preventing more than one article from being imported bearing the
restricted trademark. It is only the trademark which Customs is
interested in protecting. If the importer of the articles should
obliterate or remove the trademark from the items he is carrying,
Customs inspectors would have no objections to allowing them into the
country.
The trademark prohibitions sometimes create unique problems. One of
these developed when a Mexican cattle raiser shipped a herd of cattle
to the Mexican border and was preparing to bring them into the United
States at Nogales, Arizona. Before the cattle could cross the border
an American cattle raiser rushed to Nogales and demanded that Customs
halt the importation of the Mexican cattle. He argued that he was the
owner of the cattle brand seared into the hides of the Mexican cattle
and that any importation bearing this brand would be a violation of the
trademark laws.
An investigation by Customs officers revealed that the American cattle
owner was entirely correct. By chance, the Mexican cattle raiser
had the same cattle brand as the American rancher. The American’s
cattle brand was registered with the Customs Bureau, and his cattle
brand was entitled to the same protection given to the trademarks of
manufacturers. Eventually, the protesting American and the baffled
Mexican got together and the American gave his consent for the
importation of the cattle.
One section of the trademark law prohibits the importation of any
articles which are marked in a manner to indicate a false country of
origin. It also bans imports which are marked with false descriptions.
To enforce this section of the law, Customs officers must police
millions of imports to weed out the products of foreign manufacturers
who engage in some shady and sharp practices.
In recent months there arrived from Japan a large shipment of boys’
baseball bats which were boldly marked with large letters burned into
the wood, “American Model.” At the end of the bat in extremely small
letters was stamped the word “Japan.” The Customs Service felt that
the purchaser of these bats could only assume, by looking at them and
seeing “American Model” in large letters, that they had been made in
the United States. It ruled that before the bats could be entered, the
word “Japan” would have to be stamped onto the bats in close proximity
to the words “American Model,” to remove the taint of deception.
Another manufacturer shipped into the country flatware made of iron
with a chrome plating. It was marked with the word “stainless,”
implying that it was stainless steel. The courts and the Federal
Trade Commission have held that the world “stainless,” when used in
describing manufactured articles, has a very specific meaning: that the
product has a great deal of resistance to normal corrosive elements
and to wear and tear that other metals normally do not have. And to
describe an article as stainless steel, it must be an alloy of steel
mixed with chromium in approved percentages.
To protect the manufacturers of stainless steel products in this
country, the Customs Bureau instituted a campaign to halt such sharp
practices and to educate foreign manufacturers to the fact that they
cannot mark products with the word “stainless” unless they meet the
very severe test required for the use of this word. The shipment of
cast-iron flatware was refused entry, and inspectors were alerted to
guard against any such shenanigans in the future.
21
THE MIDDLE MEN
Mr. and Mrs. John Smith of Lima, Ohio, were strolling through the
streets in Florence, Italy, enjoying their first European vacation,
when Mrs. Smith noticed a beautiful, hand-blown glass bowl in the
window of a small shop.
“John!” she exclaimed. “There is the bowl I’ve been looking for. It
would be perfect for our Christmas eggnog parties. Let’s go in and
price it.”
They stepped inside the shop and a clerk brought the bowl from the
window to a table where Mr. and Mrs. Smith could examine it more
closely. It was a lovely piece of glass and obviously the work of a
fine Venetian craftsmen. After admiring the delicate etchings on the
glass, Mrs. Smith asked, “How much is it?”
The clerk said the bowl was one of the best pieces in the house and
that it was priced at $75.
“My goodness,” Mrs. Smith exclaimed. “That bowl would cost double the
price at home. It’s a good buy.”
Mr. Smith said, “But how will we ever get it home? We can’t lug it all
over Europe with us. We would be certain to break it.”
The clerk interrupted, saying, “Pardon me. You don’t have to worry
about getting the bowl to your home. We will take care of everything
for you--the packing and the shipping. And we will insure it against
breakage. We ship hundreds of purchases every year for American
visitors.”
