JVC Articles

Speakers:
Tiffany Stevens, Esq., President, CEO & General Counsel, JVC
Sara Yood, Esq., Deputy General Counsel, JVC
Peter W. Klestadt, Esq., Partner, Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP

Peter W. Klestadt has more than 30 years of experience concentrating in the areas of Customs and related import and export laws. He regularly appears before the federal agencies responsible for enforcing these laws, including Customs and Border Protection (CBP), Immigration and Customs Enforcement (ICE), the Food and Drug Administration (FDA), the Fish and Wildlife Service (USFWS), the National Marine Fisheries Service (NMFS, NOAA) and others.

Mr. Klestadt counsels clients on how to maximize opportunities in areas such as valuation, tariff classification, marking and country of origin as well as in the areas of regulatory compliance and audits. He has developed extensive experience defending complex criminal and civil investigations involving customs fraud, food labeling and endangered species Lacey Act violations, as well as False Claims Act cases involving evasion of customs and antidumping duties.

Mr. Klestadt is also a licensed Customs Broker and worked in the customs brokerage and freight forwarding industry prior to beginning his legal career. He continues to render advice in this area. Mr. Klestadt is a contributing author of Import Handbook (1997).

Renew Membership Dues for 2024 here.
To upgrade membership, reach out to Cathrine: cathrine@jvclegal.org.
Annual Luncheon Event will be held on Friday, March 8. More information here.

As you head into the New Year, make sure you are AML compliant. JVC has many options to assist with your AML-related needs here. You can also reach out to Sara directly: sara@jvclegal.org.

JVC’s Recent Operational and Legal Highlights:

JVC’s Trademark Monitoring:

JVC is looking through the trademark registry on a weekly basis to make sure that someone doesn’t register a trademark that could inhibit you from creating and selling your most beautiful creations.

JVC’s ability to monitor and challenge trademarks comes from a case in the 1980s where JVC sued someone who had tried to register a slogan for a company that was not based in the US. This case allowed us to assert that a trade association had the ability to protect a category of trademarks in behalf of the trade as a whole. This had never been done before, but JVC was successful in that lawsuit and acquired standing to represent the entire jewelry industry in the trademark field.

The US Patent and Trademark Office publishes a gazette each week with a listing of every mark that has been applied for and approved to be registered by the trademark office. We go through and look at these marks for two things:

1. If they’re using a generic or descriptive word that they’ve disclaimed that word.
   1. If someone registers “Sara’s white diamonds” as a trademark, we would review to be sure that the word “diamonds” and maybe the word “white” have been disclaimed as they are descriptive of the diamonds.
   2. If the trademark was “Sara’s crazy diamonds” then the only word that would need to be disclaimed is “diamond” from that trademark.
2. If the trademark would be deceptive or misdescriptive of goods that generally harms the industry.
   1. Many years ago someone attempted to register the term “yellow emerald” and JVC stepped in and saw it as deceptive. Emeralds are green and there is a trade name for yellow beryl – heliodor.

JVC has been successful for many years with getting trademarks withdrawn that could be considered deceptive to the jewelry industry. The people at the US Patent and Trademark Office are not jewelry experts and do not know all the terminology that we use daily, despite looking at the jewelry category often.

You can look at a central bank of terms on our website that JVC deems as generic or descriptive in the industry before you register a trademark to make sure you’re not using terminology that needs to be disclaimed.

 

FTC Conversations:

The JVC lawyers visited Washington, DC, this week to discuss with FTC regulators. The focus was to discuss deceptive practices in diamond advertising. We shared some results from secret shopping, as we do occasionally when we see issues coming up.

We also discussed opening the nomenclature and usage of the word “handmade.”

More updates will be sent as news arises from the FTC. We continue these conversations all the time as we are out there protecting you in your business.

 

G7 Sanctions:

There will be some movement from the G7 in the month of December after over a year of discussions. The G7 countries all have a January 1^st, 2024 deadline to enact their own direct bans on Russian imports in order for the next phase to work correctly. The US already has a direct ban since the second quarter of 2022.

This next phase is related to customs, how they will enforce this and examine packages. Most of our membership will not have to do too much because they’re not directly importing diamonds from abroad. For those companies that are, there may be additional restrictions or regulations that will need to be followed as goods are coming over the border. This does not restrict goods that are already in the US.

The plan is to start with a one carat threshold or higher. So all loose, polished, or rough one carat and higher diamonds starting on March 1^st, 2024 will have to be able to show some kind of provenance information. This threshold will drop down to half a carat, probably by September 1^st, 2024. There is no plan on issuing restrictions on finished jewelry yet. Once this goes into effect, the G7 will look at data to see how effective the restrictions are to see what’s changing in levels of import or if people are trying to get around this in different ways.

We have a communications plan outlined and will send out a Member Alert to our active members the minute these changes and restrictions take effect. Make sure you are active in our system by logging in to the Member Dashboard and renewing here, so you can get that email to your inbox immediately!

JVC is here with you every step of the way to make sure your business is operating legally and ethically during these times.

 

JVC’s special guest is Peter W Klestadt, Esq., of GDLSK LLP, a Law Firm Finder partner of JVC’s. More information on our Law Firm partners can be found here.

The Law Firm Finder is a great tool if you’re looking for more specific legal advice and if you would like to engage counsel beyond the general guidance that JVC provides.

Grunfeld Desiderio Lebowitz Silverman & Klestadt (GDLSK) LLP. GDLSK specializes exclusively in customs and international trade, so they primarily counsel importers and exporters on tariffs, trade compliance, and more.

