| Textile industry explosion—coming our way
By Catherine Jackson, Writer-Editor, Office of Public Affairs | International trade in textiles and apparel is a booming business with billions of dollars of profit annually. It is also an industry that pays one of the highest duties upon import. However, the cost to do business has not caused any shortages of merchandise on shelves in U.S. stores. But on January 1, 2005 quotas are set to expire for all the World Trade Organization (WTO) countries. This allows importers to ship an unlimited amount of clothing and textiles to the U.S. While this may benefit the textile importers, it will create a shift in how U.S. Customs and Border Protection focuses its resources. Before, CBP mainly focused on detecting illegal textile transshipment of importers trying to avoid the WTO quota. Now CBP will need to provide a more watchful eye on imports in which preference claims are made under the Free Trade Agreements (FTA) to ensure compliance with these agreements. | Photo Credit: James Tourtellotte |
| Imported merchandise for sale in a U.S. store.
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Illegal transshipment occurs when a party engages in the circumvention of quota by exporting textiles and apparel under another country’s quota (and labeling it as a product of that country) when actually the product is not from that country. | With quotas eliminated, the incentive exists to enter textiles and apparel into the United States falsely claiming these tariff free rates. Most WTO countries will no longer have quotas, but they will be required to pay tariffs on their goods unless they meet the requirements of preferential FTAs such as North American Free Trade Agreement (NAFTA), the Israeli FTA, Jordan FTA, and the Andean Trade Promotion and Drug Eradication Act (ATPDEA). Businesses may attempt to avoid these tariffs by shipping their merchandise into another country that doesn’t have to pay tariffs and claim that country as the origin or falsify documents to give the appearance that it is being exported from a country with an FTA. For instance, a company trying to circumvent the tariffs might ship their sheets, clothing or fabric into Canada or Mexico where there are FTA agreements, have the country-of-origin labels changed, and ship their merchandise into the U.S. claiming duty free treatment under NAFTA. “In addition to preferential trade agreements and legislative agreements, CBP will have to enforce the safeguard mechanisms that the WTO members negotiated with China,” said Janet Labuda, Director of the Textile Enforcement Division. If Chinese textile products are deemed to cause a threat of market disruption to the U.S. economy, then the U.S. may impose new quotas on Chinese goods. This mechanism can stay in effect and be used by all WTO members until 2008.In fiscal year 2004, CBP designated textiles and textile products a priority trade issue (PTI). This designation ensures that resources are dedicated to identify and address issues affecting the compliance of textile and textile products entering the commerce of the United States. The goal of the textiles and wearing apparel PTI is to ensure that inadmissible goods do not enter the commerce of the U.S. and ensure compliance with the free trade agreements and legislative initiatives. Textile Production Verification teamsPTI designation triggers a number of actions which include sending Textile Production Verification Teams (TPVT) to foreign factory locations, analyzing data, reviewing production documents, entering national criteria alerts, detaining, excluding, and seizing violators goods and penalizing violators. In addition, CBP will continue to partner with industry and foreign government counterparts to improve the flow of information to identify and address these types of high-risk issues.Robert Abels, Branch Chief, Textiles Operation Branch said, “CBP has difficulty identifying transshipment at the port level. That is why it is important to send teams out to the countries to actually verify the production at the factory.” Legislation is created to protect the American industry from foreign undercutting competition or potential monopoly of the textile and clothing market from imports. CBP’s responsibility is to administer and enforce this legislation. One of the ongoing fears of some of the smaller producers of merchandise is that China will dominate the market once the quotas are eliminated. China’s exports are rising fast. In the first nine months of 2004, it imported into the United States $4.5 billion worth of apparel and accessories. China made 17 percent of the world’s textiles and clothing in 2003. But it is estimated that China will receive $42 billion in clothing and textile orders by 2006. One of the provisions that CBP will enforce to protect the textile industry from a monopoly was negotiated with China by the WTO, to allow the U.S. to apply safeguards (another term for quota) on certain textiles if they felt that the domestic industry would be harmed. | Photo Credit: James Tourtellotte |
| A CBP chemist conducts a fabric analysis at the CBP laboratory in New Orleans.
