LEGL Ch. 12
ad valorem tariff rate
A tariff rate based on the percentage of the value of the articles imported
wholly obtained
standard means that product was wholly the growth, product, or manufacture of one country.
special rate of duty
tariff rate applicable to imports under one or more tariff preference programs, such as those for developing countries under the Generalized System of Preferences, or for trade within a free trade area.
Combined Nomenclature (CN) of the European Union
tariff sched of EU, published in Official Journal for the EU
Harmonized Tariff Schedule of the United States
tariff sched. maintained by the ITC and avil directly from ITC or CPB website
enforced compliance
the active investigation of customs violations and the prosecution of violators
formal entry
the administrative process required to import big commercial goods into the customs territory of a country
rate of duty
the amount of tax to be assessed on imported or exported goods, usually according to a tariff schedule
importing
the entering of goods into the customs territory of a country or the receipt of services from a foreign provider
Wholly Obtained Rule
the general rule applicable to most non-preferential trade where the country of origin of an article imported into the U.S. is the country in which the article was wholly obtained.
ultimate purchaser
the last person in the US who receives an article in the form in which it was imported
dutiable status
the legal status of imported goods at the time of entry for purposes of compliance with the tariff and customs laws
principal use
the ordinary use to which articles of the same class and kind as those being imported are usually put and which is greater than any other single use of the article
transaction value
the price actually paid or payable for goods when sold for export -doesn't include added fees or insurance
Preferential Rules of Origin
those applicable to goods traded within a free trade area or customs union, trade agreement or that receive preferential tariff treatment under trade preference programs for developing countries
tariff-shift
transformation that takes a good from one tariff category into a completely different category.
Roessing sink case
Guy wanted to sell sinks in US- made from cheap aluminum he gets from china -Chinese sinks hv an anti-dumping tarriff -wanted to see if he could import bowl from china and drill hole in it
It must be wholly obtained from a country qualifying for a trade preference
How does an item qualify for a tariff preference?
record keeping requirements
Importers are required to keep records of all import transactions for five years from the date of entry and to give Customs access to those documents on demand.
CBP interprets, administers, and enforces rules of origi
Who enforces Rules of origin?
rejected merchandise drawback
allowed for imported merchandise that was shipped without consent, is defective, or does not conform to specifications or to samples
customs broker
an authorized agent, licensed by federal law, to act for and on behalf of importers in making entry of goods.
criminal fraud
fraud where there reasonable doubt
notice of adjustment
notice sent when Customs at the port of entry determines that additional duties are owe, importer must respond to the notice, or the duty will be assessed as corrected
Customs Tariff
Canadian tariff schedule adminsitred by Canada Border Services Agency
dutiable value
Customs value of goods entered into any country - must be reported by the importer-of-record to national customs authorities at time of entry
non-preferential rules of origin
Those applicable to imports of DEVELOPED countries that will receive normal tariff treatment.
port of entry
any place when customs or immigration authorities permit the entry of goods or people
General rule of interpretation
guide at beginning of tariff schedule used to determine tariff classification
rules of origin
legal rules used to determine the country of origin of imported products.
Column 2 Rates of Duty
rates applicable only to countries not granted normal trade relations
Customs Rulings Online Search System
searchable database of agency rulings from 1989 to presen
informed compliance
the "softer" mechanisms designed to place the burden of voluntary compliance on importers
PNTR(permanent normal trade relations)
what is rate 1 general under the HS?
can assemble, repackage and export w/o paying duties
What are some advantages to FTZs?
value of component parts supplied, tools, engineering and design services, or the value of artwork and sketches performed outside the United States and that are necessary for production
What are common production assists?
non-preferential ROO
apply to imports from all countries with which the importing country has normal trade relations (NTR), and are consistent with World Trade Organization (WTO) obligations.
