Chapter 12: Imports, Customs, and Tariff Law

Ferrostall Metals Corp. v. United States case

Japanese steel that was galvanized in New Zealand was substantially transformed into a New Zealand product (and therefore not subject to existing trade restraints in place between U.S. and Japan)

Required Documentation:

Required Documentation: When goods are presented for entry, the required entry documents listed below must be filed within 5 days (1) An entry manifest or merchandise release form (2) U.S. Customs Entry Summary Form (3) Proof of the right to make entry (a bill of lading, air waybill, or carrier's certificate) - (4) The commercial invoice issued by the seller - (5) Packing slips which identify the contents of cartons - (6) Other documents required by special regulations (e.g., certificate of origin)

Otter Products, LLC v. U.S.

(this case decided by the U.S. Court ofInternational Trade (based in New York) illustrates the problem of classifying an item that most of us know, but which is not specifically described in the tariff schedule) Otter Products makes protective cases for smartphones (most are manufactured in Asia and imported into the United States) How to classify the Otter cases for tariff duty assessment purposes??Are they? - U.S. Customs classified the Otter cases under tariff schedule subheading 4242.9900 (including trunks, suitcases, vanity cases, attache cases, briefcases...and other similar containers), - =20% duty assessment Otter argued that subheading 3926.90.9980 applied ("OtherArticles of Plastic") - =5.3% duty assessment Court ruled for Otter Products (decision later upheld on appeal to the U.S. Court of Appeals for the Federal Circuit based in Washington DC)

Articles Produced in Multiple Countries: "Substantial Transformation"

- Case-by-case analysis - Did the original article lose its identity as such and was transformed into a new and difference article? - Was there a change in the "name, character, or use" from that of the original item? - The extent and nature of the value-added operations performed - The 'value-added' during processing relative to the value of the imported components - Whether the tariff classification of the finished article is different from that of the article's components

Rules of Origin

- Country of Origin (all goods have a type of economic "nationality"): - Rules of Origin are the legal rules used to determine the country of origin of imported products (the rules are found in trade agreements, national statutes, and the regulations of customs authorities). *But there is little consistency between countries concerning these rules

National Juice Products case

- Court held that adding water and orange oils to juice concentrate did not transform the product for "origin" purposes. (WTO Agreement on Rules of Origin: "long-term"project has been under development since 1995)

Payment of Duties

- Deposit estimated duties, or - Post a customs bond

Marketing and Labeling of Imports Into United States

- Every article of foreign origin imported into the United States must 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 - The ultimate purchaser is the last person in the United States who receives the article in the form in which it is imported Special marking requirements for assembled articles: - If the assembly amounted to a 'substantial transformation', the imported article may be marked or labeled as 'assembled in [the country of final assembly], or assembled in the country of final assembly "from components of [country or countries of all components]" - Many categories of articles do not require marking (or would be impossible to mark) such as works of art, unstrung beads, nuts, bolts, cigarettes, eggs

Free Trade Zones

- Free Trade Zones (FTZs) are legally defined sites - warehouses and manufacturing facilities - operated pursuant to legislation and under national government license, that are legally "outside" the customs territory of the country they are located in. - FTZs are a duty-deferral and duty-saving device. Imported goods may be brought into an FTZ without being subjected to tariffs until such time as the goods are released into the stream of commerce of that (or another) country. - Foreign goods that are entered into an U.S. FTZ and then 'substantially transformed' into a new product can be entered into the United States at the tariff rate applicable to the new product or to the original goods, whichever is less. Goods may be reexported from a zone without the payment of duties. - Many opportunities for creative importing strategies (e.g., Cape Canaveral FTZ in Florida where foreign payloads have been imported by the FTZ, made ready for a space launch, and then "reexported" into space without the payment of U.S. import duties)

Liquidation and/or Protest

- Liquidation: final computation and payment "closes the book" on the transaction - Time limits on liquidation: within one year of entry. - Protesting liquidations: must be made within 90 days of import entry

The country from which an imported article originates determines...

