Table of Contents
Section I: INTRODUCTION TO IMPORT CONTROLS
A: Management Policy
B: Import Controls
C: Glossary of Terms and Definitions
D: Government Agencies Adminstering Import Controls
E: Responsibility for Import Compliance
F: Import Controls and Regulations Training
Section II: U.S. CUSTOMS REGULATIONS
A: Clearing Products Through U.S. Customs
B: Classification
C: Valuation
D: Country of Origin Marking and Labeling of Containers
E: Alternatives to Duty Payments
Section III: CORPORATE COMPLIANCE PROCESSES
A: Response to Customs Questions, Notices, Audits and Investigations
B: Recordkeeping Requirements
C: Internal Reviews and Audits
D: Notification of Suspected Problems or Illegal Activities
E: Customs Enforcement Tools
Section IV: SUMMARY STATMENT
A: President's Statement Policy
B: Responsible Officers
Customs Policy Program
I. INTRODUCTION
TO IMPORT CONTROLS
A. MANAGEMENT
POLICY
As an “importer”
of foreign merchandise, Company Name is, by law, obligated to use
reasonable care in complying with U.S. Customs law and in reporting its
activity to the U.S. Customs Service.
The Customs Compliance Manual is designed to ensure that Company Name
can satisfy the “reasonable care” standard.
The company
policy of Company Name is to comply fully with all governmental
requirements, including all laws and regulations related to taxation, import
regulation, occupational health and safety regulation, transportation
regulation, and the many other areas of governmental regulation which apply to
the company. The company understands
that governmental regulation of these various areas has been recognized as
important public policy, and that the company’s status as a corporate citizen
carries with it the obligation to exercise reasonable care in learning the
requirements of these various regulatory areas, evaluating the company’s
compliance with these areas, and undertaking steps to ensure that the company
follows appropriate practices designed to attain continuous, full compliance.
The company
views compliance with Customs requirements to be an important element in its
governmental compliance program, and as such has determined that it would be
appropriate to institutionalize an internal compliance program which will
maximize the continuous smooth operation of the company’s import operations, and
will minimize the possibility of the delays, increased costs and penalties
which non-compliance would bring. The Company
Name import program is an essential element in the success of the company
and must be conducted in a manner which contributes to the success of the
company.
Company Name personnel should understand the elements
of customs law regarding merchandise imports into the United States. This manual is an outline of basic Customs
requirements and the Company Name policy with respect to those requirements.
The purpose of
this manual is to ensure compliance with all Customs requirements. All Company Name personnel who must
provide to others or file with the Customs Service information relating to the
entry of merchandise should become familiar with the information in this
manual.
1. Background
Company Name policies and responsibilities affecting
the import of commodities into the United States are stated in this Directive.
Every import
into the United States is potentially subject to prohibitions or restrictions,
and duties, taxes and fees which are payable by the importer of record. Duties, taxes and fees are based on the
Harmonized Tariff Number of the commodity and the valuation of the importation.
Company Name is committed to being a global corporation, meaning it will
seek commodities from suppliers throughout the world. Therefore, it is vital to
Company Name to ensure that personnel involved with imports are
knowledgeable of and acting in full compliance with all relevant laws and regulations.
2. U.S.
Government Agencies Involved
The importation
of certain classes of merchandise may be prohibited or restricted to protect
the economy and security of the United States, to safeguard consumer health and
well-being, and to preserve domestic plant and animal life. Some commodities are also subject to an
import quota or a restraint under bilateral trade agreements and arrangements.
The primary
United States agency charged with enforcing the various laws and regulations
are the United States Customs Service.
Many of these prohibitions and restrictions are subject, in addition to
Customs requirements, to the laws and regulations administered by other United
States government agencies with which Customs cooperates in enforcement. Some of those agencies include, but are not
limited to, the Department of Commerce, the Food and Drug Administration, the
Department of Agriculture, the Consumer Product Safety Commission, the Federal
Communications Commission, the Environmental Protection Agency and the Federal
Trade Commission.
