Customs Law Advisory - Court Decision Details The Costs of Failure to Maintain Records To Support Import Declaration

Allstates Trading & Clothing Co. (“Allstates”) recently endured a costly process to prove that it correctly declared the country of origin for its imported merchandise.  Allstates could have avoided shipment delays, storage fees and litigation expenses if it had put aside basic documentation at the time of production before importing its merchandise into the United States.  This case illustrates how simple, practical steps to maintain records created during the production process can provide valuable protection against substantial delays and unexpected costs in connection with import shipments into the United States.

In March 2004, Allstates imported fleece vests and declared the country of origin to be Vietnam.  When US Customs and Border Protection (“CBP”) requested documents in support of this declaration, Allstates submitted charts and tables created after production.  CBP found that the materials lacked direct evidence of the production processes, such as cutting tickets and sewing tickets.  Unconvinced by the documentation provided, CBP denied the vests entry into the United States.  In addition, CBP assigned Allstates a “red flag,” thereby alerting local ports of entry to detain future imports by the company and to issue requests for production of supporting documents.

Allstates appealed to the US Court of International Trade (“CIT”) in Allstates Trading & Clothing Co. v. United States, Slip Op. 06-179.  Allstates argued that the submitted documentation was sufficient to permit CBP to determine that the vests originated in Vietnam.  After review of the information provided in Allstates’ court filings, but before the CIT reached a decision, CBP conceded the country of origin and released the vests.  However, the CIT noted that it was not clear what new information caused CBP to reverse its decision.  Though CBP eventually released Allstates’ vests into the United States, the company has already endured significant delays and expenses.  Allstates is suing the United States to recover the cost of storing its vests and for removal of the electronic flag.  However, it remains unclear whether Allstates will prevail on these issues, since the government has raised several defenses including jurisdiction and sovereign immunity.

In order to avoid potentially serious costs and delays, importers should take a few steps to set aside documents during production that support the information declared in connection with import shipments.  Collecting such material at the time of production is not only consistent with the US import laws on recordkeeping, but it also is much easier than doing so months or years later in response to a CBP information request.  Moreover, documentation put aside at the time of production will be viewed as much more credible by CBP than anything produced later.  Such documents do not have to be voluminous, and usually normal records kept in the ordinary course of business will suffice, if they are stored and presented in an orderly way.  The Allstates experience shows the concrete value of these relatively simple steps.

A practical and easy step not mentioned in the Allstates case is to take a few digital photographs during production that illustrate, for example, employees, inputs, intermediate steps, and finished products.  Experience has shown that a few such photographs can have a substantial impact and are usually received by CBP as highly credible and explanatory.