LEGL 4900 TEST 3 - CH. 12

Rules of origin are used to determine:

-the normal tariff rate -preferential status -whether an import is subject to antidumping or countervailing duties -whether an import is subject to a quota, embargo, or other trade restriction -health and safety issues -proper country of origin -statistical information

Limits to Tariff engineering

-there cannot be fraud or deception -the article is imported and cannot be a fictional product - cannot be imported by disguise and artifice -goods must be correctly described on the entry of documents -ex: molasses added to sugar syrup in Canada to get molasses into the US with no duty

what will courts look for in substantial transformation

-there was a change in the "name, character, and use" -the extent and nature of the operations performed -the value-added during processing relative to the value of the imported components -tariff classification is different from the components

Most serious material duty violations

-undervaluation -incorrect description -misstatements as to country of origin

contract manufacturing

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

Federal Trade Commission

a federal agency established in 1914 to investigate and stop unfair business practices

Rejected merchandise drawback

allowed for imported merchandise that was shipped without consent, is defective, or does not conform to specifications to samples. returned to customs within 3 years and either destroyed or reexported

Drawback provisions

allowing a refund on duties paid. tariff program created by law to encourage import/export trade

global supply chain

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

Harmonized Commodity Description and Coding System (HS)

an international agreement developed by the World Customs Organization (WCO) that has an international tariff schedule.

specific processing requirements

an item originates in a country if it was subjected to specific forms of manufacturing or processing in that country (used in textile industry)

port of entry

any place when customs or immigration authorities permit the entry of goods or people

Composite Goods

articles made of different materials or components. articles must be classified under the heading that describes the material or components that gives the article its essential character

How are imports described?

by name, description of physical characteristics, description of component parts, and use

Same condition drawback

duties paid on imported goods may be received by a US firm that imports goods and then exports other goods for the "same kind and quality" (usually fungible goods)

prior disclosure

enacted by congress to encourage importers to voluntarily report errors

US Harmonized Tariff Schedule

enacted in 1989 and maintained by the International Trade Commission. There are several thousand tariff classifications in 22 sections and 99 chapters available on ITC website.

importing

entering of goods into the customs territory of a country

marking and labeling of imports

every article of foreign origin that is imported into the US must be legibly, indelibly, and permanently marked in English, in conspicuous place, in a manner to indicate the name of country of origin

civil customs fraud

far more serous than negligence. where there is clear and convincing evidence that the importer knowingly made a materially false statement or omission while entering or attempting to enter goods into the US

liquidation

final computation and assessment of the applicable duty on entered goods by customs. closes the book making entry complete

production assists

goods, services or intellectual property furnished by the importer to foreign producer, free or at a reduced price, for use in producing merchandise for import into the US. might be provided when a foreign firm needs special equipment or machinery to manufacture special goods

statute of limitations in trade law

gov. is barred from bringing any action to collect an import duty after 5 years from the date of the violation involving negligence or gross negligence 5 years from the date of discovery of a violation of fraud

ultimate purchaser

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

specific tariff rate

specified dollar amount per piece of unit of weight or measure

dutiable status

the legal status of imported goods at the time of entry for purposes of compliance with the tariff and customs laws

transactional value in US

the price actually paid or payable for the merchandise when sold for export in the US

What happens if goods are not processed within 15 days?

they are sent to a warehouse as unclaimed freight

Preferential Rules of Origin

those applicable to goods traded within a free trade area or customs union, or that receive preferential tariff treatment under trade preference programs for developing countries

non-preferential rules of origin

those applicable to imports from developed countries that receive normal tariff treatment (US and Europe or US and China) Used to calculate antidumping and countervailing duties and enforce trade embargoes

Original rates from Smoot Hawley Tariff Act of 1930

today are applicable only to g=countries not granted normal trade relations (column 2)

Actual Use

use to which the article is actually put. must be noted in the US customs documentation at the time of entry. The imported article must actually be used in that manner. Use must be verifiable for the three years after entry

the domestic or regional value content rule

value added test. 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". used to determine whether a vehicle originates in North America under NAFTA

Anheuser-Busch Brewing Association v. United States

· A cork put through the claimant's process is still a cork · Something more is necessary · There must be a transformation; a new and different article must emerge, having a distinctive name, character or use

the tariff shift rule

the country of origin is the last country in which all inputs into the finished article underwent a required change in tariff classification. advantage over other rules because it is more objective and more certain. basis of internationally accepted rules because most use the harmonized tariff classifications on which the rule is based. favored by WTO

General rule of non-preferential rules of origin

the country of origin of an article imported into the United States is the country in which the article was wholly obtained or where the article last underwent a substantial transformation

Customs value

the dutiable value must be reported by the importer-of-record to national customs authorities at the time of entry

Articles that do not require marks

-products incapable of being marked (art, beads, nuts, bolts, cigs, feathers, livestock, vegetables) -products that can't be marked without injury -crude substances -articles produced more than 20 years prior to importation -articles imported solely for the use of the importer and not intended for resale -products of the Us that are exported and returned

An import does not need a label if.

