100115 Leggett & Platt Import Compliance - AmCham Vietnam

Compliance is Critical: How to Meet ImportChallenges Facing Your U.S. Customers

John WainwrightVice President - Customs Compliance

Presentation Outline

Leggett & Platt Overview10+2/ISF

Summary of Current Regulation and PenaltiesRecent UpdatesImplementation ChallengesLeggett & Platt Experiences

Lacey Act Declaration RequirementsRule SummaryLacey Act Guidelines

C-TPATProgram SummaryExporter C-TPAT Key Concerns

Questions

Leggett & Platt Overview

• Leggett & Platt is a diversified Fortune 500 manufacturer that conceives,designs and produces a broad variety of engineered components and productsfor customers worldwide

• Our products can be found in virtually every home, office, retail store, andautomobile

• The 126-year-old firm is composed of

• 20 business units and 19,000 employee-partners, and

• More than 160 facilities located in 18 countries.

• L&P should have 2009 global sales of over $4 billion

• Currently over 20,000 TEU’s shipped worldwide on an annual basis

Representative L&P Product Lines

Residential Furnishings

Commercial Fixtures & Components

IndustrialMaterials

SpecializedProducts

ISF Rule Current Status

The implementation of the Importer Security Filing (‘ISF’) rules have notbeen without some controversy since from the beginning it has beenacknowledged that the data required under this rule was going to bedifficult for many importers to supply on a timely basis

On November 25, 2008 CBP published its “interim final rule” on howthe program would be implemented and what its requirements wouldbe

Since January 26, 2009 a ‘structured review and flexible enforcementperiod’ has been in place on ISF

Effective January 26, 2010 this program is moving towards amandatory filing and enforcement phase

ISF (’10+2’) Rule Review

For maritime cargo that is destined to remain in the U.S. the followingdata elements will be required to be transmitted 24 hours prior toloading the U.S. bound vessel:

• Manufacturer (or supplier) name and address• Seller (or owner) name and address• Buyer (or owner) name and address• Container stuffing location• Consolidator name and address• Ship to name and address• Importer of record number/FTZ applicant ID number• Consignee number(s)• Country of origin of the goods• Commodity Harmonized Tariff Schedule number (6 digit)

Important ISF Exceptions

There are limits to what an ISF filing will berequired on:

10+2 (ISF) only applies to full container load(FCL) shipments

10+2 (ISF) does not apply to air shipmentsor truck shipments

Currently Stated ISF Rule Penalties

Failure to file a “timely, complete and/oraccurate” ISF transmission will result inliquidated damages of $5000 beingassessed against the responsible party foreach violation

ISF Violations Triggering Damages

Four Potential Violations That Would Trigger Liquidated Damages:

•Complete Failure to File

•Late Filing - Importer must file the ISF no later than 24 hours prior tolading at foreign origin

• Inaccurate Filing - Includes incorrect data being provided and appliesto both the initial filing as well as any subsequent filing (i.e., updatedISF)

•Failure to withdraw a Filing - Importer must withdraw an ISF that isknown to be invalid due to a cancellation of an order, change inrouting, etc.

ISF Mitigating Factors

• Evidence of progress in 12-month phase in period (1/26/09-1/26/10)

• Small % of violations compared to overall shipments

• A certified Tier 2 or Tier 3 C-TPAT member might receive a furtherreduction of up to 50% of the normal amount

• Demonstrated remedial action has been taken to prevent furtherviolations

• ISF was filed late due to vessel diversion due to factors outside of theimporters control

• The ISF filer acquired the information in the normal course of practiceand reasonably believed the information was true and was not able toverify it

CBP has stated the following factors will be taken into account uponpetition against assessed claims:

ISF Aggravating Factors

• Lack of cooperation with CBP

• Evidence of smuggling or attempt was made to introduce merchandiseinto US in contravention of the law

• Multiple errors on same ISF

• Increasing ISF error rate

CBP has also stated the following aggravating factors will be takeninto account upon petition against assessed claims:

ISF Operational Statistics

As of December 2009 the following statistics have beenmade public by CBP in response to the ISF program:

• 3.65 Million ISF Security Filings• 103,000 Different Importers have Filed

Transmissions• CBP is current receiving about 110,000 submissions

per week• The on-time percentage for these filings is in the 50-

60% range

Strict Enforcement or Informed Compliance

At the December 2009 CBP Trade Symposium the following ‘guidelines’were issued from CBP clarifying their positions on what would happen asof 1/26/2010:

Informed Compliance: Rather than strict enforcement (i.e. $5000 non-compliance fines), CBP will instead be taking an ‘informed compliance’ approachfocusing more on data collection rather than collecting fines

