Transcript U.S. Customs and Border Protection Textiles Qualifying Industrial Zones QIZ Cairo, Egypt

Department of Homeland Security
 Customs and Border Protection
U.S. Customs and Border Protection
Textiles
Qualifying Industrial Zones QIZ
Cairo, Egypt
August 2006
1
Department of Homeland Security
 Customs and Border Protection
U.S. Textile Import Industry
• The United States
Represents the
Largest Import
Market for Textile
and Clothing Products
in the World
2
Department of Homeland Security
 Customs and Border Protection
U.S. Textile Import Industry
Importers
Lines
Value
Duty
CY 2001 CY 2002 CY 2003 CY 2004 CY2005
56.9K*
60.8K
62.1K
63.5K
73.6K
5.1M
5.8M
6.2M
6.7M
7.7M
$71.4B $75.7B $83.4B $91.2B $100.3B
$8.2B
$8.2B
$8.7B
$9.1B $10.1B
% CHG
CY01-05
29%
51%
40%
23%
Total for All Imports = $ 1.9 Trillion
Textile Products = 43% of all Duties Collected
Total Duties = $25 Billion
*K = Thousand
M = Million
Average Textile Duty Rate 16%
B = Billion
Average Duty Rate for other Products< 2%
3
Department of Homeland Security

Customs and Border Protection
Textile Trade Preferences
• Qualifying Industrial Zones (QIZ)
• Special Provision of Trade within the U.S.
Israel Free Trade Agreement
• Allows QIZs in Egypt and Jordan
• 35% Value Added/Additional Agreement between
Egypt and Israel 11.7% Israeli Value Added
• Rules of Origin Must Be Met
• Direct Ship Rules
4
Department of Homeland Security

Customs and Border Protection
5
Department of Homeland Security

Customs and Border Protection
Textile Trade Preferences
• U.S. Customs and Border
Protection, By Law, Must Enforce
the Requirements of Each
Agreement/Program
6
Department of Homeland Security

Customs and Border Protection
Enforcement Authorities/Tools
• Detentions at U.S. Ports of Entry If
CBP Import Specialists Have
Concerns about the Origin
• Seizure of Merchandise at Time of
Attempted Entry If Origin Fraud Is
Determined
• Duty Preference Claims May Be
Denied
• Penalties Issued to Importers
7
Department of Homeland Security

Customs and Border Protection
Enforcement
• If the Goods Do Not Meet the
Requirements of the Preferential Program
• The Preference is Denied; Appropriate Duty Is
Collected
• Penalties May Be Issued to the U.S. Importer
• If the Importer Is Also Claiming the
Incorrect Country of Origin e.g. Egypt
Instead of China
• The Goods May Be Seized and Destroyed
• Penalties May Be Issued to the U.S. Importer
8
Department of Homeland Security

Customs and Border Protection
Enforcement
• Why Is Enforcement Important?
• Protects the Economic Interest of the Bilateral
Trading Partners
• Ensures that Benefits Are Received by the
Countries that Agree to the Requirements and
No Other Country
• Supports the Good Faith Negotiation of the
Bilateral Agreement
• Ensures Access to the U.S. Market if the Goods
Are in Compliance with the Agreements
Requirements
9
Department of Homeland Security

Customs and Border Protection
Textile Production Verification
Teams (TPVT)
U.S. Customs and Border Protection
10
Department of Homeland Security

Customs and Border Protection
Enforcement Authorities/Tools
• Textile Production Verification
Team (TPVT) Visits
• Visit on Average 12-13 Countries Per
Year
• Conduct In-Factory Reviews
• Determine Production Capacity
• Determine If Goods that Entered the
U.S. Where Made in the Country as
Declared
• Determine If a Preference Is Claimed
that the Preference Requirements Are
Met
11
Department of Homeland Security

Customs and Border Protection
Purpose of TPVT Visits
• Ensure Goods Are Not Circumventing
the Laws Governing the Importation
of Textile Products
• Illegal Transshipment to Avoid Chinese
Quota
• Illegal Transshipment to Take
Advantage of Trade Preference
Programs Such as the QIZ
• Smuggling to Avoid Duty Payments and
China Quota
12
Department of Homeland Security

