S.A. label, or not to buy anything from China or some other country. My grandpa, who grew up during World War II, wouldn’t buy anything made in Japan or Germany, and for a  time during the Iraq War there was a call among some to boycott French products for their unwillingness to join the U.S. efforts.

This sentiment is nothing new, and in fact, is the reason that all imports into the U.S. must be marked with the country of origin. Recognizing this tendency, Congress

Made in China Image
Country of Origin Mark

authored 19 U.S.C. § 1304 in order to specify the various rules and exceptions to the country of origin marking requirement, and set out penalties for failing to mark and/or properly identify the country of origin of imported products.

Marking Requirements for Country of Origin

This law plainly states that every foreign products or article entering the U.S. must bear a mark indicating the English name of its country of origin, unless the article fits into a listed exception, discussed below. The country of origin mark itself must meet two qualifications, simply stated:

  • First, it must be conspicuously located on the article;
  • Second, it must be legible, indelible, and permanent;

Id. at §1304(a). The reason for these requirements to enable the “ultimate purchaser” (i.e., the person who will receive the article in its imported form 19 CFR § 134.1(d)) to readily identify the article’s country of origin in case that will affect his decision to buy or not buy a particular product. Customs can require that certain articles be marked in a specific manner, without exception, by stamping, cast-mold lettering, etching, engraving, or cloth labels (e.g., coffee, tea, spices, manholes, pipes, fittings, etc.). 19 CFR § 134.42.

Interestingly, the country of origin marking requirement means if you cannot find a country of origin marking on a product or its container, you may presume that it was made in the United States, because there is no marking requirement under this law for non-imported products (it could also mean that the country of origin marks were intentionally destroyed, removed, or concealed, or that Customs failed to intercept violative country of origin marking).

Exceptions to the Country of Origin Marking Requirements

Exceptions to the country of origin marking requirement typically arise when marking an article is extremely difficult or purposeless to mark. For example, the statute can exempt particular articles which are physically incapable of being marked, cannot be marked prior to their shipment to the U.S., or are imported for the private use of the importer and not intended for sale in the U.S. Id. at §1304(a)(3). Even in those cases, however, while marking the article itself may be excepted, the law still requires the importer to mark the country of origin on the container of the article, like the packaging it comes in. Id. at §1304(b).

Exemptions could be available in a variety of circumstances.  For example, marking a product could be economically prohibitive to the article’s importation or injure the article, or the origin could be apparent without explicitly marking the article.

How U.S. Customs Treats Mismarked or Unmarked Imports

In the absence of the required country of origin mark on imported articles, Customs will ensure that unmarked imported products are denied entry in commerce, or if already released from Customs custody, they will be required to be returned via redelivery notice. Customs may impose and collect an additional duty of 10% of the article’s value before allowing release, an amount in addition to any other duties normally owed, if any. Id. at §1304(i). Before release, Customs will  require that the article be marked with the correct country of origin and until marked duties paid.  Id. at §1304(j).

What to do When U.S. Customs Takes Issue with Country of Origin and its Marking

If you have a question about proper country of origin marking, identifying the actual country of origin, and otherwise determining how to comply with the Customs rules concerning proper country of origin marking for imported products, you should consult with an attorney experienced in the customs and related laws. It is possible to get a prospective ruling from U.S. Customs product which you intend to import, and an attorney can arguing for a particular manner of country of origin marking. Contact out office today to discuss your problem and your options.

Feel free to use this article to supplement your own knowledge, but do not let it serve as a substitute for legal counsel familiar with the various restrictions and exceptions of the law.