Warning Letters and Increased Exams: Warning letters and more examinations– as well as withholding cargo release – will be used more extensively

Failures to File Will Not Be Ignored: Still – when penalties are ‘warranted’, CBPwill assess them consistently and reasonably

Penalty Assessment Guidelines

At same time, CBP also gave the following advice on how penaltieswould be assessed when ‘warranted’:

Customs HQ is the ‘Judge’ on Clearing Penalties: Before assessingpenalties, CBP headquarters will approve all penalty decisions

Ports Still Initiate Penalties: Although penalties will be initiated at the ports,they will be reviewed at CBP headquarters

CBP to Update ISF Report Cards: In response to requests from the trade,CBP will include additional details on the ISF report cards issued monthlythat will figure into overall compliance – and whether or not penalties are‘warranted’

ISF Implementation Challenges

Ongoing operations have shown the following areas are still greatobstacles in having ISF function as designed:

Bill of Lading Numbers: Getting timely and accurate bill of lading numbersfrom carriers is still a great challenge since this number is required tocorrectly submit a ISF transmission

Costs Involved: Extra staffing and transmission fees are substantial coststhat organizations are incurring because of this program

Supplier Data: Making sure supplier and product data is actually correctrequires additional resources

Apathy: A great deal of the trade community is still operating under theassumption that ISF is not going to actually enter an ‘enforcement’ period

L&P Centralized Systems Critical to ISF Preparedness

• L&P import processes are centered around our purchasing process whichuses an Enterprise Procurement System (EPS) to manage ourinternational purchases

• Related import functions (Transportation, Accounting, Inventory Control,etc.) also access the EPS system for their own purposes

• Compliance functions sit ‘on top’ of this system and help manage theimport process as needed at various steps

• Leggett & Platt Global Services (LPGS) is designated as a centralmanagement entity for managing purchasing, accounting and importreview functions within the EPS system related to imports into the U.S.

L&P ISF/10+2 Known at Time of Purchase

• Before a PO is even dispatched to the supplier L&P already has – in electronicform – the following information that can be shared with other parties as required:

• Manufacturer name and address• Seller name and address• Buyer name and address• Ship to name and address• Importer of record number• Consignee number• Country of origin of the goods• Commodity Harmonized Tariff Schedule number (6 digit)

• Depending on the type of transaction we also might have the two remainingimporter elements in our system at this stage:

• Container stuffing location• Consolidator name and address

2008 Lacey Act Amendments

• The 2008 Amendments to the Lacey Act became effective May 22, 2008• These amendments are aimed at combating illegal harvesting in any country in

the world by minimizing the US market for illegally harvested plant products• Establishes civil and criminal penalties for prohibited conduct• Establishes a Declaration filing requirement at time of importation into the US

The Lacey Act of 1900, or more commonly The Lacey Act is a conservationlaw originally enacted in 1900. The Lacey Act has been amended severaltimes in the past.

The law prohibited the transportation of illegally captured or prohibited animalsacross state lines. It was the first federal law protecting wildlife and primarily isused to prevent the importation or spread of potentially dangerous non-nativespecies into the United States

Effect of Lacey Act and Amendments

Importers should keep in mind that:• Import, transport or sell any plant – or subject product

derived from a plant - taken or transported in violation ofany US or foreign law or regulation that protects plants isillegal

• Import any plant - or subject product derived from a plant -without filing a plant declaration is required

Failure to file a Lacey Act Declaration on a subject good canresult in that item being denied entry into the U.S. and/or beingforfeited (i.e. no re-export)

Beyond an import being denied entry, fines and penalties mightapply depending on the circumstances and severity of theviolation

Current ‘Products of’ Enforcement Schedule

Lacey Act Declaration Exceptions

• Currently only sections of HTS Chapters 44, 66, 82, 92, 93, 94, 95 & 97are scheduled to require declaration

• Plants and plant products used exclusively as packing material tosupport, protect, or carry another item including (but not limited to)Instruction manuals, labels, pallets and crating, etc.