Customs and Border Protection
TPVT Composition
• Import Specialist
• Individual Who Is Knowledgeable about
the Commodity
• Classification, Value, Country of Origin; the
Way the Goods Are Manufactured; the
Importers, Manufacturers, etc.
• Criminal Investigator
• Individual Who Is Knowledgeable about
the Collection of Information, Evidence,
the Pursuit of Prosecution in U.S. Courts
of Law
• Other Disciplines
• Data Analysts
13
Department of Homeland Security

Customs and Border Protection
TPVT
• What Does the TPVT Do?
• Reviews the Factory Operation
• Verifies Production Capacity
• Reviews and Verifies Two Entries of
Merchandise that Were Imported by a
U.S. Customer
• Reviews all the Documents to Show the
Manufacturing of the Individual Purchase
Order
• The TPVT Team Prepares an Extensive
Report of the Visit to Each Factory
• The TPVT Puts Each Factory into a Risk
Category
14
Department of Homeland Security

Customs and Border Protection
TPVT
• What Are the Risk Categories
• No Risk: All Documents and Production
Was Verified
• Low Risk: Some Minor Documents May
Be Missing; There May Be a Joint
Venture that Needs Review
• High Risk: Documents Are Missing So
Production Cannot Be Verified; Factory
Refused the Visit
• Evidence of Transshipment: Documents
or Interview with Factory Manager
Reveal that the Goods Were
Manufactured in a Different Country
15
Department of Homeland Security

