California Apparel News

Miscalculating the value of textiles and other imports is a growing problem at the nation’s ports and one that U.S. Customs and Border Protection is increasingly addressing, said Janet Labuda, CBP’s director of textile enforcement and operations division.

Labuda—who oversees the textile and apparel industry, including the enforcement of quota, illegal textiles transshipments, trade agreements for textiles, and operational policy development and implementation—spoke to apparel-industry executives May 11 during a seminar hosted by the California Fashion Association at the law offices of Mitchell Silberberg & Knupp in Los Angeles.

Also on hand to discuss global sourcing and supply-chain issues were Steve Arnold, regional international sales manager of FedEx; Robert Krieger, president of Krieger Worldwide, a customs broker and freight forwarder in Rancho Dominguez, Calif.; Susan Kohn Ross, an attorney with Mitchell Silberberg & Knupp and the law firm’s chair of international trade practice; and Dean Wiener, chief operating officer at Stony Apparel Group.

Labuda said Customs and Border Protection is in the early stages of a “Special Enforcement Initiative” to investigate more than 180 textile importers involved with approximately 400 instances of possible gross undervaluation of apparel and textile goods being imported from China.

The initiative, which began in February 2009 and is targeting 60 textile importers at a time, has turned up several instances of undervaluations and illegal activities, Labuda said.

“More than half [of the textile importers investigated in the first stage of the initiative] had no right to make entry. hellip; There are many supply-chain security issues and the loss of what I estimate to be billions of dollars to the government,” she said. Labuda’s initial findings also led her to believe that the trade deficit with China is much larger than the government estimates. “I’d need smelling salts [for everyone] on Capitol Hill if [my] suspicions are correct,” she said. “Washington would be shocked.”

But it isn’t just the U.S. government that is bilked when importers grossly undervalue the cost of their imports, Labuda said. “How do legitimate importers compete in this environment?”

Kohn Ross said that some importers, angry at what they perceive to be unfair business practices among competitors, have already filed a handful of lawsuits in California alleging misconduct and possibly gross undervaluing of imports.

Apparel companies using Landed Duty Paid (LDP) or Delivered Duty Paid (DDP) methods to clear customs are particularly susceptible to having their supply chain “contaminated” by unscrupulous importers, Labuda said. She urged brand owners and apparel makers to work with reputable import partners and ask for documentation on their shipments to ensure that what importers are declaring matches the goods they ordered.

Labuda and Kohn Ross differed in their opinion on what apparel manufacturers should do if they found discrepancies between what was ordered and what the import documents state.Kohn Ross recommended that manufacturers assess their options and weigh the consequences of reporting such a discrepancy, preferably with the help of a lawyer, before taking any action. Labuda disagreed, urging that any gross discrepancies be reported immediately to her office.

Krieger said there are other ills plaguing the United States’ apparel supply chain. “The supply chain is a mess, a real mess,” he said. Already hampered by disputes between unions, port terminals, clean-air initiatives and immigration requirements that take trucks and drivers out of rotation, the supply chain is being further stymied by customs inspections.

“They are necessary, but they are slow,” he said.

To counter a sluggish supply chain, Krieger recommends a holistic approach. “Sit down with all of your supply-chain partners and plan,” he said. “Produce on time or early, and get it on the ship on time.”

And he added this last bit of advice: “Take your customs broker out to lunch.”

2009 Textile/Apparel Supplier Countries by Value

1. China 40%2. Mexico 6%3. Vietnam 6%4. India 5%5. Indonesia 4%6. Bangladesh 4%7. Pakistan 3%8. Honduras 2%9. Canada 2%10. Cambodia 2%11. Italy 2%12. Thailand 2%13. El Salvador 1%14. Sri Lanka 1%15. Philippines 1%