WASHINGTON — U.S. Customs & Border Protection, Mexican Customs and the National Council of Textile Organizations are collaborating in a textile task force to crack down on import fraud, a growing problem that threatens the domestic textile industry’s nascent recovery.

This story first appeared in the May 3, 2011 issue of WWD. Subscribe Today.

Industry executives said the fraud is carried out primarily when foreign manufactures use phony affidavits — often copies of certificates — from legitimate U.S. textile companies to falsify that their yarn or denim fabric was made in the U.S. when it was actually produced in China or other countries. That allows them to take advantage of duty free benefits under U.S. trade pacts such as the Central American Free Trade Agreement and the North American Free Trade Agreement.

“We cannot, in fact, afford the kinds of fraud that take place regularly, particularly in your industry, with regard to the importing, exporting and in-bonding of apparel,” Customs & Border Protection Commissioner Alan Bersin told executives at the recent NCTO annual meeting. “We know that and we need to ramp up enforcement efforts and we have started to do that in concert with your organization.”

Bersin said CBP is working closely with its counterparts in Mexico to share information and also is counting on tips from the U.S. and Mexican textile and apparel firms. He said one of the biggest problems involves companies shipping Chinese denim fabric to the U.S in bond and diverting it to Mexico, where the documentation is changed to make it appear that the fabric was made in the U.S. That allows companies to circumvent the strict NAFTA rule of origin that requires U.S., Mexican or Canadian fabric or yarns be used in making apparel to obtain duty free treatment. In-bond shipments are generally ones that enter U.S. ports, but are meant for a final destination outside the country.

“One of the things they’ve discovered is Mexico has a lot of information and we have a lot of information, but we weren’t sharing it,” said Cass Johnson, president of NCTO. “They’ve now begun to share it.”

But the problem is complex. Bersin said Customs also has found 95 shell companies in Los Angeles that were importing millions of dollars worth of garments from Asia. He said his agency is scrutinizing the in-bond program to “insist that brokers stand up for these shipments and affirm they are actually under contract with bonding companies who bond legitimately.”

The government “needs to take into account the fact that there are tens of millions, if not hundreds of millions, of dollars of illicit transactions that are hurting the American textile industry,” Bersin said.

Sen. Kay Hagan (D., N.C.) has said she plans to introduce revised legislation when Congress returns from a two-week recess in May that would close enforcement loopholes leading to textile fraud by adding more Customs inspectors in Central America and Mexico, and increase penalties for the activity.

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