Importing Jewelry Into The United States

By C.J. Ericsson *
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US Customs and Border Protection (“CBP”) is responsible for enforcing the laws and regulations of over forty government agencies. Importers of jewelry must be compliant not only with CBP requirements, but those of the Department of Treasury, Federal Trade Commission (“FTC”) and Transportation Security Administration, to name a few. While critical to a successful operation, even full compliance cannot prevent unexpected delays as evidenced by CBP’s recent targeting of jewelry shipments from Turkey for potential intellectual property violations.
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C.J.Ericsson

ORIGIN
As a general overview, all products imported into the United States must be marked with the country of origin. This is not the country from which they are shipped, but where they are last substantially transformed through a manufacturing process. There are a number of different ways an importer can comply, and several exceptions that may apply such as the marketing of containers or the remarking of unmarked goods subsequent to importation. Origin has a direct bearing on the duties due on imported merchandise. Products of Turkey may be entered duty free if eligible under the Generalized System of Preferences. (“GSP”)

Turkey is considered a beneficiary developing country for purposes of GSP. Articles which are the growth, product, or manufacture of Turkey and derive at least 35 percent of their appraised value from the cost or value of materials and the direct costs of processing performed in Turkey may be eligible for duty free into the United States. Eligible goods must also be shipped directly from Turkey without passing through the territory of any other country.

VALUATION
Another critical CBP issue for importers is valuation. All imported goods must be entered at their actual price for export to the United States. This is typically represented by sales price or transaction value. Common traps for importers include omitting dutiable commissions or declaring the charges for foreign materials and labor, but not the value of materials (stones or gold) shipped to the manufacturer free of charge. A proper value for CBP must include these “assists.”

Imported merchandise must be properly classified under the Harmonized Tariff Schedule of the United States. (“HTSUS”). Most importers utilize the services of a licensed Customs broker for assistance; however, the ultimate responsibility lies with the importer. It is essential that a commercial invoice sufficiently describe the goods to assist the broker in ascertaining the correct provision. This is especially true with watches as those previsions are extremely complex. The number of jewels in the movement, or the type of movement, can significantly alter the rate of duty. A knowledge of classification offers an importer the opportunity to maximize duty savings.

SPECIAL FTC RULES
The FTC has published guides for the watch and jewelry industries which address consumer protection issues such as advertising, gold content, fineness stamping, and electroplating. CBP will often defer to the FTC on the correct use of industry terminology such as “synthetic,” “imitation,” “semi-precious”, and “precious.” The correct use of these terms is critical to the proper classification of imported jewelry, and their misuse on product labels, invoices or in advertising in release delays and/or monetary penalties.

INTELLECTUAL PROPERTY
Turkish companies that export jewelry to the U.S. are urged to register their trademarks in the U.S. in order to protect their intellectual property. In addition Turkish companies who plan on selling unique items are urged to consider obtaining copyright registration for their designs. Copyright registration enables companies to protect their designs and enables them to obtain statutory damages upon breach.

CBP works very closely with registered trademark and copyright owners including, of course, Turkish owners of trademarks registered in the U.S. to ensure the protection of their intellectual property rights. CBP officers are authorized to detain all shipments suspected of containing goods bearing infringing or counterfeit marks. Infringing merchandise may be released to the importer upon satisfaction of certain requirements such as obliteration of the mark, payment of a monetary penalty and satisfaction of storage charges. Counterfeit goods will generally be forfeited and destroyed absent consent from the trademark owner, and the importer subject to a significant monetary penalty in an amount at least equal to the MSRP of authentic goods.

On the other hand, owners of registered trademarks and copyrights can obtain significant protection against unauthorized imports by recording their marks with CBP. The electronic recordation process is fairly straight forward and enables CBP to focus their resources on certain marks. Once suspect goods are detained, Customs will provide the trademark owner with information relating to the importer, source country, quantity, value, and supplier. This can be a valuable tool in combating counterfeit or infringing imports. Turkish jewelry manufacturers who export to the U.S. should be aware that last year CBP conducted a special investigation of Turkish jewelry entering the U.S., searching for counterfeit products. For the near future it can be expected that exports and imports of jewelry made in Turkey will be closely monitored.

U.S.A. PATRIOT ACT (THE “ACT”)
Effective January 1, 2006, The United States Treasury Department implemented its final rule extending the scope of the U.S.A. Patriot Act Anti-money laundering provisions to “dealers in precious metals, precious stones, jewels and covered goods.” Under the Act, jewelry companies are required to institute an anti-money laundering (“AML”) program and policy. The basic requirements under the Act are properly identifying and assessing risks, appointing and inhouse compliance officer, maintaining a written AML policy, educating responsible employees on potential risk factors and red flags, and periodic testing of the program by a third-party tester. Keeping careful written records is very important.

Generally, the program applies to buyers and sellers of covered goods in excess of $50,000 per calendar year. There are limited exceptions for small businesses and retailers who purchase only from dealers with valid AML programs. The AML policy itself emphasizes compliance with existing currency reporting requirements of the IRS. Failure to comply with the new AML rules can subject companies to criminal penalties. ‘

CUSTOMS-TRADE PARTNERSHIP TERRORISM (“C-TPAT”)
In addition to mandatory import requirements, CBP also offers companies the opportunity to participate in voluntary initiatives designed to enhance their status as “low- risk.” One such program is C-TPAT. Participation is contingent on an importer conducting a self-analysis of its supply chain to determine, and satisfy Customs, that there is minimal risk of product tampering at any stage from foreign production through U.S. delivery. The main program requirements are preparation of a supply chain security profile and evaluation of security safeguards of the applicant and its service providers and trading partners. Upon approval by CBP, an importer will become a certified member of C-TPAT, entitled to membership benefits including reduced cargo examinations. Customs can subsequently perform on site validations to confirm the accuracy of information furnished by the participant.

CONCLUSION
Importing into the United States is not limited to delivering products on time but is a process that should begin at the design stage to maximize benefits and ensure compliance. Importers are responsible for complying with countless laws and regulations, and can take advantage of various trade program that can significantly reduce and delays in bringing goods to market.


* CJ Ericsson works for Cowan, Liebowitz & Latman and he concentrates on Customs and International Trade law. Ericsson advises importers, exporters and others on classification, valuation, admissibility and related customs and trade matters.

Jewelry Special Issue, October 2006


 

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