Mr. Smith asked, “How much do you charge for that service?”
The clerk shrugged. “There is no charge for our service, sir,” he said.
“There will be a small shipping charge which you can pay on receipt
of the package, but as for the trouble of packaging and handling the
shipment from here, that is merely a part of the service we give our
customers.”
“We won’t be back home for another three weeks,” Mrs. Smith said.
“What will happen if the bowl arrives before we reach home?”
“You need not worry about that,” the clerk said. “I’ll hold the bowl
for several days and then ship it so that it will not arrive until
after you have reached home.”
“Well, that seems simple enough,” Mr. Smith said. “As long as you can
handle this for us, then we’ll buy it.” He pulled out his wallet and
paid for the bowl. Then he carefully wrote out his home address in
Lima, Ohio.
“Don’t worry about a thing,” the clerk said, smiling. “The bowl will
arrive soon after you get home.”
As the Smiths left the shop, Mrs. Smith said to her husband, “Well, the
Italians certainly do make it easy for the Americans to buy something
and send it home. I had no idea there would be so little red tape to
sending a purchase home.”
A month later Mrs. Smith was at home when the telephone rang. It was
a long-distance call from New York. A strange man--someone she had
never heard of--asked if she had ordered a glass bowl from a shop in
Florence, Italy. He explained that he was a Customs broker, the bowl
had been consigned to him, and he was prepared to clear the package and
forward the shipment if she authorized him to do so. He explained there
would be a nominal fee for his services in getting the package released
from Customs and forwarded to the Smiths in Lima.
Mrs. Smith was so flustered she told the caller she would have her
husband get in touch with him. What was this strange man doing with her
bowl? The clerk in Florence had said he would take care of everything,
and now this broker was saying something about having legal title to
the shipment and that she would have to pay a fee to get her bowl
shipped to her. He had explained that she could come to New York and
arrange personally for the Customs clearance if she wished to do so.
Mrs. Smith telephoned her husband at his office and told him about the
call from the broker in New York. She gave her husband the man’s name
and his telephone number in New York.
And then Mr. Smith exploded with anger. “It’s a gyp deal of some sort,”
he said. “I am going to call the nearest Customs office and see what
this is all about. We didn’t tell that clerk to send the package to
anyone in New York. I don’t know how he got into this picture. There’s
something funny going on and I’m going to find what it’s all about.”
Within a short time, Mr. Smith learned--by checking with a Customs
officer--that he was not being gypped. The broker in New York was a
legitimate broker, licensed by the Federal government to act as a
clearing agent for merchandise arriving in the port of New York. The
call that had been made to Mrs. Smith was a routine call, because the
package containing the bowl had been consigned to the broker in routine
fashion either by the shipper in Florence or by the carrier which
brought the package into the port of New York.
Mr. Smith asked why it was that Customs in New York could not forward
the bowl directly to him without going through a broker. That seemed
the easy way to handle the shipment without all this red tape and the
payment of a fee to some stranger whose name he had never heard before
this day. Mr. Smith declared heatedly that he didn’t have time to go
running off to New York for a $75 glass bowl. As a matter of fact the
bowl wasn’t worth all that trouble and expense. He and his wife wanted
the bowl and they wanted it as quickly as possible.
The Customs officer explained that unless Mr. Smith or his wife went to
the port of entry to clear the shipment with Customs--or unless they
authorized the broker to act as their agent--the bowl would be held by
Customs for five days. Then if it were not claimed, it would be sent
to a warehouse. It would remain in the warehouse for one year, and if
it had not been claimed within that period, then it would be sold at
auction along with other unclaimed packages. The officer explained
further that Customs was not authorized by law to act as the forwarding
agent for anyone--except in cases where a shipment valued at less than
$250 was received by mail from an overseas point.