Customs and Border Protection
TPVT
• What Are the Risk Category Actions Taken
• No Risk: All Goods Clear U.S. Customs
Immediately
• Low Risk: Spot Checks May Be Performed on
Certain Shipments
• High Risk: All Shipments Will Be Stopped at the
Port of Entry Until the Level of Risk Decreases or
Is Eliminated; Customs Will Ask for All Production
Documents to Be Verified at the U.S. Port
• Evidence of Transshipment: See High Risk Results
• Overall Risk May Be Changed When the
Company Comes into Compliance
16
Department of Homeland Security
Customs and Border Protection
What Should You Do?
• Establish a Factory Profile
• This Profile Should Include the
Following:
• What Types of Goods are
Manufactured/Produced?
• How Are Goods Manufactured?
• What Types of Processes Occur?
• What Types of Machines Are Used?
• How Many Employees Do You Have?
• What Are the Individual Skill Sets?
• What Is Your Annual Production
Capability; What Is Your Average Monthly
Production
• Who Owns the Factory?
• Do You Have a Joint Venture Investment?
• How Many Shifts Do You Use?
• Who Are Your Customers?
17
Department of Homeland Security
Customs and Border Protection
What Should You Do?
Develop Factory Profile:
• Who are the
Owners/Managers?
• What is the Location? Are Any
other Factories Owned?
• What Date Was the Factory
Established?
• Do You Use Subcontractors?
• Renew and Update Profile
Yearly
18
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Production
• Employees
• How Many Employees Are
There?
• How Skilled Are the
Employees?
• How Fast Do They Work?
• Do the Employees Specialize?
If So, This Generally
Improves Their Efficiency.
19
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
• Raw Materials
• Fabric, Thread, Labels
• Does the Factory Stock
the Materials or Is the
Material Brought in by
Order?
20
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Raw Materials
• Fabric, Thread, Labels
• Do They Have the Appropriate
Type and Quantity of
Fabric/components to Match
the Type and Quantity of
Merchandise They Produce?
• Are the Raw Materials in New
and in Good Condition?
21
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Machinery
• Cutting Tables/Spreaders
• Markers/Patterns
• Cut Components - Does the
Factory Cut Their Own Fabric? If
So, Do They Have Patterns and
Markers to Make the Components?
• Is There Waste/Scraps Resulting
From Cutting? (Either in Bags or
Floor Depending on Time of Visit)
22
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections - Machinery
• Number
• Is It Sufficient for the
Production Claimed?
• Condition
• Are Most Machines in Workable
Condition?
• Appropriateness
• Are the Type of Machines
Appropriate for the Type of
Merchandise Being Produced
23
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Machinery
• Sewing Machines
• Do They Have Enough for
Their Claimed Production?
• How Many Are in Use?
• How Many Are Idle?
24
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Machinery
• Specialty Machines
• Does the Factory Have the Necessary
Specialty Machines for the
Merchandise They Produce? (I.E.
Waistband, Buttonhole)
• If Not, Why?
• Is There a Subcontractor Who Does
This Step?
• Otherwise, How Is Production
Accomplished?
25
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Production
• Assembly Area/Line Groups
• Is the Production Area
Organized in a Logical,
Efficient Manner?
• Time in Motion Study Time the Most Complicated
Steps in Order to Estimate
Daily Production.
26
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Factory Inspections
Finishing Operations
• Washing & Drying
• Does the Factory Do Their
Own Pressing, Washing,
And/or Packing?
• If Not, Who Does This
Operation for Them?
27
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
• The Factory Needs to Maintain Sufficient
Production Records Must Be Provided to Establish
Country of Origin
• The Steps of Production Should
Be Clear
• A List of Production Machinery
Used in the Factory Is Needed
• The Records Need to Be Kept for
Two Years
28
Department of Homeland Security
Customs and Border Protection
What is Verified?
Documents and Records
• Number of Workers/Type of Work
• Actual Goods Should Be Traceable
Via Records
• Must Reflect the Quantity
of the Shipment and the
Type of Goods Produced
• Work Performed Outside
of the Factory (OPA)
Should Be Documented
29
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
• Types of Records
• Orders and Payments for Raw Material
Purchases
• Bills of Lading/Customs Clearance
Documents
• Export Documentation/Shipping Records
• Contracts/Subcontracts
• Payroll Records
• Cutting Records
• Assembly Records
• Letters of Credit
• Out-processing Records
30
Department of Homeland Security
Customs and Border Protection
What is Verified?
Documents and Records
Raw Materials
• Invoices/Bill of Lading for Raw
Materials
• Entry Documents for Raw
Materials
• Verify Type of Raw Materials
(Fabric, Cut Components, Partially
Assembled Merchandise, Etc.)
• Verify Where Raw Materials Are
From (Imported, Domestic, Both,
also Made at the Factory Being
Reviewed)
31
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
Production
• Contracts/Subcontracts
•
•
•
•
•
How Busy Is the Factory When You Visit?
What Are They Currently Working on?
When Do They Expect to Finish Current Production?
What Orders Are Waiting to Be Produced?
Compare Previous Few Months Total Production
Against Claimed Production (Higher? Lower? At
Capacity?)
• Are Subcontractors Used? If So, Verify Production
of Subcontractors.
32
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
Production
• Production Time Line
• Check Whether the Production Time Line Is
Reasonable Based on the Factory’s Production
Capacity:
• When Was the Order Received?
• When Did Production Start/finish?
• Can the Factory Produce in That Time Frame?
• Were Other Orders Being Worked at the Same
Time?
• What Was Total Daily Production (All Orders) in
That Time Frame?
33
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
Production
• Cutting Tickets/Cutting Records
• Sewing Tickets/Sewing Records
• Verify Daily Cutting and Daily
Sewing Records
• Compare Daily Records
Against Summary Records
34
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
Production
• Cutting Records
• Sewing Tickets/Sewing Records
• If Workers Are Paid by the
Piece, Verify Amount Paid to
Worker Against Payroll
Records.
• If Paid by Hourly Rate, Verify
Hours Paid Against Time
Cards.
35
Department of Homeland Security
Customs and Border Protection
What Is Verified
Documents and Records
Production
• Employee Time Cards
• Payroll Records
• Review Time Cards and Payroll
Records to See If Days/hours
Match Payment
• Review Time Cards and Payroll
Records Against Daily Production
Records to Check Out Claimed
Production of Workers.
• Is the Amount Produced
Reasonable?
36
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
• Factory Files
• Review All Files Relating to the Production
of the Merchandise:
• Purchase Orders
• Confirmation of Orders
• Correspondence - Letters, Faxes, Etc.
• Shipping Arrangements and Payment
• Factory Inspection Reports by Customer or
Agent
• Export Invoices and Packing Lists
• Payment Records
37
Department of Homeland Security
Customs and Border Protection
What Is Verified?
Documents and Records
• Out-processing
• Does the Country Permit Part of
the Processing in Another
Country?
• If So, What Controls Are in Place?
What Documents Are Required?
• Verify Payment of All OutProcessed Work
• What Is the Size and Capability of
Other Factories Used?
38
Department of Homeland Security
Customs and Border Protection
What Is Verified
Documents and Records
• Out-processing
• Trace the Movement of
the Merchandise
• Is It in Production
Sequence?
• Time Frame for Movement
of Goods:
• Is It Reasonable to
Complete the Process?
39
Department of Homeland Security
 Customs and Border Protection
U.S. Customs and Border Protection
Textiles
Qualifying Industrial Zones QIZ
Cairo, Egypt
August 2006
40
Department of Homeland Security
 Customs and Border Protection
U.S. Textile Import Industry
• The United States
Represents the
Largest Import
Market for Textile
and Clothing Products
in the World
41
Department of Homeland Security
 Customs and Border Protection
U.S. Textile Import Industry
Importers
Lines
Value
Duty
CY 2001 CY 2002 CY 2003 CY 2004 CY2005
56.9K*
60.8K
62.1K
63.5K
73.6K
5.1M
5.8M
6.2M
6.7M
7.7M
$71.4B $75.7B $83.4B $91.2B $100.3B
$8.2B
$8.2B
$8.7B
$9.1B $10.1B
% CHG
CY01-05
29%
51%
40%
23%
Total for All Imports = $ 1.9 Trillion
Textile Products = 43% of all Duties Collected
Total Duties = $25 Billion
*K = Thousand
M = Million
Average Textile Duty Rate 16%
B = Billion
Average Duty Rate for other Products< 2%
42
Department of Homeland Security

