Seminar review: Top Five Problems You Should Avoid When Importing

Posted by Kathleen Fasanella on Feb 21, 2008 at 2:58 pm / Intellectual Property, Production, Reviews, Sourcing / Trackback

Mr. H reporting:

The other seminar assignment which I finished (I didn’t attend every seminar I was assigned) was to attend the United States Apparel and Textile Importers Association (USAITA) Top Five Problems You Should Avoid When Importing. If ever a seminar called for the Gonzo approach (heavy drinking, completely blowing off the intended assignment, intentionally provoke the intended subject with juvenile pranks), this was it. I admit I’m cynical, the seminar was heavily influenced by the USAITA whose mission is to protect the interests of and lobby for, importers -seemingly at the expense of domestic manufacturers.

Instead of tequila shots and beer chasers, I opted for green tea though, and sat patiently as four very smart women (lawyers I suspect) explained why importing things is generally a very stupid idea. Well, not really. I don’t recall an actual Top Five List, but reconstructing it backwards from my notes, it might have been things like:

  1. You are stupid.
  2. You are not a career lawyer who specializes in trade.
  3. Your stupid, careless, foreign contractors are probably using children to make high end denim out of lead sheeting from nuclear containment vessels.
  4. Government bureaucrats have nothing better to do than confiscate your goods because your stupid contractor spelled cotton with only one “t”.
  5. Things are about to get worse. Unless you are a trade lawyer, in which case you should start hiring paralegals.

As you can see, 1and 2 are pretty much the same thing. And it shouldn’t be much of a surprise that you hired the contractor in (3) given (1) and (2). 4 comes naturally as a result of 3. And 5 comes as a result of an unnatural combination of Pat Buchanan, 9/11, Lou Dobbs, Europe, China, manufacturing unions, and trade lawyers. Why?

One thing all of the presenters stressed, is your need to do “reasonable care”, by which they mean that you should celebrate your future international-trade-based fortune by spending it all up front on the search for all relevant information regarding your product, and then documenting the way in which you came to your conclusions. You do this by looking up, learning, and memorizing all of the relevant trade regulations and court cases, or by hiring a lawyer. This may help later, even if they rule against your interpretation. I’m not sure why, that’s just what my notes say.

“What conclusion? And what is relevant?” you might ask. If I knew that, I would be a high-hat trade lawyer who charges you $500 for snappy answers to such questions. But I’m not, so I’m going to guess that the answer is something like, “What is the country of origin, what are the materials used in construction, what are the taxable values, what are the tagging requirements, minimum 4 pieces, accepting orders for 3/31/08 delivery, and are there any special incentives or definitions?” Or something like that. My short hand is a little rusty and I probably should have used a clean sheet of paper instead of using a line sheet from Blue Mohawk Couture and Body Piercing.

In fact, they seemed to recommend that you go beyond reasonable care and actually design in such a way that you could take advantage of the loopholes quirks in the law. You have memorized the Harmonized Tariff Schedule by now, haven’t you? In addition to designing for particular classifications, you might have to get the article tested for fiber content so that you can back up your claims of “50% Merino Wool 40% Organic Cotton 10% Metamucil”.

By the way, I do recall that they suggested that you memorize all of the ways that you can get into trouble. These included things like not having matching documentation, PGA rules, and tagging details. Any slip-up and it’s either off to the guillotine or to the bonded warehouse, depending on whether you are importing into the French Revolution or the modern United States (I don’t remember which was which and given the high cost of error, perhaps I should have taken better notes). For example, your purchase order had better match the invoice, bill of lading, and the information provided to customs. That of course suggests that you should consider investing in a great big multi-user database (ERP) for such things. Unfortunately, you already spent your as yet-unearned fortune on the legal research, so you can’t afford ERP unless you find some pirated software while you’re in China looking for a sewing contractor.

Now, you may be wondering what the PGA has to do with importing, aside from the likelihood that 90% of Tiger Woods’ shirts are probably made in Viet Nam. But in this context, it apparently stands for Partnering Government Agencies. These are people like the FTC, FDA, DEA, and Fish and Wildlife. Yeah, I thought that sounded odd, too: we’re talking about shirts and pants, not guns & ammo. But as the lawyer pointed out, you might be importing coin purses made from the privates of former rhinos, blouses with shell buttons made from some soon-to-be-extinct mussel, or down from sickly Chinese fowl (as if Kathleen needed more than one reason to scoff at style number H5N1), and they want you to prove that they aren’t those things. I think the standard here is not “beyond a reasonable doubt,” but rather, “to metaphysical certainty,” so be sure to keep your receipts and infrared satellite surveillance photos.