composite goods
articles made of different materials or components
Energizer Battery v. United States
case involving assembly of flashlights in Vermont w/ parts from China -importer appeal b/c chinese made flashlights didn't qualify for sale under Buy American Act -court concluded that due to simplicity of assembly, it did NOT undergo sub. transformation (originated in China)
liquidation
final computation and assessment of the applicable duty on entered goods by Customs. (hv 314 days to do it) This "closes the book," making the entry complete. -importer has 180 days to challenge
True- new article doesn't need to be labeled with a foreign country of origin
(T/F)If an imported article is converted, processed, or combined with other articles or ingredients in the United States so that it undergoes a substantial transformation resulting in a new article of commerce with a new name, character, or use, then the new article need not be labeled with a foreign country of origin
Apple Watch customs ruling
(essential character) Apple watch: Is it a radio transceiver or a watch? Apple worried that customs word designate them watches (high tariff rates) Argument for transceiver: principal use is receiving messages and email (radio transceiver) -customs decides aw is substantially diff from wrist watches due to electrical functionality
same-condition drawback
A drawback of duties paid on imported goods that are re-exported in the "same condition" as they were imported, provided they were not significantly altered.
Automobiles major import in USMCA countries (formerly NAFTA) Certain percentage has to be made within USMCA to not get tariffs
How does RVS apply to automobiles in US?
rule of relative specificity
If an article can be classified under two or more headings or subheadings, it must be classified under the one that most specifically—most narrowly—describes the article with the greatest degree of accuracy and certainty
essential character
If two or more headings or subheadings each describe only certain materials or components in composite goods, the article must be classified under the heading that describes the material or components that give the article its
general rates of duty (column 1)
The tariff rate for countries that the US has "normal trade relations" with
Operation Mega Flex
Trump was running for election and wanted show pushback on exports, political decisions can drive regulations -designed to be marketed as promotional material for his administration
tariff schedule
a listing of specific items, coded numerically and described by name or use
global supply chain
a network of a firm's outsourcing suppliers and contractors
tariff engineering
a process of minimizing the impact of tariffs by modifying the form in which the product is imported
manufacturing drawback
a refund of duties and taxes paid on merchandise that is imported, subjected to manufacture or production, and then exported within five years
U.S. Bureau of Customs and Border Protection
agency that assesses and collects tariffs and administers duty-free zones
specific processing rules
an item originates in a country if it was subjected to specific forms of manufacturing or processing in that country
preferential ROO
apply to FTAs such as the United States-Mexico-Canada Agreement (USMCA) and certain nonreciprocal trade preferences, like the African Growth and Opportunity Act (AGOA -important because they ensure only eligible trading partners receive the tariff benefits of the special program or FTA.
Title 19, Section 1592 of US Code
basic enforcement and civil penalty provisions of the customs laws -offenses set out here are civil violations calling for civil penalties imposed administratively by Customs.
contract manufacturing
business arrangement in which the production of goods is contracted or "outsourced" by one firm to a manufacturing firm, often overseas.
transshipment
changing country of origin to avoid tariffs and quota limits
gross negligence
clear and convincing evidence that the act or omission was done with actual knowledge or reckless disregard for the relevant facts and with disregard for the importer's obligations under the law.
compound tariff rate
combination of both ad valorem and specific rates
country of origin
country from which an imported article is said to have originated according to specific rules, known as rules of origin
Foreign trade zone
designated geographic region through which merchandise is allowed to pass with lower customs duties (taxes) and/or fewer customs procedures
informal entry
entry for Personal and commercial shipments valued at $2,500 or less, surety bond is not required for informal entries, and import duties are payable immediately at the time of entry
mitigating factors
erroneous advice from a Customs official, cooperating with the investigation, bringing the error to Customs' attention and voluntarily paying the duty, or a prior good shipment record
production assists
goods, services, or intellectual property furnished by the importer to a foreign producer, free or at a reduced price, for use in producing merchandise for import and sale in the US
Statute of Limitations
government is barred from bringing any action to collect an import duty after five years from the date of the violation involving negligence or gross negligence or five years from the date of discovery of a violation involving fraud.
originating goods
imported products must "originate" in one of the partner countries by satisfying one of three conditions. They must be: (1) grown, harvested, or fished in the FTA region; (2) produced in the FTA region using only materials made in the FTA region; or (3) produced in the FTA region with non-FTA country components while meeting additional product-specific ROO requirements.
cumulation
producers in FTA countries may manufacture goods from parts originating in more than one FTA country and the end product will still receive duty-free FTA status.
drawback
refund of duties already paid on imported goods when the goods (or other goods manufactured from the original goods) are reexported or destroyed.