“Now, if you had shipped the bowl by mail,” the Customs officer said,
“it would have been delivered to your post office and you could have
obtained its release with no difficulty at all.”
Smith retorted, “This is a fine time to tell me I should have shipped
by mail. All I can say is it’s a hell of a way to run a railroad.” He
slammed down the phone, cursing Customs and all of the government’s red
tape. Then, reluctantly and angrily, he called the strange broker in
New York and authorized him to clear the glass bowl. Thus the day was
ruined for Mr. and Mrs. John Smith of Lima, Ohio.
The story of Mr. and Mrs. Smith is not unusual. Similar cases occur
daily throughout the United States as returning travellers discover
that they could have saved themselves worry, time, and money by
familiarizing themselves with the Customs procedures governing
the importation of foreign purchases into the United States. Had
Mr. and Mrs. Smith taken the time to read a few relatively simple
instructions--available to travellers in pamphlet form--they would not
have gotten into the difficulty they did.
In the first place, they would not have accepted the glib assurance of
the Florence clerk that he would take care of everything. Instead, they
would have instructed the clerk to mail the glass bowl by parcel post,
marked as a “tourist purchase.” When the package arrived in New York,
the post office would have turned it over to Customs in routine fashion
for examination. An examiner would have verified the contents and its
value and then returned the package to the post office to be forwarded
directly to the Smiths in their home town. If any duty were due, it
could have been paid to the postmaster after filling out a simple entry
form. No broker. No delay. No red tape.
But this is what happened to the Smith’s glass bowl after it was
purchased in Florence: the clerk turned the package over to a
forwarding agent with no special instructions. The agent routinely
consigned the shipment to a broker in New York with whom he had been
doing business for years. The bill of lading was made out to the New
York broker, which meant that when the package arrived in New York, the
broker had legal title to the glass bowl because it was consigned to
him.
What few travellers realize is that there is no automatic movement of
merchandise arriving by ship from overseas. Someone has to be on hand
to clear each shipment with Customs and pay any duties that might be
due. Someone must see to it that the merchandise is moved from the
piers to its destination. And this is usually the job of the broker, a
point which many people do not understand and which causes considerable
difficulty.
The broker is the expediter of the multi-billion-dollar flow of
merchandise through the ports of entry in the United States. He is the
legal representative of his client in dealing with Customs problems.
The Customs Service is not interested in merchandise until it arrives
within the limits of a port of entry to be unloaded. At this point
the merchandise legally becomes an import. And the merchandise passes
through Customs under two types of general entries. One is called the
“consumption entry” and the other is known as a “warehouse entry.”
Most imports arrive and are passed through Customs under the
consumption entry, which permits the importer to pay the duties, obtain
a release, and get immediate possession of all of his merchandise.
When merchandise is brought into the country under a warehouse entry,
the major part of the merchandise is sent to a Customs bonded warehouse
for storage. No duties are deposited when the papers are filed except
for that portion of the merchandise which is to be taken immediately
by the importer. In other words, the importer is permitted to place
his goods in storage without payment of duties and then is permitted
the privilege of making partial withdrawals from the warehouse, paying
duties on whatever he draws for consumption.
There is a continual movement of merchandise from one bonded warehouse
to another. This is particularly true in movements of liquor from one
part of the country to another. Liquors may move across the country
and may be in six or a dozen different bonded warehouses before they
are withdrawn for consumption and taxes are paid. This system permits
merchants to move their merchandise freely to meet shifting consumer
demands.
The normal period for bonded storage is three years, but this period
may be extended. If no extension is granted and the goods still remain
in a bonded warehouse beyond the three-year period, they are considered
unclaimed and abandoned to the government. The government then puts the
merchandise up for public auction.
