2 Customs Entry Process 4 Basic Requirements: Goods arrive at US port of entry Goods not barred or embargoed from entry Customs authorizes delivery after inspection and release Estimated duty paid or Customs bond posted Required Documentation must be filed within 5 days: Entry manifest or merchandise release form US Customs Entry Summary Form Proof of right to make entry (B/L, air waybill, carrier’s certificate) Commercial invoice from seller Packing slips Any other documents required under special regs.
3 Entry Process (Cont.) Liquidation: final computation and assessment of applicable duty Any additional duty owed must be paid in 15 days Time limit for liquidation is 1 year Protest: must be made within 90 days Customs response 30 days for denial of entry 2 years in other cases Appeals to Customs Office in D.C. Judicial review in the Court of Int. Trade Must pay assessed duty first 180 days to file for review Appeal to Federal Circuit Court of Appeals
4 Enforcement and Penalties Civil and Criminal Penalties Making false material statements Whether intentional or negligent Negligent: failure to use reasonable care Penalties can be severe – 2x loss of duty or 20% of value U.S. v. Golden Ship Trading Gross negligence: “act or omission done with actual knowledge or reckless disregard” – 2x penalty for negligent violations Fraud: knowingly making false statements – up to full value of good Aggravating or Mitigating factors affect penalty Limitations: Negligence or gross negligence: 5 years Fraud: 5 years from discovery
5 Informed Compliance System Relies on voluntary compliance – responsibility on importer to comply Must use reasonable care (Checklist) Encourage prior disclosure – report errors before Customs investigation Pay unpaid duties within 30 days Record Keeping Requirements: retain records for 5 years Willful failure: $100K or 75% of value Negligent failure: $10K or 40% of value Willful concealing or destruction: $5K and /or 2 years imprisonment
6 Preimportation Rulings Importer can make written request for ruling in advance of entry Binding ruling or ruling letter Apply only to particular importer Judicial Review of Customs Actions Formal Rulemaking: judicial deference (U.S. v. Haggar Apparel Co.) Informal Decisions (Binding Rulings): limited deference (U.S. v. Mead Corp.) Pre-importation judicial review in extraordinary circumstances: irreparable harm to importer
7 Dutiable Status of Goods Determined by classification, value and country of origin Harmonized Tariff schedule of U.S. 1989 called the Harmonized Code All entering goods dutiable unless exempted Classification of goods: Locate article in HTS, then determine rate Special schedules for NAFTA, GSP Importers must use reasonable care Camel Mfg. Co. v. U.S. Common Meaning Rule: understanding HTS descriptions: look to common meaning
8 General Rules of Interpretation Govern use of HTS Headings are only guides Essential character controls Eo nominee - common name Physical characteristics Article’s use Common popular over commercial meaning Use most specific description All else equal, last in numerical order Better Home Plastics Corp. v. U.S.
9 Customs Valuation Establish dutiable value at time of entry Dutiable value: transaction value of goods Price actually paid for goods plus packing costs, selling commission paid by buyer, value of an assist, royalty buyer is responsible to pay, proceeds of any resale that accrues to buyer Exclusions: freight charges, insurance or broker’s fee, inland freight, assembly fees, import duties GATT 1994 Agt. on Customs Valuation: attempt to unify methods of calculation
10 Country of Origin Critical in entry process Rules of Origin – determine and report country of origin Various tests: Substantial transformation Gibson-Thomsen Co. v. U.S. – new article National Juice Products Assoc. v. U.S. – value added Uniroyal, Inc. v. U.S. – major feature Ferrostaal Metals Corp. v. U.S. – changes character Name, character or use test NAFTA Tariff Shift rule Trade preference rules Textile and apparel rules of origin GATT / WTO rules – develop uniform approach FTC & Customs rules for labeling and marking imports
11 U.S. Trade Preferences Generalized System of Preferences (GSP) Beneficiaries are developing countries – “graduate” off list Products must be designated as eligible – Competitive annual review GSP rules of origin: at least 35% value added in GSP country Product of, or substantially transformed in designated beneficiary Imported directly into US
12 Other US Preferences NAFTA, CAFTA, other free trade agreements Caribbean Basin Economic Recovery Act (1983) Encourages manufacturing in Caribbean: goods imported to U.S. at favorable rate 2000 Caribbean Basin Trade Partnership Act: increased scope of preferences Africa Growth and Opportunity Act of 2000: aid sub-Saharan countries Andean Trade Program: promote development and combat drug trafficking
13 Other Customs Issues Drawbacks – refunds of duties paid 99% of duties refunded on imports that are processed, etc. and re- exported within 5 years Same-condition drawbacks – re-exported but not re-processed Substitution drawbacks – for fungible goods or commodities Return of US Exports – subject to duty on re-importation Exceptions: not substantially altered; repaired goods; US components assembled abroad
14 FTZ: Foreign Trade Zones Goods imported into FTZ not subject to tariff until goods are released into the stream of commerce No time limit for stay in FTZ Not subject to quotas while in FTZ Firms can set up special purpose sub- zones Nissan v. U.S.: FTZ preference not for goods installed, used or operated in FTZ
15 Business Implications Planning essential Margin may be ruined by adverse Customs ruling Knowledge of appropriate classification, entry process and rules of origin Tariff engineering Potential benefits of FTZ’s Stay current with GSP’s and free trade agreements
16 Web Sites http://www.customs.ustreas.gov http://www.usitc.gov http://www.ftc.gov http://www.nafta.org http://www.access.gpo.gov