"Made in the USA" Rules:
regulated by FTC, mandatory for textiles, NAFTA auto % and assembly disclosure
1994 WTO Agreement on ROO
requires WTO members not to use ROO to disrupt trade, to apply ROO in a consistent, transparent, nondiscriminatory, and reasonable manner, and to notify other members about any rule change
regional content value rule
requires that a minimum percentage of the product be produced in the FTA region.
tariff shift rule
rule stating that country of origin is the last country in which all "inputs" (raw materials, component parts, etc.) into the finished article underwent a required change in tariff classification.
specific tariff rate
specified dollar amount per piece, or unit of weight or measure
title 18 Chapter 27 of US Code
specifies a range of criminal activities, including the use of false or fraudulent customs documents, destroying invoices on imported goods to cover up a fraud, making false statements to a Customs officer, smuggling, conspiracy, money laundering, and many other acts
prior disclosure
statute to encourage importers to voluntarily report their own possible violations of the customs laws. If an importer admits its mistake and informs Customs of a possible violation before learning that it is being investigated, the penalties are limited.
entry process
used for customs authorities to determine whether any import prohibitions or restrictions apply to the goods, whether the goods are subject to any other laws or regulations affecting their entry (e.g., such as product labeling, etc.), and whether any tariffs or import duties are due.
domestic or regional value content test
value-added test that requires that some minimum percentage of the value of materials and direct processing operations be performed in a country in order for it to have "originated" there.
1) unmarkable objects 2) products that cannot be marked without injury, (3) crude substances, (4) articles produced more than 20 years prior to importation, (5) articles imported solely for the use of the importer and not intended for resale (6)certain products of the United States that are exported (e.g., for repairs) and returned.
what articles do not require marks?
(1) the classification and numerical coding of the article, (2) the customs value of the article, and (3) the country of origin of the article.
what factors determine dutiable status
one or a combination of the following rules of origin apply: (1) the tariff-shift rule, (2) the domestic or regional value content rule, and (3) specific processing requirements.
what happens if imported items consist of materials from diff countries when qualifying for tariff pref?
imported article may be marked or labeled as "assembled in" the country of final assembly
what happens to imports that are substant. transformation per specific marking rules?
Trade Preference Program countries
what is rate 1 special under HS?
Countries with no PNTR such as Iran and North korea
what is rate 2 under HS?
when an article is imported into the United States after having been assembled in a foreign country from components originating in different countries.
when do specific marking rules apply?
1) The goods have arrived at a U.S. "port of entry." 2)The goods are not of a type that is not permitted entry or from an embargoed country. 3) Delivery is authorized by Customs after inspection and release. 4) Estimated duties have been paid or a customs bond posted.
when have goods officially entered the US?
civil customs fraud
where there is clear and convincing evidence that the importer knowingly (or with wanton disregard for the facts) made a materially false statement or omission while entering or attempting to enter goods into the United States
aggravating factors
withholding evidence, providing misleading information, prior improper shipments, and illegal transshipments to hide the actual country of origin
substitution drawback
Duties paid on imported goods may be received by a U.S. firm that imports goods and then exports other goods of the "same kind and quality "
true
T/F) The actual use of an item must be noted in U.S. customs documentation at the time of entry, the imported article must actually be used in that manner, and the use must be verifiable for three years after entry.
Atl, savannah and brunswick
What are 3 FTZs in GA?