Customs and Border Protection
Textile Trade Preferences
• Qualifying Industrial Zones (QIZ)
• Special Provision of Trade within the U.S.
Israel Free Trade Agreement
• Allows QIZs in Egypt and Jordan
• 35% Value Added/Additional Agreement between
Egypt and Israel 11.7% Israeli Value Added
• Rules of Origin Must Be Met
• Direct Ship Rules
43
Department of Homeland Security

Customs and Border Protection
44
Department of Homeland Security

Customs and Border Protection
Textile Trade Preferences
• U.S. Customs and Border
Protection, By Law, Must Enforce
the Requirements of Each
Agreement/Program
45
Department of Homeland Security

Customs and Border Protection
Enforcement Authorities/Tools
• Detentions at U.S. Ports of Entry If
CBP Import Specialists Have
Concerns about the Origin
• Seizure of Merchandise at Time of
Attempted Entry If Origin Fraud Is
Determined
• Duty Preference Claims May Be
Denied
• Penalties Issued to Importers
46
Department of Homeland Security

Customs and Border Protection
Enforcement
• If the Goods Do Not Meet the
Requirements of the Preferential Program
• The Preference is Denied; Appropriate Duty Is
Collected
• Penalties May Be Issued to the U.S. Importer
• If the Importer Is Also Claiming the
Incorrect Country of Origin e.g. Egypt
Instead of China
• The Goods May Be Seized and Destroyed
• Penalties May Be Issued to the U.S. Importer
47
Department of Homeland Security

Customs and Border Protection
Enforcement
• Why Is Enforcement Important?
• Protects the Economic Interest of the Bilateral
Trading Partners
• Ensures that Benefits Are Received by the
Countries that Agree to the Requirements and
No Other Country
• Supports the Good Faith Negotiation of the
Bilateral Agreement
• Ensures Access to the U.S. Market if the Goods
Are in Compliance with the Agreements
Requirements
48
Department of Homeland Security

Customs and Border Protection
Textile Production Verification
Teams (TPVT)
U.S. Customs and Border Protection
49
Department of Homeland Security

Customs and Border Protection
Enforcement Authorities/Tools
• Textile Production Verification
Team (TPVT) Visits
• Visit on Average 12-13 Countries Per
Year
• Conduct In-Factory Reviews
• Determine Production Capacity
• Determine If Goods that Entered the
U.S. Where Made in the Country as
Declared
• Determine If a Preference Is Claimed
that the Preference Requirements Are
Met
50
Department of Homeland Security