How to Save on Customs Duties:

Although many companies believe customs duties are a fixed cost, it can be a variable cost. They build the cost of customs into the price of their product and don’t give a lot of thought that this amount could be substantially reduced.

• Think about the country of origin of your imported products. US customs applies a substantial transformation analysis when determining what the country of origin of a product is.
  • If a piece is cast in one country and set in another, it’s the country of the casting that determines the country of origin.
  • China is currently under tariffs that in most cases implies a 25% additional tariff over and above the regular tariff imposed. If you were to cast in Hong Kong and then set and finish in China, the country of origin would be Hong Kong and not China, therefore not subject to the 25% tariff.
  • This also related to country origin marking. For example, if you have a setting from Italy that is sent to China for all the setting and finishing, you could call your product a product of Italy as opposed to a product in China.
  • The US customs rule on origin can be independent from a sanctions analysis. Although currently most sanctions run parallel to the US country of origin rules, it is possible that they could carve out their own rules under the sanctions that would deviate from customs tariff country of origin analysis. This is something to keep in mind as the G7 issue evolves.
• Tariff classifications:
  • If you bring in a finished engagement ring into the US, you pay a 5.5% duty rate. The same product unset (you bring in the setting and diamond separately), then you’re only paying 5.5% on the value of the setting. The diamond, no matter what the value is, would come in duty-free. This allows you to set in-house and save 5.5% of the duty rate on the diamond value.
• Customs Valuation: once you have a duty rate, what value do you apply the rate to? Normally it’s the purchase price of the article under what’s called transaction value, The price paid to payables by the importer.
  • There are exceptions to this rule. For example, if you’re buying from a trading company who is subcontracting with production to a manufacturer, you are entitled under what’s called the first sale rule to use the first sale in that chain. The sale from the manufacturer to the middleman trading company is the basis of your customs value, assuming you meet certain traceability requirements, and of course that your middleman is willing to share with you what their margins are. This way you are paying duty on the true factory cost and eliminating the markup of the middleman which often includes profit and indirect overheads.
  • You can convert a middleman to a buying agent and pay for the services he renders. Buying commissions are considered not dutiful, but seller markups are dutiful. It’s a matter of how you describe it and paper it under an agreement.
  • If you’re dealing directly with the manufacturer, you can look at what the manufacturer vendor has included in the price and see whether there are costs built into that price. Some of these costs can be moved out and put into a separate service company, and be subject to a separate service fee. This includes items such as quality control, logistics, and warehousing. These costs can be separated and made to be non-duty-able, thereby reducing the duty-able value of merchandise.
• Duty Defer:
  • Having a bonded warehouse: a bonded warehouse allows you to hold goods without the payment of duty and you only pay the duty when you withdraw the goods into the US and make entry on them. This allows you to keep inventory in a bonded facility without the payment of duty until you need the inventory. You can only hold goods that were non-duty paid goods, you cannot mix in domestic or duty paid goods.
  • Foreign trade zone: works similarly to a bonded warehouse, but gives you more flexibility to do additional operations, such as manufacturing within the zone such as assembling or disassembling in the zone. This does not have to be an outside facility, you can set up either a bonded warehouse or a foreign trade zone within your existing facility. You can isolate a room within your offices as long as you have the proper security and procedures to move things in and out. This option allows you to hold goods that are non-duty paid and domestic and duty paid goods together, as long as you have inventory controls to determine which are duty paid and which are not.
  • Unused Drawback: allows for you to recover 99% of your original duties paid if you export goods within 5 years from the date of import. This does not cover customer returns, so if you sell to a retail customer and it doesn’t sell through and they return the product, you can’t use unused drawback because US customs’ interpretation that once it leaves your facility and it’s been sold to a retailer, it now falls under the used category.
  • Additional drawback provisions allow you to recover the duties in returned merchandise situations. If you have goods that are returned even if used or returned from an individual customer themselves (including the retailer), if the goods are exported within one year of importation, you can recover 99% of those duties.
  • Manufacturing Drawback: if you import components or materials, further manufacture them in the United States and then export the finished articles, you can recover the duties paid on the raw material inputs that you imported before.
  • A one time waiver allows you to go back a 5-year period if there was an opportunity that was missed, you. May still be able to recover that opportunity.
  • Return Goods: There’s always been a provision that allows for American goods returned, meaning that if you manufacture something in the US, export it, and it comes back without being advanced in value or improving condition, it can come back into the country duty free without having to pay duty on the article. Within the last several years, a new provision was added that allowed you to do the same thing with previously imported and duty paid goods. If you have duty paid goods in your facility that you’ve exported and then brought it back, you can bring them back in duty free if you could establish that you had imported them within the last 3 years.
    • Example: jewelry is put on a cruise ship, it’s exported. The cruise ship returns or sells a lot of the jewelry to its customers. Do those customers have to pay duty when they go through customs in the port of, you know, Fort Lauderdale? The answer is no, if the program is set up right. If you don’t have a program in place for this, your retail customers going to have to pay the duty.
  • Considerations for e-commerce: if you’re, selling on e-commerce and you have customers internationally and they return the goods to you, if you can establish that those goods were previously imported into the United States within 3 years, you can also bring those goods back duty free. With regard to e-commerce there’s a program called 321 which allows for duty-free actually entry exempt goods that are imported by individual customers that are valued at $800 or less. This means that if you have foreign origin goods that you are selling on e-commerce to individual customers and they’re valued at $800 or less, you can ship them in and not pay any duty. As long as you can track each package or parcel or product to an individual customer order, then you can set up a program to allow that those goods to come in duty free.

 

More information on GDLSK can be found on their Law Firm Finder listing here.