3. Violations
Failure of any Company
Name businesses to comply with all applicable United States import laws and
regulations at any location could result in substantial corporate fines, and
penalties, along with the potential seizure of the imported merchandise. Failure of a Company Name business to
respond timely to a U.S. Customs inquiry could result in the disruption of all Company
Name imports. Officers and
employees found to be in violation of these laws and regulations could also be
subject to individual fines, penalties and imprisonment.
4. Policy
Every import
will be reviewed to determine the laws and regulations applicable to such
import. All required duties, taxes and
fees will be paid in accordance with Customs Regulations. No greater import duties, taxes and fees
should be paid than is lawfully required.
5. Administration
Company Name will conduct its operation so that
employees experienced in and knowledgeable of the import laws and regulations
review each import transaction to ensure that the governing agencies’
regulations are adhered to, the proper Harmonized Tariff Number is determined,
the correct method of valuation is used, the correct markings are placed on all
products, and the appropriate duties, taxes and fees are paid.
6. Responsibilities
Each Manager of
a department will be responsible to determine that there are in place, under
his or her control involved in the import of commodities, procedures necessary
to ensure that each import transaction is reviewed by knowledgeable personnel,
so that all regulations are adhered to and all required duties, taxes and fees
are paid.
7. Communication
of Policy
It is the
responsibility of Company Name
Officers and Managers to communicate this policy to all members of
management in their organizations who are in a position to help implement its
provisions and assign operational responsibility to a specific individual(s) or
department.
B. IMPORT
CONTROLS
Import controls
define what products may or may not be imported into the U.S. and at what rate
of duty they must be entered. Products
from certain countries are banned from import into the U.S. There are varying
rates of duty based on the country of manufacture and the specific product
itself with certain countries enjoying more favorable rates of duty than
others.
With the passage
of the Customs Modernization Act in 1993 (“Mod Act”), import controls took on a
much different meaning. The Mod Act
provisions have more clearly defined U.S. Customs’ and the importers’ role for
compliance. Under the Mod Act, the
responsibility for ensuring correct entry of all products has been shifted from
Customs to the importer. While importers
are responsible for proper entry, Customs will attempt to ensure the importer
compliance through post entry audits.
Import controls
under the Mod Act define the principles of “informed compliance” and
“reasonable care”, a new relationship between importers and U.S. Customs. It is the intent of Customs to take all
reasonable steps to educate the importing community on all of the rules and
regulations applicable to imports, thus the term “informed compliance”. On the other hand, importers are responsible
to take all “reasonable care” to make, keep and produce records for all Customs
transactions, and ensure the correctness of information which appears on
Customs transaction documents.
1. Exercising
“Reasonable Care”
To ensure
compliance with all U.S. import laws and regulations, we must take all
reasonable care with each and every import transaction to ensure that Company
Name is paying all required duties, taxes and fees to the U.S.
government. Such steps to ensure
compliance include, but are not limited to:
1. Demonstrating to Customs a thorough
understanding of legal requirements applicable
to our products and transactions.
2. Making proper entry with the correct
declared value, tariff classification and
rate
of duty applicable so that Company Name can properly determine the legal
duties, taxes and fees payable to U.S. Customs and/or other government
agencies.
3. Knowing
what rules of origin or other qualifications must be met to qualify for tariff
preference programs.
4. Keeping
complete and accurate records for each import transaction for the requisite periods of time.
5. Ensuring
the admissibility of all merchandise, including compliance with country of
origin marking and other agency requirements.
6. Providing sufficient financial and
pricing information to permit proper valuation of imported merchandise.
7. Developing quality control programs
to attain and maintain the necessary expertise.