* * * * *
A point of constant friction in the field of imports is the law which
requires that imports shall be marked “legibly and conspicuously” with
the name of the country of origin. It has been the Customs Bureau’s
position that if the marking can be reasonably expected to remain on
the article until it reaches the ultimate purchaser, then that is all
that the laws requires. But there are many exporters and importers who
disagree with the Customs interpretation of the law.
As one Customs veteran explained: “The domestic people, of course,
would like to have great big red letters 40 feet high on a 20-foot
article spelling out the name of the country of origin. Of course, it
frequently happens that the importer would like to have this name about
as small as the Lord’s Prayer on the point of a pin.
“The markings from some countries increase the value of the article.
Chinaware from England, for example. The English are very happy to put
their marking under the glaze, where it will remain. There are other
countries that are just as happy to put this identification on by paper
sticker, which may come off in the rain. So we always are in the middle
in the argument over markings on imports.”
The purpose of the law, of course, is to inform the ultimate buyer of
the country from which the merchandise came. Normally the ultimate
purchaser is considered to be the man who buys it across the
counter--the last person to receive the article in the condition in
which it was imported.
A great deal of merchandise is permitted into the country under what
is known as the “informal entry procedure.” The informal entry is used
where the value of a shipment does not exceed $250. The entry was
devised for the benefit particularly of persons passing across the
borders of the United States from Canada and Mexico.
In such border crossings, there is no formal appraisement. The Customs
officers on duty write up the entries, take a look at the merchandise
and decide themselves whether the value is correct. Then the duty is
paid on the spot and the merchandise is released.
This informal entry procedure is also used at the airfields to expedite
shipments of merchandise by air. It is used in the clearing of baggage
through Customs when travellers arrive from overseas, and in the
clearance of non-commercial shipments which include personal and
household effects.
* * * * *
In the vast majority of importations, the broker plays an important
part. The broker may be an individual, a partnership, corporation, or
association. In any case, those acting as brokers must be licensed
by the Customs Bureau, meet certain standards, and submit to Federal
regulation of their operations.
Applicants for individual broker’s licenses must undergo an examination
at the headquarters port in the Customs district in which the broker
intends to operate. The purpose of this examination is to determine
the applicants knowledge of Customs laws and procedure and his fitness
to render a service to importers and exporters. This knowledge must
necessarily be quite broad in scope, and a grade of 75 per cent is
required for passing.
However, those applying for a broker’s license as a corporation,
partnership, or association do not take an examination. Their
applications are forwarded by the Collector to the Supervising Customs
Agent, who conducts an investigation and then makes a report and
recommendation. The agents verify the correctness of the statements
made in the applications and the qualifications of the person or
persons who will actually handle the customs business. The government
requires that each broker keep current records reflecting his financial
transactions as a broker, and these records must be available for
government inspection at any time.
The Customs Service has no part in fixing the fees charged by customs
brokers for their services. However, if a complaint is made against
an individual broker or a brokerage house, then the complaint is
investigated by Customs Service agents and if the fees charged by the
broker are found to be excessive or “unconscionable,” then action
is taken by the Service to correct the situation. In cases where
investigation discloses irregularities, the Secretary of the Treasury
has the authority to suspend or revoke the license of a broker. Such
action is taken, however, only after a quasi-judicial hearing in which
the accused broker has the right of cross-examining witnesses. If the
decision goes against him, then the broker may, if he wishes, appeal
his case to a U.S. Circuit Court of Appeals.
The broker plays a prominent role as the middle man in the
import-export business, but this does not mean that an importer must
necessarily seek the services of a broker in bringing merchandise into
the country. Under the law, any citizen may act as his own agent in
clearing his own imports through Customs and no license is required.
* * * * *
One of the ancient devices to aid the importer is known as the
“drawback” privilege. “Drawback” is a word which is found in customs
language through the centuries, and it is another word for “refund.”
In brief, the drawback works in this fashion: an importer brings
merchandise into the United States to be used in the manufacture of
certain articles. At the time of importation, he pays the normal duty.
