1 U.S. Customs and Border Protection Textile Law Enforcement Challenges Department of Homeland Security  Customs and Border Protection “And the Plot Thickens” California Fashion Association May 9, 2007

2 What is the Role of Customs? Department of Homeland Security  Customs and Border Protection Enforce all Laws Involving the Imports of Textile and Clothing Products Enforce all Laws Involving the Imports of Textile and Clothing Products Correct Description Correct Description Quantity Quantity Value Value Country of Origin Country of Origin Ensure the Compliance of all Import Transactions Ensure the Compliance of all Import Transactions

3 The Textile Import Industry Department of Homeland Security  Customs and Border Protection

4 The Textile Import Industry Department of Homeland Security  Customs and Border Protection

Department of Homeland Security  Customs and Border Protection 5 Textile Trade Preferences Free Trade AgreementsFree Trade Agreements Guatemala Implemented July 1, 2006Guatemala Implemented July 1, 2006 Peru and Colombia Negotiations CompletedPeru and Colombia Negotiations Completed Bahrain Implemented August 1, 2006 and Oman CompletedBahrain Implemented August 1, 2006 and Oman Completed Thailand Stopped Due to Coup d’EtatThailand Stopped Due to Coup d’Etat South Korea and Malaysia Negotiations StartedSouth Korea and Malaysia Negotiations Started

Department of Homeland Security  Customs and Border Protection 6 Textile Trade Preferences Trade Preference LegislationTrade Preference Legislation Haitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 aka Haiti HOPEHaitian Hemispheric Opportunity through Partnership Encouragement Act of 2006 aka Haiti HOPE Allows Cumulation with All U.S. Free Trade and Trade Preference PartnersAllows Cumulation with All U.S. Free Trade and Trade Preference Partners Allows Third Country Fabric from China with a Capped LimitAllows Third Country Fabric from China with a Capped Limit Value-Based Rule of Origin as Opposed to a Tariff ShiftValue-Based Rule of Origin as Opposed to a Tariff Shift Annual AggregationAnnual Aggregation

Department of Homeland Security  Customs and Border Protection 7 Textile Enforcement Quota Eliminated for all WTO Member Nations EXCEPT ChinaQuota Eliminated for all WTO Member Nations EXCEPT China Safeguard Mechanism Replaced by Comprehensive Quota AgreementSafeguard Mechanism Replaced by Comprehensive Quota Agreement Textile Bilaterals ExpireTextile Bilaterals Expire MOUs; CBP Instrumental in the Negotiation of Agreements with Hong Kong, Macao, the Philippines and IndonesiaMOUs; CBP Instrumental in the Negotiation of Agreements with Hong Kong, Macao, the Philippines and Indonesia Enforcement Focus UnchangingEnforcement Focus Unchanging

Department of Homeland Security  Customs and Border Protection 8 Textile Enforcement Focus Textiles and Wearing Apparel Industry Designated As a Priority Trade Issue for FY 07Textiles and Wearing Apparel Industry Designated As a Priority Trade Issue for FY 07 Enforcement FocusEnforcement Focus Origin Fraud; Illegal Transshipment; Quota Circumvention; Inadmissibility of MerchandiseOrigin Fraud; Illegal Transshipment; Quota Circumvention; Inadmissibility of Merchandise Enforcement of Various Legislative Trade Initiatives and Free Trade Agreement Preference ClaimsEnforcement of Various Legislative Trade Initiatives and Free Trade Agreement Preference Claims Protection of the RevenueProtection of the Revenue 5 Year Enforcement Strategy Reported to Congress5 Year Enforcement Strategy Reported to Congress

Department of Homeland Security  Customs and Border Protection 9 Textile Enforcement Focus RisksRisks FTA and other Trade LegislationFTA and other Trade Legislation $22+ Billion in Trade Preference Claims out of a Universe of $104.2 Billion in Imports$22+ Billion in Trade Preference Claims out of a Universe of $104.2 Billion in Imports China QuotaChina Quota Illegal TransshipmentIllegal Transshipment Misdescription of MerchandiseMisdescription of Merchandise Smuggling; Unmanifested GoodsSmuggling; Unmanifested Goods General Misdescription to Avoid Duties and QuotaGeneral Misdescription to Avoid Duties and Quota 42% of Duties Collected Involve Textile Goods42% of Duties Collected Involve Textile Goods

Department of Homeland Security  Customs and Border Protection 10 Textile Production Verification Teams In 2006 TPVTs Were Conducted in:In 2006 TPVTs Were Conducted in: Hong KongHong Kong MacaoMacao SwazilandSwaziland VietnamVietnam EgyptEgypt MauritiusMauritius South AfricaSouth Africa ThailandThailand KenyaKenya ChileChile El SalvadorEl Salvador GuatemalaGuatemala HondurasHonduras 428 Factories Visited