In order to
achieve compliance, Customs recommends the use of a number of potential
resources/methods. Those resources
include: (1) using in-house employees having experience with Customs issues,
(2) using in-house employees having technical expertise about particular
merchandise, (3) seeking guidance from Customs through binding/advanced
rulings, pre-importation review program and other programs that U.S. Customs
may have available, (4) consulting with an accountant, attorney, customs
consultant or customhouse broker, and (5) establishing voluntary compliance
programs for recordkeeping and drawback.
Company Name understands that reasonable care should
be process-oriented, not result-oriented.
The key is not whether the importer reached the right conclusion in each
case, but whether the importer has in place, procedures designed to promote the
furnishings of correct information to Customs, and that all claims affecting
the import of merchandise are reasonable under the applicable laws.
2. Use
Of Corporate Broker
Company Name counts with corporate Customs brokers
and In-house personnel to effect the entry of their imports into the U.S. These
brokers and key personnel are licensed by Customs and have Company Name
Power of Attorney to enter goods on Company Name behalf. The corporate broker is considered an
extended arm of Company Name.
The Customs broker typically prepares the majority of the required
Customs documentation based on the specific transaction involved. However, in order for the broker to enter
properly goods on Company Name behalf, it is imperative that Company
Name provides the Customs broker with all of the required and necessary
information to enter and pay the appropriate duties. Such information could include, but not be limited to,
classification and valuation. Any
statement or declaration made by the brokers is considered a statement or
declaration by Company Name in the eyes of Customs. In those cases where a corporate broker
cannot be used, documented approval for use of an alternative broker must be
given by the Import Manager or the
Logistics Manager prior to importation.
C. GLOSSARY
OF TERMS AND DEFINITIONS
The following
list contains terms and definitions used throughout these guidelines.
1. a (1)
A List. A list of the records
and entry information that is required to be maintained and produced within a
reasonable time after demand by Customs, if such record is required by law or
regulation for the entry of the merchandise (whether or not Customs required
its presentation at the time of entry).
2. Binding
Ruling. A written statement
issued by the Headquarters Office or the appropriate office of Customs that
interprets and applies the provision of the Customs and related laws to a
specific set of facts.
3. Buying
Commission. A commission paid
to a buying agent who is independent of the seller.
4. Classification. The process of determining the correct
Harmonized Tariff number and its associated duty rate.
5. Consignee. The party in whose name an import entry is
made other than a Customs broker or Integrated Carrier.
6. Country
of Origin. The country of
manufacture, production, or growth of any article of foreign origin entering
the United States.
7. Customs
Bonded Warehouse. A public or
private warehouse under Customs control and supervision where imported goods
may be stored for a specific period of time without the payment of duty or
taxes.
8. Customs
Directives. Detailed
instructions issued by Customs generally dealing with a change in procedure.
9. Customs
Entry. That documentation
required to be filed with the appropriate Customs officer to secure the release
of imported merchandise from Customs custody, or the act of filing that documentation.
10. Customs
Modernization Act. The popular
name given to Title VI of Public Law 103-182, the North American Free Trade
Agreement Implementation Act, dated December 8, 1993, which allows Customs to
modernize their procedures and legalize automation of the entry process.
11. Customs Notices. Any formal notice received from Customs.
12. Customs
Special Agent. Customs employee
who usually investigates wrongdoing and serves summons, or in criminal cases,
to seize goods, books and records.
13. Customs
Broker. A person who is
licensed to transact Customs business on behalf of others.
14. Drawback. A refund or remission, in whole or in part,
of a Customs duty, internal revenue tax, or fee lawfully assessed or collected
because of a particular use made of the merchandise on which the duty, tax or
fee was assessed or collected.
15. Duties. Customs duties and any internal revenue
taxes collected by the Customs Service on imported merchandise.
16. Duty
Preference Programs. Any
program that gives special duty treatment on merchandise of a special type or
from a special country.
17. Fees. Various charges assessed and collected by
Customs. Examples include Merchandise
Processing Fees (MPF) and Harbor Maintenance Fees (HMF).