Customs and Border Protection
Purpose of TPVT Visits
• Ensure Goods Are Not Circumventing
the Laws Governing the Importation
of Textile Products
• Illegal Transshipment to Avoid Chinese
Quota
• Illegal Transshipment to Take
Advantage of Trade Preference
Programs Such as the QIZ
• Smuggling to Avoid Duty Payments and
China Quota
51
Department of Homeland Security

Customs and Border Protection
TPVT Composition
• Import Specialist
• Individual Who Is Knowledgeable about
the Commodity
• Classification, Value, Country of Origin; the
Way the Goods Are Manufactured; the
Importers, Manufacturers, etc.
• Criminal Investigator
• Individual Who Is Knowledgeable about
the Collection of Information, Evidence,
the Pursuit of Prosecution in U.S. Courts
of Law
• Other Disciplines
• Data Analysts
52
Department of Homeland Security

Customs and Border Protection
TPVT
• What Does the TPVT Do?
• Reviews the Factory Operation
• Verifies Production Capacity
• Reviews and Verifies Two Entries of
Merchandise that Were Imported by a
U.S. Customer
• Reviews all the Documents to Show the
Manufacturing of the Individual Purchase
Order
• The TPVT Team Prepares an Extensive
Report of the Visit to Each Factory
• The TPVT Puts Each Factory into a Risk
Category
53
Department of Homeland Security

Customs and Border Protection
TPVT
• What Are the Risk Categories
• No Risk: All Documents and Production
Was Verified
• Low Risk: Some Minor Documents May
Be Missing; There May Be a Joint
Venture that Needs Review
• High Risk: Documents Are Missing So
Production Cannot Be Verified; Factory
Refused the Visit
• Evidence of Transshipment: Documents
or Interview with Factory Manager
Reveal that the Goods Were
Manufactured in a Different Country
54
Department of Homeland Security

Customs and Border Protection
TPVT
• What Are the Risk Category Actions Taken
• No Risk: All Goods Clear U.S. Customs
Immediately
• Low Risk: Spot Checks May Be Performed on
Certain Shipments
• High Risk: All Shipments Will Be Stopped at the
Port of Entry Until the Level of Risk Decreases or
Is Eliminated; Customs Will Ask for All Production
Documents to Be Verified at the U.S. Port
• Evidence of Transshipment: See High Risk Results
• Overall Risk May Be Changed When the
Company Comes into Compliance
55
Department
Department of
of Homeland
Homeland Security
Security

Customs and
andBorder
BorderProtection
Protection
Customs
What Should You Do?
• Establish a Factory Profile
• This Profile Should Include the
Following:
• What Types of Goods are
Manufactured/Produced?
• How Are Goods Manufactured?
• What Types of Processes Occur?
• What Types of Machines Are Used?
• How Many Employees Do You Have?
• What Are the Individual Skill Sets?
• What Is Your Annual Production
Capability; What Is Your Average Monthly
Production
• Who Owns the Factory?
• Do You Have a Joint Venture Investment?
• How Many Shifts Do You Use?
• Who Are Your Customers?
56 56
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Should You Do?
Develop Factory Profile:
• Who are the
Owners/Managers?
• What is the Location? Are Any
other Factories Owned?
• What Date Was the Factory
Established?
• Do You Use Subcontractors?
• Renew and Update Profile
Yearly
57
57
Department
DepartmentofofHomeland
HomelandSecurity
Security 
Customs
Border Protection
Protection
Customs and
and Border
What Is Verified?
Factory Inspections
Production
• Employees
• How Many Employees Are
There?
• How Skilled Are the
Employees?
• How Fast Do They Work?
• Do the Employees Specialize?
If So, This Generally
Improves Their Efficiency.
58
58
Department
of Homeland
Security