• “Common cultivars” and “common food crops” (These are still to bedefined by APHIS and FWS in joint rulemaking)

• Plants for planting

Lacey Act Declaration Requirements

1. Date of Arrival2. Entry Number3. Container #4. BOL #5. Manufacture ID6. Importer of Goods7. Importers Address8. Consignee9. Consignee’s Address

10. Description of the Goods11. HTSUS Number12. Value of Entered Goods13. Component of Article Derived from Plants14. Scientific Name of Plant(s)15. Country of Harvest16. Quantity of Material in Shipment17. Unit of Measure18. % of Recycled Material

The APHIS form (PPQ-505) requires the following information on asubject import be reported by an importer:

Lacey Act Import Guidelines

•Regularly review (and audit) suppliers and understand wheretheir raw materials are coming from

•Understand what raw materials are going into yourcomponents and expect suppliers to keep good records ontheir inputs

•Mandate that your suppliers follow certain guidelines in linewith the Lacey Act – and keep written records of theiracknowledgement

•Be prepared for an expansion of Lacey requirements beingextended to goods beyond those currently on the list

Customs Trade Partnership Against Terrorism (C-TPAT)

After the tragic events of 9/11, C-TPAT emerged as acommitted government-business partnership to strengthenthe overall supply chain security of major U.S. importers

Under U.S. Customs and Border Protection (CBP) supervision,the C-TPAT program is a structured program thatencompasses all parties participating in the internationalsupply chains that deliver commercial goods into the U.S. (i.e.importers, carriers, and foreign manufacturers)

It is now quite common that U.S. importers will mandate thattheir suppliers (and other international service providers) arefollowing the guidelines of this program

Official Importer Benefits of C-TPAT Membership

• It satisfies Customers’ requests that they be in theprogram

• FAST (Free and Secure Trade) Lane Requirement• Stratified Exam Benefits (Currently less than 10% of all

exams performed are applicable to C-TPAT members)• ‘Front of the Line’ benefits to members’ cargo is waiting

to be examined• Priority in case of trade flow interruptions• Mutual Recognition Benefits with other countries’ similar

programs (Currently New Zealand, Canada, Jordan)

C-TPAT Supply Chain Stakeholders

• Overall C-TPAT requirements have been developed jointlybetween U.S. Customs and the Trade Community

• These requirements in general will cover the ‘Three P’s’ ofproper C-TPAT compliance:

• Physical Security• Procedural Security• Personnel Security

• There is no one way to being C-TPAT ‘compliant’ forinternational suppliers– it all depends on the specifics oftheir location and operations

C-TPAT Overall Requirements

• The Carrier’s seal should be applied to the container at thefactory immediately after loading

• The seal number should be indicated on the documents• If there is a discrepancy it should be noted immediately• If for some reason the seal cannot be applied at the factory

the U.S. importer needs to be notified immediately• The seal should not be applied until after the ocean container

has been properly inspected• If possible, a photo of loaded ocean container shall be kept

by the supplier

Application of Seals to Ocean Container

• Sealed boxes shall be kept secure while they are waiting tobe loaded in an ocean container

• Access to the sealed boxes shall be limited to authorizedpersonnel only

• Area(s) should be clearly indicated where outbound cargo iswaiting to be loaded

• Lighting should be sufficient to deter tampering• Sealed boxes should be inspected upon loading again, and

persons responsible for loading should be clearly indicatedand recorded

Security of Out-bound Cargo Waiting to be Loaded

• The ocean container should be inspected using 7-pointreview processes before, during and after loading

• Records of the person(s) who performed the inspectionshould be clearly indicated and maintained by the supplier

• If the ocean container is damaged or irregularities are notedthe container should be sent back to carrier unloaded

• The U.S. importer should be notified if problems are frequent• Persons performing inspection shall be properly trained

Container Inspection Before, During and After Loading

• Security provisions pertaining to C-TPAT should be in writtenform• Loading of Ocean container and seal application• Inspection of ocean container• Recording of driver• Noting time container arrived and left• Access to sealed boxes• Response to unauthorized persons• Shipping document requirements

• Records should be maintained by the supplier on everycontainer shipped

Procedures Should be in Written Form

• The exporters facility needs to be reasonably secure• Fencing• Lighting• Guards

• Out-bound cargo needs to be reasonably secure• Visitors shall be monitored and easily identifiable• Unauthorized persons shall be challenged• On-site contractors and temporary employees shall be

identifiable and also need security training• Uniforms and ID badges are highly recommended

Ease of Un-Authorized Access to Facility and Cargo

• A centralized entity within a U.S. importer should beresponsible for maintaining C-TPAT data on all theirinternational suppliers

• C-TPAT data on these suppliers must be regularly reviewedand training provided as needed

• If significant change occurs in supplier operations – theimporter must be notified immediately:• Ocean containers are loaded at different facility• Subcontractor is supplying sealed boxes• Change in addresses

Supplier Review Forms Must Be Maintained

• Application of Seals to Ocean Containers• Security of out-bound Cargo Waiting to be Loaded• Container Inspection Before, During and After Loading• Procedures Should be in Written form• Ease of un-authorized access to Facility and Cargo• Supplier Review Forms Must be Maintained

Exporter C-TPAT Key Concern Summary

Questions?

100115 Leggett & Platt Import Compliance - AmCham Vietnam

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