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S ANDLER & T RAVIS T RADE A DVISORY S ERVICES, I NC. An Affiliate of Sandler, Travis & Rosenberg, P.A. INTERNATIONAL TRADE & CUSTOMS SEMINARS www.strtrade.com All materials contained in this presentation are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written approval of Sandler & Travis Trade Advisory Services, Inc. You may not alter or remove any trademark, copyright or other notice from copies of the content. The materials contained in this presentation are provided for informational use only and should not be considered legal advice. The hiring of a lawyer is an important decision that should not be based solely on advertisements or seminar/webinar materials. Before you decide, contact us and we will send you free written information about our qualifications and experience. © Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved Nicole Bivens Collinson BEST PRACTICES FOR SURVIVING ORIGIN VERIFICATIONS BY US CUSTOMS & BORDER PROTECTION
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Today’s Topics 1.Textile Apparel Transshipment – Why is it still a hot topic? 2.CBP’s Enforcement Mechanisms and How to Survive Them FTA/Preferential Trade Program Claims Non-Preferential Trade Claims 3.The Ins and Outs of Production Documentation Reviews 4. Best Practices for Smooth Sailing 5.Update on Other Product Standards Compliance
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com 1. Textile Transshipment – Why Is It Still a Hot Topic?
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Claiming a false country of origin to circumvent quota, safeguards, etc. or to obtain duty-free treatment under a FTA/preferential trade program. HOW? 1.Wholly assembling garment in 1 st country, finishing it in 2 nd country, and claiming 2 nd country as COO; 2.Performing major operations in 1 st country, minor operations in 2 nd country, and claiming 2 nd country as country or origin; or, 3.Wholly assembling garment in 1 st country, sewing false country of origin labels into garments in 2 nd country, and claiming 2 nd country as COO. Illegal Textile/Apparel Transshipment Defined
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Why is it bad for business? Decreased competitiveness of importing countries’ domestic market Distortion of quota/safeguard and other quantitative restraint levels Unfair competitive advantage gained by violators Consumers are misinformed about the true origin of goods Importers Can’t Import Exporters Can’t Export
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Why is it bad for business? Delays in release of goods Increase in costs for the Importer Corporate image and reputation damaged Goods could be seized Increased inspections Increase in post-entry inquiries by CBP Potential cancellation of contracts/orders Harm to Importer’s business relationships Added costs/bottom line impact
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Why is transshipment still such a hot topic? We have seen a renewed push in transshipment prevention initiatives by CBP because of – Pressure from Congress, domestic textile industry and labor unions for stricter enforcement of rules of origin The Mod Act requires importer reasonable care Increase in number/use of Free Trade Agreements and preferential trade programs Attempts by companies to circumvent Chinese safeguards
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com More Buyers requiring LDP/DDP Involvement discourages US buyers Ability to provide CBP requested documentation in very timely matter Importer/supplier relationship subject to level of cooperation Importance to Manufacturers/Exporters
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com 2. CBP Enforcement Mechanisms and How to Survive Them
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com How Customs Enforces the Rules of Origin Textile Production Verification Team Visits (“Jump Team Visits” or FTA/Preference Program “Verification Visits”) Detentions/Exclusions - Production Record Reviews CF-28s/CF-29s and Production Records Reviews
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Textile Production Verification Team Visits
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Jump Team/Verification Visits All producers of textile/apparel articles, regardless of use of FTAs/preference programs, are routinely subjected to unannounced, onsite factory verifications by CBP. The Jump Team/Verification Team typically consists of two or three-persons—usually Import Specialists and CBP Agents Purpose of Visit: Jump Team will seek to verify country of origin, recent FTA/preference program claims made, and look for evidence of transshipment.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Meet with and interview the Producer’s Senior Management; Tour the Producer’s facility, looking for evidence of transshipment activities; Request and review production documents for recent shipments to the US Submit written report to CBP HQ as to: (1) whether the factory’s records clearly substantiate the origin of the goods; and, (2) whether the factory poses a risk of engaging in illegal transshipment Jump/Verification Team’s Assignment
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Typical questions: When was the company established and by whom? Does the company have any other related factories? Where are they located and what are there names? What products does the company manufacture? What is the factory’s monthly production capacity? How many employees are involved in the production of the merchandise (KTS, cutting, sewing, inspecting, finishing, etc.)? What is the skill level of the employees? What is the typical work week– 5 days, 6 days, 7 days? What is the typical workday– 8 hours, longer? Jump/Verification Team’s Meeting With Senior Management