Department
of Homeland
Security
Customs
andand
Border
Protection
Customs
Border
Protection
What Is Verified?
Factory Inspections
• Raw Materials
• Fabric, Thread, Labels
• Does the Factory Stock
the Materials or Is the
Material Brought in by
Order?
59
59
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Rules for
Textiles
Prepared by US Customs and Border Protection
August 2006
60
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Legal References
• Legal References in U.S. Law Code, the
Harmonized Tariff Schedule and in U.S.
Customs and Border Protection Regulations
•Expiration Date: none
• General Note in HTSUS: GN 3(a)(v)
• Special Indicator in HTSUS: N
• US Code: 19 USC 2112
• Public Law 99-47
61
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Rule of Origin
• “Product of” Egypt = Assembly or Knitting
to Shape (19 CFR 102.21)
• 35% Value Added in Israel, Gaza Strip,
West Bank or Egypt QIZ (or Double
Substantial Transformation)
• May Include 15% or Less U.S. Content in
Order to Meet the 35% Value Added
• Israel and Egypt Assure Their Agreed
Amount of Israeli Content Is Present, Not
the United States
62
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Benefits
Duty Free Entry into US!
63
Department of Homeland Security

Customs and Border Protection
Product of Egypt
• Yarn = Spinning or Extrusion
• Fabric = Weaving or Knitting
• Apparel = Assembly or Knitting
to Shape
• Made-ups = Weaving or
Knitting
64
Department of Homeland Security

Customs and Border Protection
Product of Egypt
Assembly
• When assembly occurs in more than
one country, the country of origin is
where the most important assembly
or manufacturing process occurred.
• For Example, joining major
components like front and back panels
and sleeves
• Minor assembly includes attaching a
collar or pre-assembly of a trouser
waistband
65
Department of Homeland Security

Customs and Border Protection
Product of Egypt
Knit to shape vs. products of knitted fabric
Knit to shape = 50% or more of the exterior
surface area is formed by major parts (not
collars, cuffs, waistbands, etc.) knitted or
crocheted directly to shape, regardless of
minor cutting. Components are linked and
looped to form final product.
Products of knitted fabric = fabric is formed
on a knitting machine and cut to shape to
form components for assembly into final
product.
66
Department of Homeland Security

Customs and Border Protection
Product of Egypt
Knit to Shape Components
67
Department of Homeland Security

Customs and Border Protection
Value Added
• 35% Value Added in a Single
Substantial Transformation
• Value of Assembly of Previously Cut
Components into a Garment Is 35%
or More of the Value of the Garment.
68
Department of Homeland Security

Customs and Border Protection
Example
• Cotton Fabric Woven and
Cut in Korea (63% of
value)
• Sewing Thread, Zippers,
Waistband Lining &
Pocketing Formed in
Israel (17% of value)
• Sewn into Pants in Egypt
QIZ (20% of value)
69
Department of Homeland Security

Customs and Border Protection
Value Added
• 35% Value Added by Double
Substantial Transformation
• If a producer transforms fabric to cut
components and then cut components to
assembled garment, that is 2 substantial
transformations (cutting and sewing).
• By virtue of having transformed the fabric
into cut components and then sewing the
components into an apparel article, the
value of the fabric is included in the value
calculation of the finished garment.
70
Department of Homeland Security

Customs and Border Protection
Example
• Cotton fabric made in China
(68% value)
• Interfacing and trim made in
Israel (11% value)
• Fabric cut and assembled into
babies’ dresses in Egypt (21%
value)
• Because the fabric was cut into
components in Egypt the value
of the fabric can be included
71
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Direct Shipment
There Are 3 Methods in which Products
Can Meet the Direct Shipment
Requirement.
GN 3(a)(v)(G)
HTSUS
72
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Direct Shipment
1. Shipped Directly from the West Bank, the
Gaza Strip, a QIZ or Israel into the US
Without Passing through the Territory of
Any Intermediate Country
GN 3(a)(v)(G)
HTSUS
73
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Direct Shipment
2. If the Shipment Is through the Territory of
an Intermediate Country, the Articles in
the Shipment Do Not Enter into the
Commerce of Any Intermediate Country
and the Invoices, Bills of Lading, and other
Shipping Documents, Show the U.S. as the
Final Destination
GN 3(a)(v)(G)
HTSUS
74
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Direct Shipment
3. If Shipment is through an
Intermediate Country and
the Invoices and other
Documents Do Not Show the
U.S. as the Final Destination,
then the Articles in the
Shipment, upon Arrival in the
US, Are Imported Directly
Only if They:
75
Department of Homeland Security