And finally, we come to the reason why “anal retentive” is part of the CBP (Customs and Border Patrol) job description. Given that KF cuts tags off of all new clothing within minutes of fetching it home from the store, I tend to look at tags as having the same function as an appendix or a plastic grocery bag when you’re only buying one gallon of milk, i.e. none. But the CBP inspectors tend to think these tags are all that stands between the consumer and chaos. Without such, leads to the inevitable consequences of moral decay consisting in part of ruined clothing, bankruptcy, gum disease, prison, plague or even CAD for which the only solution is the welcome relief of death. According to my notes, inspectors seem to be authorized by most of the letters of the alphabet -FTC, FDA, DEA, PGA, CBP, FWS-, including the Textile Products Identification Act; and by the number 7. In the example used in the seminar, the lawyer’s employer used a tag inscribed, “Dry Clean Only,” but upon further investigation the wily Customs Inspector discovered that the article could also have been hand-washed. Had they put, “Dry Clean” without the “Only”, the tags would have been acceptable. Unfortunately, they had to include “Only”, so the inspector sent the shipment to the bonded warehouse, and watched (one can imagine cackling gleefully) as the importer had to retag the entire shipment at dockside. Phew, another pandemic averted by the CBP.

Another of the thousands of ways an importer can get into trouble is when someone, including the foreign contractor, decides to change materials or factories without prior notification. For example, a contractor in country A, with whom the US has a bilateral trade agreement and special incentives, may decide to outsource some part of the production to country B, which is known to harbor foreigners and other undesirables. When the goods arrive stateside, the inspector notes that a good portion of the value added did not occur in A and therefore increases the tariff. The solution suggested at the seminar is to have good procedures in place and to train everyone — buyers, supply chain managers, foreign contractors, etc., right on up to the ungulate which produced the raw fiber in the first place. That way, as we all know, nobody will do something stupid or deceitful after training because they will have become experts on the Byzantine labyrinth known as Corporate Policy and Trade Law, contrary to any other endeavor in the whole of human history.

Or you could hire a lawyer.

Finally, because of recent trends in the post-9/11 world -that someone rammed planes into buildings- which led the administration to assume other someones must want to do something worse with a container ship, (say, beaching one on the east coast, taking out the state of New Jersey). This is perhaps, a valid concern since we seem to have managed to poke a stick into the hornets’ nest and as such, policy strives to inspect goods before they ever enter the shipping containers. This gives rise to things such as C-TPAT the “10 + 2 rule” (I would have called it the “’12 rule”, but I suppose that’s an engineering thing). Since terrorists are known to be compulsive rule followers, the requirement of accurately documenting their shipments of doom will so totally foil their plans.

In addition to the fears of terrorism, we can also look forward to the dawning of a New Age of Mercantilism. Our dedicated public servants in Washington have noted that “free trade” — the euphemism by which the body of regulations outlined above are known — exposes hapless mom and pop enterprises like Levi’s and General Electric to the unfair machinations of ruthless unnamed quasi-communist countries located North of India, South of Russia, and West of Japan. Therefore, they have agreed that anti-dumping investigations and countervailing duties may be initiated against formerly “non-market economies” (NME) as of this year because they look and act a lot more like market economies than they used to. Furthermore, those same countries, accused of undervaluing their currencies, may give rise to new regulations as compensation. Finally, Senator Pryor and and Congressmen Dingell and Rush are trying to push for greater product safety restrictions; nevermind that most of the safety recalls last year were caused by design error. All of these factors may lead you to consider third party testing, liability insurance, more detailed specifications, and arbitration in Hong Kong as an alternative to court hearings in those unnamed countries.

Nevermind hiring a lawyer. After all that research, you might be better off going to law school since you’re at least halfway there.

This seminar was heavily influenced by the USAITA, whose mission is to look out and lobby for importers, not domestic manufacturers. Therefore, most of the things which looked like the rise of tariffs on imports were, to them, “troubling”. Given the potential for sudden, unexpected expenses that occur because of something you overlooked, or even your discovery of your billing code of the law firm, I don’t know why anyone would import anything. Except German and Italian sports cars. And dark chocolate. And Salma Hayek.

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