Department of Homeland Security  Customs and Border Protection 11 Textile Production Verification Team Statistics Countries Visited13 Countries Visited 428 Factories Visited428 Factories Visited 8 Transshipment Found8 Transshipment Found 97 Permanently Closed97 Permanently Closed 95 High Potential for Transshipment95 High Potential for Transshipment 20 Refused Admission to the Team20 Refused Admission to the Team 51% Not Compliant for Illegal Transshipment51% Not Compliant for Illegal Transshipment 41% Not Compliant for Trade Preference41% Not Compliant for Trade Preference

Department of Homeland Security  Customs and Border Protection 12 Seizures for Quota Circumvention Quota Eliminated January 1, 2005

Department of Homeland Security  Customs and Border Protection 13 Current Investigation Seizure of $46 Million in Smuggled TextilesSeizure of $46 Million in Smuggled Textiles Criminal Organization Based in Hong KongCriminal Organization Based in Hong Kong Goods Declared as Furniture; C/O ChinaGoods Declared as Furniture; C/O China Undercover Investigation/OperationUndercover Investigation/Operation China Quota Circumvention and Duty CircumventionChina Quota Circumvention and Duty Circumvention Loss of Revenue in Excess of $50 MillionLoss of Revenue in Excess of $50 Million Landed Duty Paid Transactions; Middlemen Acting As Importers/Ultimate Consignees Buying from a “Domestic” SupplierLanded Duty Paid Transactions; Middlemen Acting As Importers/Ultimate Consignees Buying from a “Domestic” Supplier

Department of Homeland Security  Customs and Border Protection 14 Textile Enforcement Thailand Ghost FactoriesThailand Ghost Factories 8 Factories Existed on Paper Only8 Factories Existed on Paper Only Were Shipping to the U.S.Were Shipping to the U.S. Goods Suspected c/o ChinaGoods Suspected c/o China CBP Working Closely with ThailandCBP Working Closely with Thailand 328,802 Pieces T-shirts, Underwear, Pants, Jackets, Baby Garments328,802 Pieces T-shirts, Underwear, Pants, Jackets, Baby Garments $727,796 Value of Garments$727,796 Value of Garments CBP Requested Redeliveries for Shipments Valued at $3.2 Million Entered from March – May 2006CBP Requested Redeliveries for Shipments Valued at $3.2 Million Entered from March – May 2006

Department of Homeland Security  Customs and Border Protection 15 Textile Enforcement Identity Theft of U.S. FirmsIdentity Theft of U.S. Firms Shipments of Denim Jeans Stopped at Numerous Ports of EntryShipments of Denim Jeans Stopped at Numerous Ports of Entry Goods Chinese in Origin Claiming Made in the U.S.A.Goods Chinese in Origin Claiming Made in the U.S.A. Seized by CBPSeized by CBP

Department of Homeland Security  Customs and Border Protection 16 Textile Enforcement Use of Counterfeit Certificates of OriginUse of Counterfeit Certificates of Origin Russia, the PhilippinesRussia, the Philippines Use of Forged Government CommunicationsUse of Forged Government Communications RussiaRussia Most of the Counterfeits Link Back to Korean, Hong Kong Trading Houses/MiddlemenMost of the Counterfeits Link Back to Korean, Hong Kong Trading Houses/Middlemen

Department of Homeland Security  Customs and Border Protection 17 Textile Enforcement Last Year vs. This YearLast Year vs. This Year 64% Increase in Enforcement Actions64% Increase in Enforcement Actions 7100% Increase in the Number of Liquidated Damages Penalties7100% Increase in the Number of Liquidated Damages Penalties Exclusions of Merchandise Increased by 368%Exclusions of Merchandise Increased by 368% Detentions Increased by 1000%Detentions Increased by 1000%

Department of Homeland Security  Customs and Border Protection 18 Trade Preference Enforcement Additional 1,377 Targeted Verifications PerformedAdditional 1,377 Targeted Verifications Performed $53.6 Million in Value$53.6 Million in Value 37% Non-Compliance Rate37% Non-Compliance Rate $1.7 Million in Additional Revenues Collected$1.7 Million in Additional Revenues Collected

Department of Homeland Security  Customs and Border Protection 19 Textile Penalties 502 Liquidated Damages Penalties Issued Totaling $ 21.8 Million502 Liquidated Damages Penalties Issued Totaling $ 21.8 Million 65 Penalties Issued Totaling $6.5 Million65 Penalties Issued Totaling $6.5 Million

Department of Homeland Security  Customs and Border Protection 20 Thank YouThank You Questions??????Questions??????