Nissan Motor Mfg. Corp., U.S.A. v. United States
(FTZs) Nissan had FTZ in Smyrna Tennessee imported machinery -customs ruled that production equipment was not "merchandise" and therefore dutiable -duties assessed at 3 mill so Nissan files protest -CIT says equipment is dutiable and appeal filed Decision: lower court affirmed b/c machinery entered into FtZ was for us in manufacturing NOT merchanise and therefore was dutiable
Otter Products, LLC v. United States
(Item classification) otter products imports phone cases for smartphones -customs classified it within briefcase category with higher duty of 53% -otterbox argued they should be under classification of ''other articles of plastic'' which is way lower duty rate of 20% -Otterbox protests and files with Court of Intl trade Decision: in favor of Otter Products b/c product is not listed by name (under Heading 4201) and they are not "similar containers'' to other items on list
True- Identifying an imported fabric as "100 percent cotton" when in fact it is made of a blend of cotton and silk would be material (and false) even though it may or may not actually result in a change in the rate of duty collected. The violation occurs whether the false statement was made intentionally or negligently
(T/F) A false statement can be material even if it does not actually cause a change in the rate of duty
True
(T/F) Every article of foreign origin imported into the United States must be legibly, indelibly, and permanently marked in English in a conspicuous place and in such a manner as to indicate the name of the country of origin of the article to the ultimate purchaser in the United States (unless if falls within an exception, below).
True- Examples include separate payments (i.e., license fees) made to the holders of copyrights, trademarks, or patents for the privilege of importing merchandise subject to those rights, and design and engineering fees paid to foreign firms separately from payments to the actual producer of the product
(T/F) If, as a condition of purchasing goods, an importer is required to make certain payments to foreign parties other than the seller, those payments may be included in transaction value.
Better Home Plastic Corp v. United States
(essnetial character test) Better homes imports shower curtains with outer textile curtain, plastic liner and hooks -customs classified merch as ''Curtains and interior blinds'' -BH argued it should be under household and toilet articles Decision: when articles are in sets, their parts are referred to in 2 equally specific subheadings, then rule of relative specificity doesn't apply and must be determined via essential character AND the shower lien imparted essential character to the set thus sided with BH
United States v. Golden Ship Trading Co.
(negligence) Importer buys 3 shipments of t-shirts from guy claiming they were from DR customs discovered tshirts made in China and shipped to DR for sleeves to be attached with "made in DR labels" -chinese made shirts require a textile visa -gov't alleged importe acted negligently and sough penalties -importer doesn't dispute country of origin as china but DOES deny negligence (blames it on guy for duping her) Decision: importer didn't use reasonable care b/c she didn't verify entry documents- burden shifted to her (not guy) -ignorance is NO excuse
Carl Zeiss, Inc. v. United States
(rule of relative specficity) Zeiss imported equipment for neurosurgery -customs classified stuff under Heading 9011 for microscopes for photography to which Zeiss disagreed bc they were medical -brought to CIT and held for gov't appealed by Zeiss Decision: affirmed gov't, ZMS 319 met description of compound microscope but also is a medical appliance so court can deicide where it fits-- heading 9011 more specific and accurate
Ferrostaal Metals Corp. v. United States
(sub. transformation) FMP used steel sheets imported from Japan but galvanized in NZ so identified NZ as country of origin -customs ruled that it was japanese b/c galvanization was just a finishing process NOT sub. trans. Decision: jap steel galvanized in US has been substantially transformed
False- it does so long as there's no fraud or deception
(t/F) Tariff engineering doesn't permit importers to enter their goods at any step in the manufacturing or assembly process in order to obtain a lower rate of duty even though further postimportation work or processing will be done in the United States
True
(t/f) A leather handbag is wholly obtained from a country only if the leather is from an animal born and raised there, all other components or materials originate there (other than minor or insignificant components), and all of the production and assembly takes place there.
Buy American Act
- government procurement preferences substantially all" - 50% USA content and assembled in USA (Eisenhower) 95% for iron / steel and 55% for others, bigger preferences (Trump, proposed
Anheuser-Busch Brewing v. US
1908 US SC ruled that imported cork hadn't been subs. tranformed when it was cut into pieces to bottle beer
binding ruling
A determination, made by U.S. Customs, and only applicable to the United States, that classifies a specific product and assigns it a tariff rate before the goods are imported. The ruling is binding on U.S. Customs, which means that it cannot "change its mind" after the product is imported.
commercial invoice
A statement prepared by the seller of merchandise addressed to the buyer showing a detailed listing and description of merchandise sold, including prices and terms
European Union Rules of Origin
EU's non-preferential rules system using more objective rules, including the tariff-shift, value-added, and specific processing rules for its non-preferential rules. In the EU, these are now called "List Rules."