Customs and Border Protection
Egypt QIZ Direct Shipment
(A) Remain under the Control of the Customs
Authority in an Intermediate Country;
(B) Do Not Enter into the Commerce of an
Intermediate Country Except for the Purpose of a
Sale other than at Retail, Provided that the Articles
are Imported as a Result of the Original Commercial
Transaction between the Importer and the Producer
or the Latter's Sales Agent;
(C) Have Not Been Subjected to Operations other
than Loading and Unloading, and other Activities
Necessary to Preserve the Article in Good Condition.
GN 3(a)(v)(G)
HTSUS
76
Department of Homeland Security

Customs and Border Protection
Summary
•
Be Mindful of the Rules of Origin for Claiming a
QIZ Preference
•
Ensure that All Goods Leaving the Factory Meet
the Requirements and Are Marked with the
Correct Country of Origin in the Label
•
Keep All Documents in Order; Many U.S.
Importers Are Including in Contracts that if the
Goods Do Not Clear U.S. Customs and Border
Protection They Will Not Pay for the Order
77
Department
of Homeland
Security
 Customs
and and
Border
Protection
Department
of Homeland
Security
Customs
Border
Protection
What Is Verified?
Factory Inspections
Raw Materials
• Fabric, Thread, Labels
• Do They Have the Appropriate
Type and Quantity of
Fabric/components to Match
the Type and Quantity of
Merchandise They Produce?
• Are the Raw Materials in New
and in Good Condition?
78
78
Department
of Homeland
Security

Department
of Homeland
Security
Customs
andand
Border
Protection
Customs
Border
Protection
What Is Verified?
Factory Inspections
Machinery
• Cutting Tables/Spreaders
• Markers/Patterns
• Cut Components - Does the
Factory Cut Their Own Fabric? If
So, Do They Have Patterns and
Markers to Make the Components?
• Is There Waste/Scraps Resulting
From Cutting? (Either in Bags or
Floor Depending on Time of Visit)
79
79
Department
of Homeland
Security

Department
of Homeland
Security
Customs
andand
Border
Protection
Customs
Border
Protection
What Is Verified?
Factory Inspections - Machinery
• Number
• Is It Sufficient for the
Production Claimed?
• Condition
• Are Most Machines in Workable
Condition?
• Appropriateness
• Are the Type of Machines
Appropriate for the Type of
Merchandise Being Produced
80
80
Department
of of
Homeland
Security
Department
Homeland
Security 
Customs
Customsand
andBorder
BorderProtection
Protection
What Is Verified?
Factory Inspections
Machinery
• Sewing Machines
• Do They Have Enough for
Their Claimed Production?
• How Many Are in Use?
• How Many Are Idle?
81
81
Department
DepartmentofofHomeland
HomelandSecurity
Security 
Customs
Border Protection
Protection
Customs and
and Border
What Is Verified?
Factory Inspections
Machinery
• Specialty Machines
• Does the Factory Have the Necessary
Specialty Machines for the
Merchandise They Produce? (I.E.
Waistband, Buttonhole)
• If Not, Why?
• Is There a Subcontractor Who Does
This Step?
• Otherwise, How Is Production
Accomplished?
82
82
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified?
Factory Inspections
Production
• Assembly Area/Line Groups
• Is the Production Area
Organized in a Logical,
Efficient Manner?
• Time in Motion Study Time the Most Complicated
Steps in Order to Estimate
Daily Production.
83
83
Department
of of
Homeland
Security
Department
Homeland
Security 
Customs
Customsand
andBorder
BorderProtection
Protection
What Is Verified?
Factory Inspections
Finishing Operations
• Washing & Drying
• Does the Factory Do Their
Own Pressing, Washing,
And/or Packing?
• If Not, Who Does This
Operation for Them?
8484
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified?
Documents and Records
• The Factory Needs to Maintain Sufficient
Production Records Must Be Provided to Establish
Country of Origin
• The Steps of Production Should
Be Clear
• A List of Production Machinery
Used in the Factory Is Needed
• The Records Need to Be Kept for
Two Years
85
85
Department
of of
Homeland
Security
Department
Homeland
Security 
Customs
Customsand
andBorder
BorderProtection
Protection
What is Verified?
Documents and Records
• Number of Workers/Type of Work
• Actual Goods Should Be Traceable
Via Records
• Must Reflect the Quantity
of the Shipment and the
Type of Goods Produced
• Work Performed Outside
of the Factory (OPA)
Should Be Documented
86
86
Department
of of
Homeland
Security
Department
Homeland
Security 
Customs
Customsand
andBorder
BorderProtection
Protection
What Is Verified?
Documents and Records
• Types of Records
• Orders and Payments for Raw Material
Purchases
• Bills of Lading/Customs Clearance
Documents
• Export Documentation/Shipping Records
• Contracts/Subcontracts
• Payroll Records
• Cutting Records
• Assembly Records
• Letters of Credit
• Out-processing Records
87
87
Department
of of
Homeland
Security
Department
Homeland
Security 
Customs
Customsand
andBorder
BorderProtection
Protection
What is Verified?
Documents and Records
Raw Materials
• Invoices/Bill of Lading for Raw
Materials
• Entry Documents for Raw
Materials
• Verify Type of Raw Materials
(Fabric, Cut Components, Partially
Assembled Merchandise, Etc.)
• Verify Where Raw Materials Are
From (Imported, Domestic, Both,
also Made at the Factory Being
Reviewed)
8888
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified?
Documents and Records
Production
• Contracts/Subcontracts
•
•
•
•
•
How Busy Is the Factory When You Visit?
What Are They Currently Working on?
When Do They Expect to Finish Current Production?
What Orders Are Waiting to Be Produced?
Compare Previous Few Months Total Production
Against Claimed Production (Higher? Lower? At
Capacity?)
• Are Subcontractors Used? If So, Verify Production
of Subcontractors.
8989
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified?
Documents and Records
Production
• Production Time Line
• Check Whether the Production Time Line Is
Reasonable Based on the Factory’s Production
Capacity:
• When Was the Order Received?
• When Did Production Start/finish?
• Can the Factory Produce in That Time Frame?
• Were Other Orders Being Worked at the Same
Time?
• What Was Total Daily Production (All Orders) in
That Time Frame?
9090
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified?
Documents and Records
Production
• Cutting Tickets/Cutting Records
• Sewing Tickets/Sewing Records
• Verify Daily Cutting and Daily
Sewing Records
• Compare Daily Records
Against Summary Records
91
91
Department
of Homeland
Security