18. Fines
and Penalties. Customs is
authorized to assess fines and penalties for infractions of U.S. laws and
regulations.
19. Foreign
Trade Zones. These special
purpose areas allow goods to be placed in the zones around the U.S. without
payment of duties (or in some cases duty paid goods) for storage, manufacture
and manipulation.
20. Harmonized
Tariff Schedule of the United States.
The U.S. version of the tariff used on a global basis. It contains 99 chapters which provide an
individual tariff item and rate of duty for most articles of commerce.
21. Importer. The person primarily liable for the payment
of any duties on the merchandise, or an authorized agent acting on his
behalf. The importer may be: (1) The consignee, or (2) The importer of
record, or (3) The actual owner of the merchandise, if an actual owner’s
declaration and superseding bond has been filed, or (4) The transferee of the
merchandise, if the right to withdraw merchandise in a bonded warehouse has
been transferred.
22. Importer
of Record. The party shown on
the Customs entry in the Import of Record block, that is the legal importer,
for Customs purposes, of merchandise imported into the U.S.
23. Incoterms. A standardized list of shipping and selling
terms published by the International Chamber of Commerce.
24. Power
of Attorney. A document used to
allow another party to legally transact Customs business on behalf of the
importer.
25. Pre-Importation
Review Program. A program
established by Customs to allow importers in good standing to have their
process for classification and valuation reviewed by Customs and, if approved,
shipments are examined less frequently and are entered on paperless entry and
paperless entry summary.
26. Related
Persons. As defined Customs
Regulations, “Related person” means: (1) Members of the same family, including
brothers and sisters (whether by whole or half blood), spouse, ancestors, and
lineal descendants. (2) Any officer or
director of an organization, and that organization. (3) An officer or
director of an organization and an officer or director of another organization,
if each individual also is an officer or director in the other
organization. (4) Partners.
(5) Employer or employee. (6)
Any person directly or indirectly owning, controlling, or holding with
power to vote, five percent (5%) or more of the outstanding voting stock or
shares of any organization, and that organization. (7) Two (2) or more
persons directly or indirectly controlling, controlled by, or under common
control with, any person.
27. Royalties. A share of profit reserved by the grantor.
28. Selling
Commission. Any commission paid
to the seller’s agent, who is related to or controlled by, or works for or on
behalf of, the manufacturer or the seller.
29. Surety
Bond. A bond required by law,
regulation or specific instruction to secure a Customs transaction or multiple
transactions. In the event of a debt or
liability, the surety posting the bond is legally liable.
30. Temporary
Importation Bond. A bond posted
for the temporary admission into the U.S. of merchandise subject to
exportation, without payment of duties.
If exportation is not effected within a prescribed period of time, the
liability is exacted against the bond.
31. Transaction. The act of transacting business with Customs
involving the entry and admissibility of merchandise into the U.S.
32. Ultimate
Purchaser. Generally the last
person in the U.S. who will receive an article in the form in which imported.
33. Valuation. The reporting to Customs of the complete
financial transaction of an importation.
It is the responsibility of the importer to ensure that the full value
is reported at the time of entry.
D. GOVERNMENT
AGENCIES ADMINISTERING IMPORT CONTROLS
Many agencies
within the U.S. Government administer import regulations. The primary agencies and their areas of
concern are as follows:
1. Treasury Department - U.S. Customs Service -
Import Regulations
Primary
duties include the assessment and collection of all duties, taxes and fees on
imported merchandise, and the enforcement of Customs and related laws.
2. Department of Commerce - Bureau of Export
Administration, Export Administration
Regulations
Issuance of import licenses for
controlled, dual-use products entering the United States.
3. Food and Drug Administration (FDA)
Regulate such things as medical
equipment, monitors and laser devices.
4. Department of Agriculture (USDA)
Food,
safety and inspection regulations for imported products. Regulate the spread of
bacteria and virus and wooden pallets and packing materials containing wood
products which may contain harmful bacteria.
