Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Anticipating US-Korea FTA Compliance Verifications

Posted July 02, 2014

In the latest issue of Apparel magazine, Larry Ordet, a trade lawyer with Sandler, Travis & Rosenberg, P.A., writes about the “ramping up” of compliance verifications in connection with the U.S.-Korea Free Trade Agreement (KORUS or UKFTA) and reports on concerns expressed by importers about the heightened scrutiny of claims for preferential treatment that “has come in the form of excessive demands for documentation and on-site visits to suppliers several steps down the supply chain.” While the article notes that affected companies could eventually pressure the government to amend their procedures and ease the compliance burden, in the meantime Ordet advises they should “actively prepare for the increasing likelihood that they will be targeted for an audit or other compliance verification measure.”

In the U.S., ports of entry are given wide latitude to determine the type and extent of the reviews they conduct to determine the validity of claims of duty-free treatment under the UKFTA. Importers must therefore be ready to substantiate those claims using certifications or other documentation or their specific knowledge. While there is no specific format mandated by the UKFTA for a certificate of origin, there are certain required fields, including the importer, exporter and producer; the name of the certifying person; the good’s tariff number and description; and information demonstrating that the good is originating. Certificates of origin must be in the importer’s possession at the time a preference claim based on such a certificate is made, but no certificate is required for claims based on the importer’s knowledge (though such claims are often subject to particular scrutiny).

Claim verifications by CBP can take a number of forms. A written request for information (CF 28) may be submitted to the importer, exporter or producer seeking details such as flow charts or technical specifications outlining the manufacturing process, an explanation of how the goods originate, purchase orders and proof of payment, documentation relating to assists and indirect materials, or just about anything else that might be relevant. CBP officials may visit the exporter or producer in Korea to review records and/or observe production facilities, or they may request that the Korea Customs Service conduct an origin verification. Other methods may be used as well.

Ordet outlines a number of steps companies can and should take to minimize their risks when claiming free trade benefits, reminds them that the onus is squarely on the importer to prove their goods qualify for reduced duty states, and finally, suggests that establishing systems from the outset that track qualification saves both time and money in the long run, especially when the government inquiries start arriving in the mail.