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Typical questions: (continued) How many and what types of machines does the factory have? Does the factory subcontract production? To whom? Does the factory use OPA? Who are your primary customers in the United States? Does the company sell to customers in countries other than the United States? If so, where and what percentage of its production is dedicated to non-US markets? Does the factory maintain production records for goods shipped to the United States? Do their subcontractors maintain production records? Etc. Jump/Verification Team’s Meeting With Senior Management
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com The Team will look for evidence of transshipment, such as: Not enough workers present or not enough machines being used to produce the merchandise; Skill level of the workers is very low; There are cartons of knit panels/fabric components, fabrics or yarns from other countries; Boxes of knit panels are not being delivered to a factory that is responsible for linking and looping; Shipping cartons bear the wrong country of origin; Etc. Jump Team’s Tour of the Facility
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com The Jump Team will choose a style number that was recently shipped to the US, and request the factory to show them: All raw material records Production records for the finished garments Employee timecards and payroll records The Team will review the records to trace production from receipt of raw materials, production, and shipment of finished goods to the United States. The documents must show a logical, chronological progression in the production of the finished goods. Jump/Verification Team’s Review of Production Documents
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com NOTE: Factories should already have recordkeeping processes—the request for records should not confuse the factories! Records should be maintained by contractors/subcontractors for all style numbers for – At least 1 year following date of shipment to the US for non FTA/preferential trade program goods (best practice); or, The period required under the FTA/preferential trade program (i.e., AGOA requires producers/vendors to keep records for at least 2 years); or, The period required in the vendor agreement (if longer than CBP recordkeeping requirements) Jump/Verification Team’s Production Document Review
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com CBP imposes national criteria, begins to detain all shipments of merchandise from that producer for all US importers, and requests production records. Detained shipments may be excluded from entry. CBP may ban shipments from the producer. CF-28s/CF-29s may be issued requesting documents for— Previously filed FTA/preferential trade claims; and/or Future FTA/preferential trade program claims. If goods are still within the conditional release period, CBP may demand redelivery (and liquidated damages for failure to redeliver). FTA/preferential trade program producers/vendors may be suspended or expelled from the program. CBP could begin scrutinizing US importer’s other imported merchandise (from other vendors, producers, countries). Consequences of an Unsatisfactory Visit
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Detentions/Exclusions of Merchandise
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com 1. Merchandise Presented for Examination CBP is required to detain or release goods within 5 working days after the goods’ arrival in the US. 2. Customs Issues Notice of Detention A Notice of Detention (which can also be accompanied by a CF-28) will be issued to the customs broker or the US importer. The US Importer is required to respond and present all of the required documentation within 30 days of the date of Notice of Detention or the goods will be excluded. No extensions will be granted by CBP. Detention/Exclusion Timeline
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com NOTE – CBP is required to make its decision (release or exclude) by Day 30, so US Importers must respond with production records as early as possible within the 30-day period so that CBP will have time to make a decision. 3.Deemed Exclusion: If no decision is made by CBP within this 30-day period, the goods will be “deemed excluded.” 4.Decision to Exclude: If the goods are excluded, the US Importer may— Export the goods (they may never reenter the US); Destroy the goods under CBP supervision; or, Protest CBP’s decision to exclude the goods. Detention/Exclusion Timeline
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com CF-28s/Non-Detention Situations
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com CF-28s/Non-Detention Situations Even when goods are not detained, CBP may later issue a CF-28 requesting records to substantiate origin or verify a FTA/preferential trade program claim. US Importer will have 30 days in which to respond, and CBP may grant extensions. If CBP is satisfied with the documentation, no further action will be taken. If CBP is not satisfied with the documentation, CBP may— Request additional information/documentation; Issue a CF-29 Notice of Action; Request redelivery of the goods to CBP; Begin detaining future shipments; and/or Begin denying future FTA/preferential trade program claims.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com CF-29s: Notices of Action
