Shipping Solutions News
  June 2005
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In This Month's Newsletter:

Unreasonable Limitations of Liability on Cargo

U.S. and Jordan Free Trade Agreement

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Unreasonable Limitations of Liability on Cargo

By William J. Augello, Esq. email | bio

There are many unconscionable practices taking place in the cargo liability field, but the one that takes the cake is the limitation found in cartage and drayage companies’ bills of ladings that limits liability to $50 per shipment.

Why shippers entrust these cartage companies with goods worth $1 million per container or more, particularly when the goods are at high risk of theft, is a mystery. And so is the answer frequently heard: “We have our own insurance.”

Don’t cargo owners understand that their cargo insurers attempt to subrogate against the carrier that caused the loss, only to find that the cargo owner released the carrier from liability over $50 per shipment? Don’t cargo owners understand that there is no free lunch with insurance? If the risk is placed on the insurer instead of the carrier, the premiums are much higher. If an insurer pays big claims, they either drop the cargo owner or the premiums skyrocket! Don’t cargo owners understand that extremely low liability limits are an invitation and a license to steal?

Occasionally we find an exception where the carrier failed to limit its liability as required by the law, such as by offering a choice of rates for different levels of liability. When a carrier does not provide the extra cost of declaring a higher value to the shipper, the courts have held the carrier liable for full value. But cargo owners rarely chose to pay the excess value charge even when the cost is provided. Instead, cargo owners buy their own insurance policy. Pennywise, pound foolish?

The more disturbing trend is the courts’ practice of holding cargo owners to the carriers’ limitations even when no bill of lading was issued prior to the theft, and thus, there was no contractual agreement to the limitation! The courts reason that if the parties had numerous prior dealings, and the shipper had prior notice of the carrier’s limitation on its bills of lading, that limitation governs the stolen shipment!

In ocean cases, the cargo owner is also deprived of a fair opportunity to choose between two rates when the ad valorem rates quoted by the ocean carriers are so prohibitively high as to discourage their election (which is always the case.) Thus, cargo owners are always forced to purchase insurance rather than place the risk in the carrier having custody and control of the cargo. This explains why imports have such a high rate of cargo thefts every year.


U.S. and Jordan Free Trade Agreement

By Sue Senger email | bio

On January 1, 2002, the United States and Jordan entered into a free trade agreement. This agreement was designed to strengthen the bonds of friendship and economic relations and cooperation between them and to establish clear and mutually advantageous rules governing their trade in hopes of promoting mutual interest through liberalization and expansion of trade.

The U.S. and Jordan Free Trade Agreement has similarities to the U.S. and Israel Free Trade Agreement. It includes a duty phase out schedule (Annex 2.1) and rules for determining eligibility (Annex 2.2). The entire treaty can be viewed at the U.S. Trade Compliance website.

Here are some of the basic definitions under the U.S. and Jordan Free Trade Agreement.

Annex 2.2: Rules for determining eligibility.

Article: The item being considered for eligibility.

Exporter: The person or company supplying the good for export. This may not be the producer.

Harmonized System: This is the 6 digit classification number used by customs worldwide.

Material: Something tangible used to make a good.

Non-originating: A material or article that does not qualify as eligible.

Originating: A material or article that qualifies as eligible under the rules of origin set out in Annex 2.2. An originating article may contain non-originating materials.

Party: Either U.S. or Jordan.

Person of a Party: A national or enterprise of a party.

Producer: The person or company that manufacturers the article within Jordan or the U.S.

Vendor: The person or company that supplies materials to the producer.

Duty Phase Out: Annex 2.1 Depending on the product the duty phase out schedule is:

  1. Duty removal in two annual stages beginning January 1, 2002, now duty free.
  2. Duty removal in four equal stages (25% each year).
  3. Duty removal in five equal stages (20% each year).
  4. Duty removal in 10 equal annual stages (10% each year).

Eligibility

The Agreement shall apply to any article if:

  1. That article is wholly the growth, product or manufacture of a party or is a new or different article of commerce that has been grown, produced, or manufactured in a party;
  2. The article is imported directly from one party into the other party; and
  3. The sum of the cost or value of the materials produced in the exporting party plus the direct costs of processing operations performed in the exporting party is not less than 35% of the appraised value of the article at the time it entered into this other party.

Wholly the Growth, Product or Manufacture of a Party: Any article which has been entirely grown, produced or manufactured in a party and all materials incorporated in an article which have been entirely grown, produced, or manufactured in party, as distinguished from articles or materials imported into a party from a non-participating country, whether or not such articles were substantially transformed after their importation into a party.

Country of Origin: Requires that an article or material, not wholly grown, product or manufacture of a party, be substantially transformed into a new and different article or commerce, having a new name, character or use distinct from the article or material from which it was so transformed.

Value of Materials: The cost or value of materials produced in a party includes:

  1. The manufacturer’s actual cost for the materials;
  2. When not included in A above, the freight, insurance, packing and other costs incurred in transporting the material to the manufacturer’s plant;
  3. The cost of waste or spoilage less the value of recoverable scrap; and
  4. Taxes or customs duties imposed on the materials by a party, provided the taxes or customs duties are not remitted upon exportation.

Textiles and Apparel: Special rules apply, see Annex 2.2.

Certification: Exporter commercial invoice for all eligible shipments from the US must bear the following notation:

I, (name, title and name of company), hereby swear that the prices stated in this invoice are the current export market prices for the merchandise described, that the products being shipped are of US origin and they have been manufactured in the United States. I accept full responsibility for any inaccuracies therein. (Signature)

If the products contain any foreign components, the country of origin and percentage of foreign content must be indicated on the invoice.

Record Keeping: Records should be kept for five years from the date of importation.

Verification: In order to further the administration of this agreement, the parties agree to assist each other in obtaining information for the purpose of reviewing transactions made under this agreement in order to verify compliance with the conditions set forth in this agreement.

The United States has entered into additional free trade agreements. Trade agreements with Morocco, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua are expected sometime this year.


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