5. Consumer Product Safety Commission (CPSC)
Protect
the consumer from hazardous consumer products such as freon in refrigeration
equipment and ozone depleting devices.
6. Federal Communications Commission (FCC)
Protection from harmful
electromagnetic exposure from radio frequency devices.
7. Environmental Protection Agency (EPA)
Regulations
dealing with the protection of the environment from toxic substances and chemicals.
8. Department of Transportation (DOT)
Regulate motor vehicle, motor
vehicle safety and the importation of containers.
9. Federal Trade Commission (FTC)
Protecting consumer rights with
regard to proper labeling of country of origin.
E. RESPONSIBILITY
FOR IMPORT COMPLIANCE
Company Name management has communicated corporate
policy with regard to U.S. Import Controls in Section I of these
guidelines. This policy mandates the
review of every import against the appropriate U.S. government regulations to
ensure strict compliance with U.S. law.
Responsibility
for compliance with U.S. import controls is delegated to the Import Manager and
the Logistics Manager. These
individuals are responsible for ensuring that there are in place, under his or her
control, procedures, subject to corporate audit, necessary to ensure that each
import initiated is reviewed by personnel knowledgeable of Company Name
corporate policy and U.S. import regulations.
This responsibility may be delegated to an individual or individuals in
other departments to ensure effective compliance.
From a
transactional approach, compliance is a multi-functional responsibility shared
by Purchasing, Engineering, Manufacturing, Logistics and suppliers focused
through the Import Manager.
Every Company
Name employee involved in transactions that will result in an import has an
obligation to be cognizant of this policy and to assist in ensuring
implementation of its various provisions.
Any questions concerning the policy or any transactions covered by the
policy should by referred to the Import Manager. Possible violations of this policy or the underlying U.S. laws
governing imports, such as the Customs Regulations of the United States, should
immediately be brought to the attention of the Import Manager and the Logistics
Manager.
F. IMPORT
CONTROLS AND REGULATIONS TRAINING
In order to
understand and comply with the U.S. Government import regulations, it is
essential that proper training be obtained and provided to those individuals initiating,
directing and processing an import transaction. To that end, a number of resources are available to facilitate
this learning process.
1. U.S. Government regulations published
by the various administering agencies
2. Title 19 C.F.R. (Code of Federal
Regulations) Customs regulations
3. Harmonized Tariff Schedule of the
United States and its Explanatory Notes
4. Trade bulletins issued by U.S. Customs,
customs brokers and various
trade
agencies and Customs rulings and directives
5. Electronic Bulletin Board available
through U.S. Customs, Washington, D.C.
6. Incoterms 2000
7. Company Name Corporate Import
Controls Guideline
8. Custom Brokers/Consultants seminars
9. Customs seminars
The Import
Manager and the Logistics Manager provide assistance in training, compliance
and consultation, as well as through other internal or external sources. All Company
Name employees are strongly encouraged to contact the Import Manager or the
Logistics Manager with import compliance issues.
Appropriate records
should be maintained by the various businesses for formal training provided to
each employee.
II. U.S.
CUSTOMS REGULATIONS
A. CLEARING
PRODUCTS THROUGH U.S. CUSTOMS
Merchandise is
considered imported when it arrives from a foreign country into the “customs
territory” of the United States, which is the fifty states, the District of
Columbia and Puerto Rico. A shipment
between the United States and Puerto Rico is not subject to U.S. Customs
requirements. The process for obtaining legal clearance from the U.S. Customs
Service (“Customs”) is called the “entry” process.
The United
States Customs Service is part of the Department of the Treasury. It is a revenue collection and law
enforcement agency with the power to stop products at the border and to assess
civil and criminal penalties. Customs
is organized into three management layers: one Headquarters office, 20 Customs
Management Centers (“CMCs”), and 301 customs ports of entry. In most instances, Headquarters and the
ports of entry interact directly with each other and with the public. The CMCs primarily provide operational and
administrative support to the ports.