- Normal tariff rate on an import - Whether an import is subject to a preferential tariff rate - Whether the import is subject to antidumping or countervailing duties - Whether the import is subject to a quota, embargo, or other trade restriction - The applicability of government procurement rules - Whether there are any health or safety issues (such as stopping infectious diseases) - The proper country of origin marking or labeling on the product

Dutiable status of goods determined by three factors:

- Tariff classification and numerical coding of the article, - Customs value of the article, and - Country of origin of the article. The first step in determining the dutiable status of an article is to locate the good or item in the tariff schedule of the country of import

Dutiable Status of Goods

- The "dutiable status" of goods (aka "articles" or "items") refers to the legal status of imported goods at the time of entry for purposes of compliance with applicable tariff and customs laws

Administration of Customs and Tariff Laws

- The customs and tariff laws of the United States are administered and enforced by the U.S. Bureau of Customs and Border Protection, an agency within the Department of Homeland Security U.S. Customs is divided into seven regions, then further divided into districts - Customs offices are located at ports of entry to U.S.,(e.g., major seaports, airports, and border crossings) - Within each district are field import specialists who can seek advice from national import specialists

The Tariff-Shift Rule

- The tariff-shift rule states that the 'country of origin' is the last country in which all "inputs" (raw materials, component parts) into the finished article underwent a required change in tariff classification - Utilized in the North Atlantic Free Trade Agreement (aka US-Mexico-Canada Agreement) - Tariff-shift rule considered by WTO to be more objective and certain than other rules (particularly given the fact that most WTO countries use the harmonized tariff classifications on which the tariff-shift rule in based)

FTC "Made in the U.S.A" Rules

- U.S. Federal Trade Commission ("FTC") Rule - if a label states "Made in USA", it means, "all or virtually all" of the materials, processing or component parts are made in the U.S. and that their final assembly or processing took place in the United States - Only negligible foreign content permitted - "all or virtually all" is a very high standard! - California: 95% rule

The Rule of Relative Specificity

- Where a product is prima facie ('on its face") classifiable under two or more tariff classification headings, the Rule ofRelative Specificity requires that the item be classified under the heading that most specifically - and most narrowly -describes the article with the greatest degree of accuracy and certainty. - A description by name or use is more specific than a description of aclass or category of goods. (For example, tools used by a hair stylist would beclassified as "shavers and hair clippers" under heading 8510 because thisdescription is more specific than "electromechanical tools for working in thehand with self-contained electric motor" under heading 8508)

Dutiable Valuation of Goods

Customs Valuation (must be reported at time of entry) - "Dutiable value" equals transaction value or price actually paid or payable for goods when sold for export to the United States. Dutiable value is taken from Seller's commercial invoice, and includes: - Price to be paid by buyer for the items and services referenced on seller's detailed invoice - selling commission, if any, paid by buyer, - Royalties that buyer is obligated to pay, if any - proceeds of any resale that accrues to buyer. - No duty imposed on freight or marine insurance.

Better Home Plastics Corp. v. U.S.

Existing precedents required the Court to apply the "essential character" test (applicable to "goods put up insets for retail sales") in making its decision. - The "essential character" is the part of an item that provides something important or even indispensable to the item. - Here, the court found that the inner plastic lining of the curtain set both protected the outer fabric item and also stopped water from escaping from the shower...the inner lining was the "essential character." Therefore, the curtain set was properly classified under tariff heading 3924.90.10 (5.3% duty)

Dutiable Status of Goods: Tariff Engineering

Tariff engineering is the process of (i) modifying or engineering a product prior to importation, or (ii) importing it at an earlier stage of manufacturing, for purposes of obtaining a lower rate of duty - Importers are free to engineer a product or import it at any step in the manufacturing or assembly process in order to take advantage of the tariff laws (even though further post-importation work or processing will take place in theUnited States) *But imported article cannot be a "fictional" product or imported by"disguise and artifice"

The Formal Entry:

The Formal Entry: Administrative process required for the importation of goods into the customs territory of a country. Imported goods have officially "entered" when: - The goods have arrived at a U.S. "port of entry" - The goods are not of the type that is not permitted entry or originates from an embargoed country - Delivery is authorized by Customs after inspection and release - Estimated duties have been paid or customs bond posted *Note that goods may be entered by a customs broker (an authorized agent, licensed by federal law, to act for and on behalf of importers in making entry of goods)

Dutiable Status of Goods part 2

The General Rules of Interpretation (found at the beginning of the tariff schedule guide interpretation and meaning of specific terms...using these rules requires specialized training and experience such as customs broker or customs attorney) Classifying an article is a "Two Step Process": 1. Determine meaning of specific terms in the tariff provisions ("question of law") 2. Does the merchandise in question fall within the meaning of these terms? ("question of fact") Articles are described or designated on a country's tariff schedule in different ways: - By name (an "eo nomine" provision) - By description of the article's physical characteristics - By description of the article's component parts - By the article's use In the U.S., terms used to describe an article in the schedule are interpreted according to their common and commercial meaning, unless a different scientific meaning is more applicable.