Department
of Homeland
Security
Customs
andand
Border
Protection
Customs
Border
Protection
What Is Verified?
Documents and Records
Production
• Cutting Records
• Sewing Tickets/Sewing Records
• If Workers Are Paid by the
Piece, Verify Amount Paid to
Worker Against Payroll
Records.
• If Paid by Hourly Rate, Verify
Hours Paid Against Time
Cards.
92
92
Department
of of
Homeland
Security
Department
Homeland
Security 
Customs
Customsand
andBorder
BorderProtection
Protection
What Is Verified
Documents and Records
Production
• Employee Time Cards
• Payroll Records
• Review Time Cards and Payroll
Records to See If Days/hours
Match Payment
• Review Time Cards and Payroll
Records Against Daily Production
Records to Check Out Claimed
Production of Workers.
• Is the Amount Produced
Reasonable?
9393
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified?
Documents and Records
• Factory Files
• Review All Files Relating to the Production
of the Merchandise:
• Purchase Orders
• Confirmation of Orders
• Correspondence - Letters, Faxes, Etc.
• Shipping Arrangements and Payment
• Factory Inspection Reports by Customer or
Agent
• Export Invoices and Packing Lists
• Payment Records
94
94
Department
of Homeland
Security

Department
of Homeland
Security
Customs
andand
Border
Protection
Customs
Border
Protection
What Is Verified?
Documents and Records
• Out-processing
• Does the Country Permit Part of
the Processing in Another
Country?
• If So, What Controls Are in Place?
What Documents Are Required?
• Verify Payment of All OutProcessed Work
• What Is the Size and Capability of
Other Factories Used?
95
95
Department
of Homeland
Security
Department
of Homeland
Security
Customs
and
Border
Protection
Customs
and
Border
Protection
What Is Verified
Documents and Records
• Out-processing
• Trace the Movement of
the Merchandise
• Is It in Production
Sequence?
• Time Frame for Movement
of Goods:
• Is It Reasonable to
Complete the Process?
9696