The port director of Customs for the port of entry has considerable
discretion regarding legal clearance of imported merchandise.
The U.S. Customs
Service is responsible for collecting duty on imports and enforcing the
requirements of many other agencies at the border. The normal import process involves the seller (who may or may not
be the actual manufacturer), the shipper (again this may be the same as the
seller), the customs broker and freight forwarder, the U.S. Customs Service,
and the importer (generally the buyer).
The broker is provided with the invoice and shipping documents by the
importer or his agent, and prepares documentation based on information from the
importer, which Customs reviews for various elements, including whether the
goods are classified properly (the classification determines the duty rate),
whether the goods are valued correctly, and whether the goods are admissible
into the U.S.
1. The
Entry Process
There are
several types of entry. Imported
merchandise may be entered for consumption, entered for warehouse (in bond) at
the port of importation, or entered for transport (in bond) to another port of
entry where it is entered for consumption or for warehouse. Company Name
almost always uses the “entry for consumption“, which is the process of clearing merchandise through Customs for
consumption or use in the United States.
Company Name is the “importer of record” for customs
purposes because it is owner of the merchandise at the time of importation. Company
Name either prepares and files the required documentation or retains a
Customs broker as its agent to prepare and file the required documentation with
Customs.
As importer of
record, Company Name is responsible for payment of all customs duties
and fees as well as for the accurate and complete documentation of the entry,
even though a licensed broker accomplishes the filing.
In order to
classify and value products accurately, it is important that the broker be
provided with complete information detailing the facts of an importation. Normally, absent specific communication with
or direction from the importer, the broker will assume that the classification
they have arrived at is correct, and that the value contained on the invoice
properly includes all amounts being paid by the buyer (usually the importer) to
the seller. Thus, while the broker is
an important professional, it is ultimately the obligation of the importer to
assess whether all facts being represented to Customs are complete and
accurate.
Entry is a
two-part process consisting of (1) the filing of information or documents
necessary for the release of the merchandise from Customs’ custody, and (2) the
filing of information or documents necessary for Customs to assess the proper
customs duty. Entry documents for
release of merchandise must be filed within five working days of
importation. Entry summary documents
must be filed within ten working days after Customs “releases” the
merchandise to the importer of record or consignee. Information may be filed electronically or in paper form.
The fact that
Customs releases merchandise or assesses a particular amount of duty without
questioning the information filed by the customs broker or employee does not
mean that Customs has accepted the information as correct. In fact, Customs reviews only a small
percentage of the entry information and inspects a small percentage of imported
merchandise before releasing the merchandise to the importer of record or the
importer’s agent. Most problems are
uncovered during customs audits, which may occur up to five years after the
date of entry.
Completeness and
accuracy in entry documentation and record-keeping is extremely
important. Careful review the
information filed by Company Name or its Customs broker with the U.S.
Customs Service is needed. Serious
civil and criminal penalties can result if incorrect information is submitted
to Customs or if information is missing from the documents. Using a customs
broker to complete and file documents does not relieve Company Name
of its legal obligation to comply with all applicable U.S. customs laws.
2. Documentation
and Information Required
Within five
working days after arrival of a shipment at a U.S. port of entry, Company
Name or its broker must file an Application for Immediate Delivery (CF
3461) and a Commercial Invoice to obtain delivery of the merchandise from
Customs. Within 10 working days after
these documents are filed and the merchandise released Company Name or
the broker must file an Entry Summary (CF 7501), Commercial Invoice, shipping
documents and any documents required by other federal agencies. Some or all of the required information may
be filed electronically through the Automated Commercial System (“ACS”) that
links importers, brokers, and U.S. Customs Service offices.
Estimated
customs duties and fees due on the imported merchandise must be deposited with
the Entry Summary. Import fees include
the merchandise processing fee and the harbor maintenance fee, although the
latter is only collected on ocean shipments.