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com CF-29s: Notices of Action If CBP disagrees with the manner in which the US Importer originally the merchandise (i.e., declared origin, eligibility for FTA/preferential trade program), CBP will issue a CF-29 Notice of Action proposing to take a certain action on the entry (i.e., denial of claim, change in origin). The Notice will typically request that the US Importer respond within 20 days—submit production records If no response is made (or documents are unsatisfactory), CBP will take the proposed action.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com 3. The Ins and Outs of Production Documentation Reviews
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Keys to Production Documentation Reviews CBP has wide latitude in deciding which records it wants to review. All documents must be translated into English. Submit a detailed document timeline with the records. Submit a detailed explanation of who all the parties to the transactions are and what role they played. Records should contain one or more reference numbers (PO#, style number, production order number, cut lot number, contract number, etc.) that may be used to trace production from the raw materials to the finished goods. Avoid submission of only computerized summaries– CBP wants the original, contemporaneous documents. Records should create a paper audit trail that clearly, logically, and chronologically tells the whole story.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Modular vs. Non-Modular Production Operations Modular Manufacturing: CBP has acknowledged that many factories are using modernized line systems of production, in which traditional documents (i.e., cutting tickets, sewing tickets, manual timecards) are not used. Rather, all of the records generated for these functions are automated. Ensure to make CBP aware of this for production document reviews. Traditional Production System: Producers that do not use a module system will still be required to present cutting tickets, sewing tickets, manual timecards to verify production.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Common Document Pitfalls Dates: Garments sewn before fabric arrived or before cutting, etc.; Transportation/Shipping Documents don’t coincide with processing that takes place in each country; Fabric/trim invoices don’t cover the amounts, colors, types, etc. needed to produce the PO quantity; Cutting, Assembly, Inspection, Finishing and Packing Records: Quantities do not match, dates of operations are illogical; Production Steps: Illogical sequence of operations Timecards/payroll: Workers absent on dates of production; Sewing tickets/Cutting tickets are missing Missing subcontractor production records, timecards and payroll records
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com 4. Best Practices for Transshipment Prevention Programs
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com 1.Issue formal corporate policy to employees, agents, vendors, producers, subcontractors on the prevention of illegal transshipment. 2.Document transshipment prevention policy and procedures in compliance manual. 3.Make transshipment prevention part of employee training. 4.Train agents, vendors, producers, subcontractors on the rules of origin and transshipment prevention policies/procedures Best Practices for Transshipment Prevention
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Best Practices for Transshipment Prevention 5.Seek binding rulings from CBP. 6.Seek attorney or broker advice. 7.Have attorney or broker periodically review sample production records for a recent shipment to verify vendor/producer compliance 8.Maintain lines of communication within textile associations. 9.Make valid CBP origin declarations.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Best Practices for Transshipment Prevention 10.Make valid FTA/preferential trade program claims: Proper CBP declarations Valid Certificates of Origin Valid Declarations of Compliance for Brassieres 11. Protectection through your contracts, PO terms and conditions, agent agreements, vendor agreements, etc.— Require retention of records Prohibit unauthorized subcontracting Provide “out” from agreement for violations Condition payment on legitimacy of goods Impose indemnification for penalties/expenses of transshipment Include penalty provisions in letters of credit if information falsified
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Best Practices for Transshipment Prevention 12.Require retention of records for at least one-year from date of shipment for non-FTA/Preference Program goods. 13.Require retention of records for at least the period required by CBP for the FTA/Preference Program used (i.e., AGOA – 2 years, FTAs usually 5 years). 14.Perform regular and periodic inspections of manufacturer operations/document reviews. 15.Require agents to perform regular and periodic inspections/document review.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Best Practices for Transshipment Prevention 16.Require updated factory profiles annually or when major factory changes occur. 17.Obtain Manufacturers’ Declarations of Origin. 18.Train vendors/producers/subcontractors on how to handle Jump Team Visits, compile production records, etc. 19.Require vendors to immediately notify you and the agent if a Jump Team Visit occurs.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Tips for Factory Profiles & Factory Visit Reports Factory Profiles and Factory Visit Reports form an excellent audit trail showing that the Importer has exercised due diligence and only places orders with factories that— Have been proven to be open and in full operation; and, Have the requisite machinery and skilled manpower to produce the imported merchandise