After the articles are manufactured, they are exported to another
country. It is then that the manufacturer is entitled to a refund on
that part of the imports which he shipped back out of the country.
The drawback plays an important part in the manufacturing operations of
all nations. It enables manufacturers to meet competition in the export
market. For example, an automobile manufacturer in the United States
imports a large amount of steel to be used in the manufacturing of
his automobiles. Ten per cent of this steel is used in cars which are
shipped overseas. Thus the manufacturer is entitled to a drawback or
refund of 10 per cent of the duties he paid on the imported steel.
Congress has liberalized the drawback provisions so that a manufacturer
does not necessarily have to use the imported materials in his exports
in order to qualify for a refund of duties. An automobile manufacturer
may export automobiles made entirely of domestic steel. But if the
steel he used in the exports is of “the same kind and quality” as the
imported steel, then he is allowed to obtain a refund on that quantity
of steel used in the exported automobiles.
Virtually every manufacturer who is in the export business takes
advantage of this drawback material, and its value to the manufacturing
industry in the United States is realized when it is noted that the
refunds paid in recent years have been running about $9 million
annually.
Oddly enough, there are some American manufacturers who do not even
know that they have the privilege of a duty refund. They have been
importing materials for years, paying duties, and then exporting the
finished products without making any claim for a refund of duties on
the materials shipped back overseas. One midwestern manufacturer in
recent years discovered that he had paid the government in excess of
$1,500,000 in duties--and he was entitled to a refund of the entire
amount.
This situation developed as a result of the Korean War. Because of the
tremendous devastation in Korea, the U.S. government entered into a
program of rebuilding the Korean economy. The midwestern manufacturer
obtained orders from the government to supply a quantity of heavy
machinery and equipment, the contract running into many millions of
dollars.
In that period during and after the Korean War, there was a shortage of
domestic steel. For that reason the manufacturer imported virtually all
the steel used in the machinery manufactured for the Korean government.
When he discovered that he was due a refund of duties, he obtained all
his records over the past years, and submitted them to the government.
These records were verified and the manufacturer was paid more than
$1,500,000.
* * * * *
The maze of tariff laws which has grown up over the years has developed
some peculiar situations, and one of the oddest of these involves
the Virgin Islands, the insular possession which has attracted many
manufacturers in recent years.
One reason that the Virgin Islands is proving attractive to new
industries is that under the present laws, manufacturers operating in
the Virgin Islands pay an import duty of only 6 per cent on merchandise
brought into the Islands for use in manufacturing. Their finished
products are permitted into the mainland free of any duty--provided the
foreign materials used are less than 50 per cent of the total value.
This quirk in the law has created extreme problems for some American
industries, such as the watch industry. For example, a manufacturer
in the Virgin Islands will import various watch parts from France
or Japan and pay only a 6 per cent duty on these imports. The parts
will be assembled into a finished watch, and if the watch meets the
requirements fixed by law, then it enters the United States free. In
other words, the manufacturer in the Virgin Islands pays a 6 per cent
duty on watch parts on which the American manufacturer is required to
pay a 50 per cent duty. And this variance extends to other fields of
manufacturing.
There has been, in recent years, a growing opposition to the duty
differential which is permitted manufacturers in the Virgin Islands.
Discussing this situation before Congress in September, 1960,
Representative Eugene J. McCarthy of Minnesota voiced the views of
many when he said: “In recent months there has been a growing tendency
for companies to establish themselves in U.S. insular possessions on
a basis that results in their escaping the proper payment of duty on
products they wish to import into the United States. Section 301
of the Tariff Act of 1930, as amended, was intended to promote the
development of employment opportunities in our insular possessions....
(Instead, it) has become an avenue for the avoidance of very
substantial amounts of duty....”
The McCarthy argument is disputed by the Virgin Island manufacturing
interests, but nevertheless the situation underscores the complexity of
the laws by which the Customs Bureau is bound.
* * * * *