Tariff-shift Rule (change in HS code)
Tariff classification change shows that components have been sufficiently transformed to allow them to qualify for a change in HTS code
National Juice Products Association v. US
U.S. company imported evaporated orange concentrate and blended it with water, orange oils, and fresh juice in the United States to make the frozen orange concentrate -court held that the original, imported evaporated orange concentrate imparted the "essential character" to the completed orange juice and thus was not substantially transformed into a product of the United States, and therefore had to be labeled as a product of a foreign county.
intentionally giving a phony description of the goods, understating their value by submitting a fake seller's invoice, concealing money paid to the seller, or altering the country of origin listed on a document.
What are examples of civil custom fraud
Manufacturing drawback - input products• Same-condition drawbacks - rejected merchandise• Substitution drawback - fungible goods
What are some drawbacks to FTZs?
1-determine the meaning of specific terms in the tariff provisions (question of law) 2- see if the merchandise in question falls within the meaning of those terms (ques. of fact)
What are the steps to classifying an article?
-New chemical properties/ chemical rxn -Change in tariff category "tariff shift" -primary use change - marketed as a diff product? -Cost of transformation -value added
What factors determine substantial transformation?
Last pace of tariff shift=subst. Transformation
What is Eu rule on substantial transformation?
1) while Customs rules apply only to product marking, the FTC rules apply to all claims 2)while U.S. Customs enforces the trade and tariff laws, the FTC's statutory authority is to prevent misleading or deceptive claims or practices 3)hile Customs oversees foreign country of origin marking (e.g. "Made in China"), the FTC regulates the use of the term "Made in U.S.A
What is the difference btwn FTC and US Customs jurisdiction?
the offense resulted from negligence, gross negligence, or fraud
When does a false statement NOT count as a violation?
yarn forward rule
Wherever yarn was spun, that is country of origin If shirt was made in bangladesh but sleeves stitched in US (this doesn't count as substantial transformation)- still product of bangladesh
determined by the exporter or supplier and is stated in a country of origin certificate or similar document provided to the buyer or importer. However, it is the importer who must use reasonable care in submitting a correct certificate of origin.
Who determines country of origin?
Heartland By-Products, Inc. v. United States,
importer added molasses to sugar syrup in Canada and removed it after the syrup was imported into the United States. The syrup with molasses entered free from U.S. tariff-rate quotas on sugar syrup imports. Customs maintained that there had been no other purpose for adding molasses except to avoid the quota, that the molasses was a "foreign substance," and that adding it was not a "genuine step" in the manufacturing process
Harmonized Commodity Description and Coding System
international agreement developed by the World Customs Organization (WCO -standardizes the nomenclature used to identify, describe, and classify goods
foreign trade zones
legally defined sites—warehouses and manufacturing facilities—operated pursuant to legislation and under government license, that are legally "outside" the customs territory of the country they are in
qualified claim
marking or product description may refer to a specific process or part, such as "Designed by XYZ in California, Assembled in China" or "Made in China, Seat of Italian Leather
build-down method
method for RVC by subtracting nonoriginating costs from adjusted value of finished product
build-up method
method for estimating RVC by calculations add together the costs originating in the FTA region, including factory, parts, labor, insurance, packing, and transportation, duties, taxes, customs brokerage fees, and waste/spoilage of production material.
net cost method
method of calculating RVC by capturing direct manufacturing costs per unit
negligent violation
mporter fails to use reasonable care, skill, and competence to ensure that all customs documents and statements are materially correct and all laws are complied with punishment: pay 2x duty loss or full value
Customs Modernization and Informed Compliance Act of 1993
ntroduced the doctrine of informed compliance, which shifted to the importer a major responsibility to comply with all customs laws and regulations. It requires that importers, customs brokers, and carriers use reasonable care in complying with the law, in handling all import transactions, and in preparing all documentation for entered goods
substantial transformation
occurs when the processing of an article results in a new and different article having a distinct name, character, or use; occurs when an HS classification changes