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Laundry List of Back-Up Records To Be Maintained Importer/agent inspection records from factory visits Factory profile for producers/subcontractors (verification of production forms, if used) Importer purchase order Commercial invoice, packing list, transportation, export clearance records for finished garments shipped to the United States Certificates of origin, Declarations of Compliance, Manufacturers Affidavits of Origin List of production steps and time required for each step Product specifications Costing sheets Raw material (fabric, yarn, sewing thread trim) records: Purchase orders, packing lists, invoices Bills of lading/air waybills Customs export/import clearance records Certificates of origin Warehouse records (receiving and “pull” records)
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Laundry List of Back-Up Records To Be Maintained Cutting records (tickets, daily records) Assembly records (tickets, daily records) Knitting machine records (KTS) Finishing records (washing, ironing, packing, etc.) Transportation records showing movement of components from/to cutting facility, sewing facility, facility of any subcontractor used (including Customs import/export clearance records for OPA operations) In-line and final inspection records Employee timecards (including timecards for employees supervising knitting machines) Employee payroll records (including records for employees supervising knitting machines) Proof of payment Documents showing the factories were actually operating during the period of production (i.e., utility bills, rent checks, etc.) All of the above-referenced records for subcontractors used for production
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Be Prepared: Factories should be maintaining production documents for all styles of merchandise shipped to the United States (including all cutting and sewing tickets). ALWAYS Let Them In! – Factories should never refuse to let a Jump/Verification Team in their doors, unless they want to have their goods detained. Avoid Communication Problems: Factories should designate someone in Senior Management with excellent English language skills to act as the main contact with the Jump/Verification Team Speak up! There Is No Harm In Asking! Factories should never be afraid to ask the Team questions about their concerns and impressions of the factory, and should give explanations when the Jump Team does not understand something. Successful Jump/Verification Team Visits: Preparing Your Agents/Vendors/Producers
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com After the Visit Notify the Importer: Factories should immediately notify the Importer that a Visit of its facilities (or one of its subcontractors) has occurred. Address Issues: Factories should immediately address any issues identified by the Jump Team and implement the necessary internal controls. Get the Report: Importers can obtain a copy of the Jump Team’s Report via FOIA. Recordkeeping: Confirm that the factories are maintaining production records for upcoming shipments or shipments that are on the water (readiness to respond to detentions). Successful Jump/Verification Team Visits: Preparing Your Agents/Vendors/Producers
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Update on Other Product Compliance Efforts Both the US Congress and the Administration are focusing great attention on food and other product imports. Recent problems with food imports (pet food, toothpaste) Recalls of dangerous products (lead tainted children’s toys, toys with detachable magnets, etc.) Domestic problems with foods (spinach, salad mix, frozen hamburgers)
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Potential actions President created interagency working group – 1 st report out already, 2 nd report due by Mid-November The Consumer Product Safety Commission is seeking greater authority in inspections, ability to penalize and greater resources Congress is considering mandating 3 rd party testing of all children’s products Congress is considering increasing food testing abroad States taking own action (California bans sale of children’s jewelry – after March 2008, must meet certain criteria Domestic actions in countries
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Who will conduct additional inspections/verifications? Customs will be the first line of defense for imports Consumer Product Safety Commission Food and Drug Administration US Department of Agriculture APHIS – Animal Plant Health Inspection Service FSIS – Food Safety Inspection Service Other agencies
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com How Does This Impact Me? Cost for 3 rd party testing Increased inspection by buyers Increased inspection by US entities Increased inspection by Domestic entities New product compliance requirements Costs for additional personnel to handle compliance Costs associated with any problems with merchandise or delays
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Keep Up to Date It is essential that manufacturers and exporters to the United States closely monitor developments by government agencies and US Congress that may impede trade, add costs, impact directly ability to compete.
© Sandler & Travis Trade Advisory Services, Inc. All Rights Reserved www.strtrade.com Thank you!
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