(1) Invoice Requirements
The
Customs Service has established specific rules on the contents of a commercial
invoice or electronic equivalents. It
must include complete and accurate information in the English language. The required information is detailed in Appendix A.
(2) Certification
On
behalf of Company Name, the customs broker signs a certification on each
entry summary that the information supplied to Customs is correct and complete
in every detail, and that Company Name will supply any additional
information necessary to ensure the continued accuracy and completeness of the
entry. The declaration puts Company
Name under a continuing obligation to notify Customs of all
circumstances, including changes after the date of importation, which may alter
the classification or value of the merchandise for duty purposes.
3. Customs
Review of the Documentation
Typically,
the Customs Service has one year from the date of filing to complete its review
of the entry documentation. In certain
circumstances, Customs may delay completing its review up to four years, as
long as it notifies the importer of the extension of time. Customs’ final action to close out an entry
and settle accounts with the importer is known as “liquidation” of the
entry. A notice of liquidation is
usually sent to the importer at that time.
Company
Name must monitor all
liquidations to ensure that Customs has made no errors. If Company Name disagrees with the
action of Customs on any entry, the company has only 90 days to
protest the liquidation. The 90
day deadline is absolute. After 90
days, the importer usually loses all opportunity to challenge Customs’
determination, and the liquidation becomes final.
B. CLASSIFICATION
All goods
imported into the U.S. must be classified under the Harmonized Tariff Schedule
of the United States (“HTSUS”). The
HTSUS is the U.S. Government statute utilized to determine how goods imported
into the U.S. are treated. Knowledge to
utilize this statute allows the user to determine reasonably the tariff
classification and rate of duty applicable to the good.
1. Responsibility
Classification is the responsibility of the importer of record. Formal classification requires a thorough knowledge of the goods being imported. Many products could possibly be classified under more than one tariff number. In order to use the most appropriate and proper number, technical knowledge and intended end use of the good is required, as tariff numbers are described in technical terms. The assistance of a classification expert may be required in order to classify accurately products. All of the specific rules found in each section, chapter and legal notes of the HTSUS must be reviewed and complied with for each classification as the rules can vary from heading to heading. The general rules of interpretation in the HTSUS should be the first step in determining proper classification. In addition, use of the Explanatory Notes to the HTSUS is strongly encouraged. U.S. Customs will also formally determine a classification through the issuance of a binding ruling. A request in writing to Customs should be made accompanied with all of the necessary technical information, in order for Customs to make a fully informed decision. Company Name may make its own preliminary determination prior to submission of the request, in order to assist Customs in their decision.
2. The
Harmonized Classification System
All products imported into the United States are subject to customs duties, or exempt from them, depending on how they are classified in the tariff law in effect at the time the products are imported into the United States. The tariff classification of a product establishes the rate of duty that applies to that imported product.
All U.S. tariff classification items consist of ten (10) characters. The general rule is if a good is specifically mentioned in a tariff, it must be classified in that tariff regardless of its end use. There are however, exceptions to this rule and these exceptions are noted in the section and chapter headnotes.
There
are many parts provisions in the tariff but only proprietary items that are not
specifically mentioned elsewhere can be classified as parts. Examples of this would be hardware, nuts,
bolts, screws, bearings and
belts. These items can be used in many
products, however, because they are specifically described in their own tariff,
they must be classified there, regardless of the end use.
The
U.S. tariff is a law enacted by the Congress and enforced by Customs. The tariff classification system in use in
the United States since 1988 is known as the Harmonized Tariff Schedule of
the United States (HTSUS). See Appendix
B for sample pages from the 1996 HTSUS.
The HTSUS is based on a common, worldwide nomenclature for imports which
was developed by international agreement through an organization known as the
Customs Cooperation Council. The HTSUS
contains over 8,000 product descriptions or subheadings.