Non-Preferential Rules of Origin

The country of origin is not merely the country from which the goods are purchased, or from where they are shipped, or where they are subjected to some superficial processing...without rules of origin, the tariff system would quickly fall apart. - General Wholly Obtained Rule: if an item is wholly grown, produced, or manufactured in one country, then that country is the country of origin

Harmonized Commodity Description and Coding System

The tariff schedule of virtually all nations is based on the Harmonized Commodity Description and Coding System, an international agreement developed by the World Customs Organization (WCO), an intergovernmental organization located in Brussels with 180 member nations. WCO revises the harmonized schedules every five years (most recent revision in 2022) The Harmonized Tariff Schedule utilized by the United States (HTSUS) divides products into several thousand items ranging from basic commodities and agricultural products to manufactured goods. The tariff rate for each item is dictated by the country of origin. HTSUS is organized into 22 sections and 99 chapters, each covering different kinds of goods and arranged in progression from crude materials, livestock, and agricultural products through manufactured goods such as vehicles, aircraft, etc. and their component parts... see Exhibit 12.1 *Tariff rates are not set by the Harmonized Commodity Description and Coding System. Indeed, tariff rates for each country can be very different and are determined by each nation's tariff schedule

Dutiable Status of Goods

Types of Duties - Ad valorem rate (% of customs value) - Specified dollar amount per piece, or unit of weight or measure ("specific tariff rate") - Compound tariff rate is a combination of both ad valorem and specific tariff rates. Duty Rates (See Ex. 12.1; Harmonized Tariff Schedule of the United States) - General Rates apply to imports from countries with"normal trade relations" with the United States - Special Rates cover imports under a tariff preference program (e.g., such as developing country participants in the Generalized System of Preferences)

Preferential Rules of Origin

U.S. "preferential rules of origin" are found in the trade agreement or tariff program that creates the preference (and can vary from program to program) In order to quality for a tariff preference, an item imported into the U.S. must be "wholly obtained" from the country qualifying for the preference. But if the imported item consists of material from more than one country, or results from processes in more than one country, than one or a combination of the following rules of origin apply: - the Tariff-Shift Rule - domestic or regional content rule - Specific processing requirements

Carl Zeiss, Inc. v. United States

Zeiss, a well-known German optical company, imported to the U.S. ZMS 319 microscopes, stands and accessories, including a camera, all tailored for neurosurgical use. Two possible tariff schedule headings applied: - U.S. Customs Position: Heading 9011 should apply: "Stereoscopic compound microscope with a means for photographing the image..." - Zeiss Protested and Argued that Heading 9018 should appy: "Instruments and appliances used in medical, surgical, dental and veterinarian sciences, including scintigraphic apparatus, other electro-medical apparatus and sight-testing instruments..." U.S. Court of Appeals for the Federal Circuit Decision: Both headings applied but Heading 9011 (urged by U.S. Customs) controls because the description "compound optical microscopes" more specifically describes the merchandise than "instruments used in medical and surgical sciences."

Importing

the entering of goods into the customs territory of a country. All commercial shipments must go through an administrative entry process supervised by national customs authorities and informally referred to as "clearing customs" Importing is often part of a global company's larger operation and international business strategy (e.g. apparel designers) The purpose of the entry process is for customs authorities in the country of import to determine (1) whether any import prohibitions or restrictions apply to the goods (2) whether the goods are subject to any other laws or regulations affecting their entry (such as product labeling), and (3) whether any tariffs or import duties are due. This requires that the importer and the customs authorities know (1) the applicable tariff classification, (2) the customs value of the goods, and (3) the country of origin of the goods.