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| With the elimination of quotas, the TPVTs will focus their efforts on preference claims. These are normally duty free or reduced duty claims if a country uses either U.S. or regional fabric or yarn (as stated in the agreement). The U.S. enters into these types of agreements because it creates benefits to both countries by encouraging the use of U.S. or regional fabric and allowing imports from a particular country to come in duty free or at a reduced duty. For textiles and apparel, duties are still particularly high, so there is an incentive to enter under a preference claim. The U.S. government wants to ensure that these trade agreements are complied with and foreign fabric is not used to make these tariff preference claims. One particular visit by the TPVT in 2004 to a country with a tariff preference benefit confirmed false claims that resulted in approximately $5 million in duties and $33 million in possible penalties, while an additional $200,000 in duties would be recovered for new false claims identified during the visit.The United States had 46 textile agreements under the World Trade Organization’s Agreement on Textiles and Clothing (ATC) that govern the amount of textiles and wearing apparel that may be imported into the U.S. In addition, there are a number of FTAs including Chile, Singapore, NAFTA, Israel, Jordan, and other legislative initiatives such as, the African Growth and Opportunity Act (AGOA), the Caribbean Basin Trade Partnership Act (CBTPA), and the ATPDEA, that give goods preferential access to the U.S. market if certain conditions are met. It is the responsibility of CBP to enforce the legal requirements of these agreements and other U.S. laws as applicable to this industry.Protecting the United States economy is very important because it generates jobs and income for the American public. CBP will not allow our textile market to be undermined by foreign textile companies who circumvent the laws and avoid paying the required tariffs, therefore cheating the American economy out of millions of dollars.Textile Production Verification Team (TPVTs) 2004 Visits and ResultsCustoms and Border Protection (CBP) and Immigration and Customs Enforcement (ICE) conduct TPVT's to verify production capacity for factories located in foreign countries. The teams use analytical analysis, port information and information from other sources to identify target companies.- Visits were made to over 710 factories located in 12 high-risk countries: Hong Kong, Korea, Vietnam, Israel, Egypt, South Africa, Madagascar, Singapore, Jordan, Lesotho, Malaysia and Swaziland.
- Of the total number of factories visited, 103 refused admission, 224 were permanently closed and 38 had evidence of transshipment. Overall, TPVT visits identified concerns with 94 percent of all factories visited, though many of these concerns were minor, i.e. outward processing operations in a third country or ownership of factories by parties of a third country.
- As a result of these visits, the activity of the closed or problem factories has been reduced from $336M to $5M and the number of importers dealing with these factories has been reduced from over 1000 to 55. As more enforcement actions take place, CBP anticipates that these numbers will drop to zero.
- Some of the significant findings of the TPVTs include:
- South Africa – Identified 24 factories whose names had been illegally used as the manufacturer of the goods that were being exported to the United States. An additional 22 factories either had fictitious addresses or were closed. In FY 2004, CBP seized $3.7 million in apparel in which false certificates of origin had been submitted to declare South Africa origin. South Africa arrested one individual in the scheme.
- Israel – Identified $55 million in trade for apparel claiming Israel-origin and entering goods duty free under the U.S. Israeli Free Trade Agreement (FTA) from four different Israeli producers. The TPVT confirmed that these supposed Israeli manufacturers were fictitious and rate advances totaling $5.8 million and penalties valued at $33 million were issued to the U.S. importers. In addition to the four fictitious factories a number of other factories were identified as making false origin claims. The total revenue recovered from those findings is approximately $300,000.
- Korea – Identified one manufacturer who admitted that a U.S. importer had advised him to change the country of origin labels to avoid quota restraints.
- Vietnam – Evidence of transshipment was identified in five factories. In four of the factories, the name was used to incorrectly claim Vietnam as the origin of the goods. These factories disavowed any knowledge of producing the goods and the certificates of origin submitted with the entry were found to be counterfeit. In the remaining companies, the goods were of Chinese origin, but claimed under Vietnam. There were 12 factories that were either closed or fictitious. The results of this second visit found a major improvement with factory compliance in the ability to provide proper documentation illustrating production capabilities. In addition, with the implementation of the Electronic Visa Information System (ELVIS) the counterfeiting of visa documents that had been found during the previous trip have been eliminated.
- Hong Kong – There were two visits to Hong Kong. These visits have resulted in 162 Hong Kong factories that canceled their registration. Evidence of transshipment was uncovered in five factories that were visited. Hong Kong Customs conducted follow-up reviews of many of the factories that refused admission to a visit or in which problems were found. In most instances the factories cancelled their registration resulting in the inability to export goods to the U.S.
*In FY 2004, CBP seized shipments based on the submission of counterfeit documents for the following countries:Russia $15.4 millionSouth Africa $3.7 millionUzbekistan $2.8 millionVietnam $2.2 millionKenya $400,000Maldives $300,000Kyrgyzstan $200,000Brunei $120,000Botswana $100,000Additional seizures have been made with in-bond diversion ($19.2 million) and other smuggling avenues, i.e. misclassification ($2.2 million). |
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