Most imported products are not described by name in the HTSUS. They may be described by use, composition, or other characteristics. Often a product is described in more than one HTSUS heading. The rules of classification under the HTSUS strive for simplicity, but unfortunately the wide diversity of products makes for many ambiguous situations. Where no one classification clearly applies and one classification carries a higher duty rate than another, there is an obvious concern with accurately classifying a product. Proper classification requires analysis of the HTSUS headings, subheadings, chapter notes, General Rules of Interpretation, Explanatory Notes, and administrative and judicial precedent. Incorrect classifications can cost the company money and delay release of merchandise.
Most
classifications provide at least three different duty rates. The principal duty rate, or Most Favored
Nation rate, is the rate usually used for developed countries with which the
U.S. has no free trade agreement. A
second rate is a “Special” rate, where a reduced or free duty rate is accorded
products from certain countries identified in the HTS. For example, GSP goods may have a reduced or
free rate of duty if the products qualify for the program. The third rate of duty is the high rate
reserved for “unfriendly” countries such as North Korea and Cuba (many of which
are also subject to sanctions prohibiting most imports).
Company Name may obtain from Customs prior to importation a written classification ruling whenever the classification is in doubt. The ruling, which becomes binding on every Customs office in the United States, eliminates any delay and confusion in the entry and release of the imported merchandise. A copy of the ruling must be filed with each entry to which it pertains.
3. Improper
Classification
Failure to
exercise reasonable care and the improper classification of goods under the
appropriate HTSUS number could lead to:
1.
incorrect
duty assessment
2.
additional
duties and interest
3.
fines and
penalties
4.
denial of
preference program benefits
Special care
should always be taken to ensure that the most appropriate tariff number is
used for all imports. The appropriate
tariff number, once determined, should always be provided to the foreign
supplier for inclusion in all documentation related to the import
transaction. If the classification is
made internally, the review should be conducted by individuals with experience
in and knowledge of the HTSUS. If the
classification is made by a corporate broker, it is essential that the broker
be provided with all of the necessary technical and commercial information
relative to the import to allow them to make an educated and accurate decision
on behalf of Company Name
C. VALUATION
1. Introduction
It is a general requirement under U.S. law to declare accurate values for all merchandise imported into the United States. Accurate values are required for (1) the assessment of duties on merchandise, (2) the collection of statistics, and (3) for compliance with other provisions of the law.
2. Basis
of Appraisement
The customs valuation code provides for four methods of appraisement as follows:
1.
Transaction
Value
2.
Transaction
Value of Identical Merchandise or Similar Merchandise
3.
Deductive
Value
4.
Computed
Value
The methods of appraisement are to be applied in the order listed above. For example, if transaction value is applied first and a proper value cannot be determined, then transaction value of identical or similar merchandise is used. (Note: the importer at his option may request the use of the computed value method before the application of the deductive value method.)
(1)
Transaction Value
Transaction
value is the price actually paid or payable by the buyer to the seller, whether
direct or indirect, for the merchandise when sold for exportation to the United
States with adjustments for certain costs detailed below.
A test for
transaction value is required to be applied first, under all circumstances.
(a) Additions to Transaction Value
The following
costs (and no others) must be added to the transaction value, if not already
included in the price:
1.
Packing costs
2.
Selling commissions
3.
Assists
4.
Royalties or License Fees paid as a condition of sale
5.
Proceeds of any subsequent resale, disposal, or use paid directly
or indirectly
to the seller
(b) Exclusions from Transaction Value
The following
costs, if identified separately, can be excluded from the price actually paid
or payable:
1.
U. S. domestic construction, erection, or assembly costs
2. U.S. domestic transportation
3. U.S. customs duties or taxes
4. International transportation, insurance, and related incidental
costs incurred from the country of
export to the United States
5. Buying commissions
(c) Related Party Transactions
When determining values to be declared on merchandise entered into the U.S., consideration must be given to the relationship the importer has with the foreign supplier. If the importer is related to the foreign supplier, the price paid for the goods may be affected by that relationship.