International Business Law, Chapter 12 - Imports, Customs, & Tariff Law

Country of Origin

Country from which an imported article is said to have originated according to Rules of Origin

WTO Agreement on Rules of Origin

1995 - long term project to standardize and simplify rules of origin

Contract Manufacturing

A business arrangement in which the production of goods is contracted, or outsourced, by one firm to a manufacturing firm - often overseas

Reasonable Care Checklist

A checklist published by Customs to assist less experienced importers a better understanding of their obligation to use reasonable care

Domestic or Regional Value Content Test

A common preferential rule of origin, this is a type of value added test that requires some minimum percentage of value of materials be performed in a country in order for ti to have 'originated' there

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.

Tariff Schedule

A listing of specific items, coded numerically and described by name or use

Prior Disclosure

A statute to encourage importers to voluntarily report their own possible violations of custom laws - enacted by Congress

Negligent Violation

A violation in which the importer fails to use reasonable care, skill, and competence to ensure all customs documents and statements are materially correct and all laws followed. Penalty up to 20% of value of goods.

Rejected Merchandise Drawback

Allowed for imported merchandise that was shipped without consent, defective, or does not conform to samples or specs

Materially False Statements

An act or statement is material if it refers to the identity, quality, value, source, or country of origin of the merchandise; or if it affects the rate of duty or ability to be imported into the US

Customs Broker

An authorized agent, licensed by federal law, to act for and on behalf of importers in making entry of goods

Global Chain Supply

An integrated international network of logistics, communications, finance, and trade relationships designed to take a product from inception through production and delivery to customers

World Customs Organization (WCO)

An intergovernmental organization located in Brussels with 180 member nations

Harmonized Commodity Description and Coding System (HS) "The Harmonized System"

An international agreement developed by the World Customs Organization (WCO) standardizing the nomenclature used to identify, describe, and classify goods

Non-Preferential Rules of Origin

Applicable to imports from developed countries that have normal trade relations

Preferential Rules of Origin

Applicable to: - Goods traded within a free trade area or customs union - Goods imported from countries that receive special tariff treatment - Goods imported under a trade preference program for developing countries

Wholly Obtained

Article was wholly the "growth, product, or manufacture" of one country. Necessary to qualify for trade preference in the US

Composite Goods

Articles made of different materials or components

Ad Valorem Tariff Rate

Based on percentage of value of imported article

Customs Tariff

Canadian version of harmonized schedule, administered by Canada Border Services Agency

Gross Negligence

Clear and convincing evidence that the act or omission was done with actual knowledge or reckless disregard for the facts. Penalty from 40% up to the value of goods.

Compound Tariff Rate

Combination of both ad valorem and specific rates

Dutiable Status

(Goods, articles, items) refers to the legal status of imported goods at time of entry for purposes of compliance with tariff and customs laws

Four ways articles are described in tariff schedules

1. By name (eo nomine provision) 2. By a description of it's physical characteristics 3. By a description of it's component parts 4. By use

Three factors of Dutiable Status

1. Classification & Numerical Coding of article 2. The Customs Value of the article 3. The Country of Origin of the article

Terms used to describe an article in the tariff schedule are interpreted according to:

1. Common & Commercial meaning 2. or Scientific meaning if more applicable

Two Step Process of Classifying an Article

1. Determine the meaning of specific terms in tariff provisions 2. See if merchandise in question falls within meanings of those terms

Types of Rules of Origin

1. Non-preferential 2. Preferential

Limits to Tariff Engineering

1. There cannot be fraud or deception 2. Article cannot be a 'fictional' product 3. Article cannot be imported by 'disguise & artifice' 4. Goods must be correctly described on entry documents

Rule of Relative Specificity

Describes the article with the greatest degree of accuracy and certainty

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 " (usually agricultural commodities)

Foreign Trade Zones (FTZs)

Duty-deferral and duty-saving device. Imported goods may be brought to FTZ without being subjected to tariffs until released into stream of commerce in that country. Warehouses or manufacturing facilities, legally outside of the customs territory of that country

Harmonized Tariff Schedule of the United States (HTSUS)

Enacted in 1989 - maintained by the International Trade Commission. US Tariff Schedule

What are the two approaches used by US Customs to enforce Customs Laws?

Enforced Compliance & Informed Compliance

Informal Entry

Entry process in which personal and commercial shipments valued at $2500 or less may be cleared

Combined Nomenclature (CN)

European Unions' harmonized schedule, maintained by EU countries

Under the FTZ Act, imported equipment may be installed, used, operated, or consumed (True/ False)

False. It may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise, or otherwise manipulated

Liquidation

Final computation and assessment of applicable duty on entered goods by Customs

How long are importers to keep records of all import transactions?

Five years from date of entry. Failure to keep records is punishable by the lesser of a $100,000 fine or 75% of the value of goods.

What is the statute of limitations on Negligence or Gross Negligence?

Five years from the date of violation

General Rules of Interpretation (GRI)

Found at the beginning of the tariff schedule, used to determine a tariff classification

Production Assists

Goods, services, or intellectual property furnished by importer to a foreign producer, free or at reduced price, for use in producing merchandise for importing into the US

Essential Character

Material or components in article used to determine the classification of said article that can be described under two or more subheadings (eg: Apple Watch - watch or iPhone)

Customs Value / Dutiable Value

Must be reported by the importer of record to national customs authorities at time of entry into any country.

Country of Origin is used to determine. . .

Normal tariff rate on an import Whether an import is subject to preferential tariff rate/ increased rate Whether an import is subject to anti dumping duties Whether an import is subject to quota, embargo, or other trade restriction The applicability of government procurement rules Whether there are any health or safety issues Proper country of origin on product Statistical information

Substantial Transformation

Occurs when the processing of an original article results in a new and different article having a distinct name, character, or use; occurs when an HS classification changes. Used with articles produced in multiple countries

Transaction Value

Price actually paid or payable for the merchandise when sold for export to the US, plus the following if not included in price: 1. Packing and container costs 2. Selling commission paid by buyer or agent 3. Value of any assist 4. Any royalty or license fee buyer is required to pay as condition of sale 5. Proceeds of any subsequent resale of merchandise that accrues to seller

Tariff Engineering

Process of modifying or engineering a product prior to importation for the purposes of obtaining a lower rate of duty

Entry Process

Referred to as "clearing customs", purpose of which is for customs authorities to determine whether any import prohibitions or restrictions apply to goods, whether the goods are subject to any other laws or regulations affecting entry, and whether tariffs or import duties are due

Formal Entry

Refers to the administrative process required to import goods into the customs territory of a country

Drawbacks

Refund of duties already paid on imported goods when the goods are re-exported or destroyed. There are no drawbacks allowed to trade between Canada, the US, and Mexico

Manufacturing Drawback

Refund of duties and taxes paid on merchandise that is imported, subjected to manufacture or production, then exported within 5 years

Binding Rulings

Represents the official position of Customs with respect tot he specific transaction for which it was issued. What is the use of the good, in other words

Commercial Invoice

Required for all shipments intended for sale or commercial use in the US

Specific Tariff Rate

Specified dollar mount per piece of imported article, or unit of weight or measure

Tariff Shift Rule

States that a country of origin is the last country in which all 'inputs' into the finished article underwent a required change in tariff classification. More objective and more certain than other rules.

Specific Processing Rules

States that an item originates in a country if it was subjected to specific forms of manufacturing or processing in that country

Informed Compliance

The "softer" mechanisms designed to place the burden of voluntary compliance on importers

Rules of Origin

The Legal rules used to determine the country of origin of imported products. Enforced by customs authorities, penalties are severe for willfully misstating country of origin

Who enforces customs and tariff laws in the US?

The US Bureau of Customs and Border Protection - an agency within the Department of Homeland Security (2003)

Enforced Compliance

The active investigation of customs violations and the prosecution of violators

In which court will Customs bring suit to collect a penalty?

The court of International Trade

Importing

The entering of good into the customs territory of a country

Ultimate Purchaser

The last person in the US who receives an article in the form in which it was imported

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.

Where do you find the basic enforcement and civil penalty provisions of Customs Laws?

Title 19, Section 1592 of the US Code

Examples of Production Assists

Value of Component parts supplied Tools, engineering, & design services Value of artwork and sketches performed outside the US

Civil Customs Fraud

Very serious. Clear and convincing evidence that the importer knowingly made a materially false statement or omission while entering, or attempting to enter good into the US. Penalty - up to 100% of value of goods.

Notice of Adjustment

When Customs determines that additional duties are owed at the port of entry - sent to importer

Use of "Assembled in"

When an imported article's assembly amounts to a substantial transformation, it must be marked "Assembled in" the country of final assembly