-imported article is converted, processed, or combined with other ingredients in US -undergoes a substantial transformation resulting in a new article of commerce with a new name, character, or use

additional charges to transactional value if not included in the purchase price

-packing and container costs -selling commission paid by the buyer to or for an agent of the seller - the value of any assist -any royalty or licensee fee that the buyer is required to pay as a condition of the sale -the proceeds of any subsequent resale of the merchandise that accrues the seller

commercial invoice

-required for all shipments intended for sale or commercial use in the US -must provide all pertinent info about shipments in English and be signed by seller. -one invoice can be used for the same shipments to the same signee if they arrive within 10 days of each other

Customs Modernization and Informed Compliance Act of 1993

- introduced the doctrine of informed compliance - 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 - "Reasonable care" - more than simply being careful.

what you must determine before importing

- whether any prohibitions or restrictions apply - whether the goods are subject to other laws or regulations affecting their entry - whether any tariff or import duties are due

dutiable status 3 factors

-Classification and numerical coding of the article - Customs value of the article - Country of origin of the article

Enforcement of Penalty Actions

-US customs brings suit to Court of International Trade -must have burden of proof

Seller cannot claim "Made in USA" unless

-all or virtually all of the materials, processing, or component parts are made in US -final assembly in US -if less than 5% of final wholesale value is made outside the US

Process of classifying an article

1. Determine the meaning of specific terms in the tariff provision (Judicial opinions) 2. See fi the merchandise in question falls within the means of the terms

US requirements for goods entering the country

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

Better Home Plastics Corp v. United States

ASSEMBLED PRODUCTS CASE· Court had to determine whether shower curtain sets were classified under the head "curtains" or under "tableware, kitchenware, other household articles of plastic" · Curtains had a much higher duty · Decision: "When articles are made up of component parts, or are in sets, and their parts are referred to in two equally specific headings, then the rule of relative specificity does not apply, and their classification must be determined by which part gives the article its essential character. In this case, the shower liner imparted the essential character to the set" · Better home won

customs broker

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

Energizer Flashlight v. US

Assembled parts requirement case -Energizer flashlight mostly assembled in China -Shipped to US for final assembly - Courts rule that China gets origin

Substantial Transformation Labeling

Assembly resulted in 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]."

The US Bureau of Customs and Border Protection

Assesses and collects tariffs and administers duty-free zones. Agency within the department of homeland security. Responsible for stopping terrorists, weapons, illegal drugs, traffickers, enforces the customs and immigration law at border, combats smuggling and investigates tariff fraud cases

Otter Products, LLC. v. US

CLASSIFICATION CASE. Problem of classifying an item that most of us know but that is not specifically described in the schedule · In the case customs classified the item as a briefcase or similar container o 20% duty · Otterbox argued that the cases should be considered an article of plastic o 5.3% duty · Court agreed w otterbox

First step of determining dutiable status

Determining tariff classification

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 (narrowly) describes the article with the greatest degree of accuracy and certainty Common with goods that are made of several materials or components. (ex: Shower curtain)

Gibson, Thompson, Hou and Bushman 2014

Issue: Does the combining of foreign made golf club head and shaft with US grip constitute a substantial transformation? Decision: NO

Examples of countries with special tariff rates

North Korea and Cuba

Ferrostaal Metals Corp v. United States

TRANSFORMATION · steel from japan that was galvanized in NZ prior to importation to US · Customs said steel was from china · Appealed and said no it was transformed in NZ · Court agreed with appeal - "Japanese steel that had been galvanized in New Zealand prior to its importation into the United States was substantially transformed so that it had become a product of New Zealand and thus was not subject to voluntary restraint agreements between the United States and Japan"

U.S. Immigration and Customs Enforcement (ICE)

The federal agency that enforces the nation's immigration and customs laws.ICE is also within Homeland Security. has immigration responsibility elsewhere in the country

compound tariff rate

combination of both ad valorem and specific rates

notice of adjustment

customs decide more duties are owed

Negligent violation

importer 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. penalties can be severe

Payment of duties

importer must deposit estimated duties with customs at time of filing the entry documents or the entry summary form

World Customs Organization (WCO)

intergovernmental organization located in Brussels with 180 member nations that administers the numbering and description of goods listed in the schedule, reviews changes in new technology and new products, and revises the harmonized schedules every 5 years?

Rule of origin

legal rules used to determine the country of origin of imported products. enforced by customs authorities. penalties are harsh if they are purposefully devious

foreign trade zones

legally defined sites (warehouses and manufacturing facilities) operated pursuant to legislation and under gov license that are legally outside the customs territory of the country they are in. tariff program created by law to encourage import/export trade

tariff schedule

listing of specific items coded numerically and described by cause

WTO agreements of rules of origin

longer term project to standardize and simplify the process. determined by a tariff-shift rule

Field Import Specialists

make initial determinations as to the entry of goods

manufacturing drawback

most common type of drawback in US designed to encourage US manufacturers to export. refund of duties and taxes paid on merchandise that is imported, subjected to manufacture or production, and then exported within 5 years

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

principal use

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. used when there are several uses of an article

informal entries

personal and commercial shipments valued at 2500 or less. mail-in shipments are sent to US customs mail branch for clearance

tariff engineering

process of modifying or engineering a product prior to importation for the purposes of obtaining a lower rate of duty. General rule by Supreme Court is an article is to be classified according to its condition at the time it is imported

material

refers to the identify, quality, value, source of country of origin of the merchandise. it affects the rate of duty or items rights to be imported

FTC Made in the USA rules

required for -Automobiles -Textile -Wool -Fur products

General Rule of interception (GRI)

requires specialized knowledge

Ad Valorem Tariff

tariff levied as a percentage of the stated price of an imported product

General Rate of Duty

tariff rate applicable to imports from countries with whom the US has "normal" trade relations (Column 1)

Special rate of duty

tariff rate applicable to imports under one or more tariff preference program (Column 1)

Dutiable status determines:

tariff rate, possible quotas, country of origin marking and labeling

country of origin

that country from which an imported article is said to have originated according to specific rule known as rules of origin

informed compliance

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

Combined Nomenclature of EU

the EU's harmonized tariff schedule where each of the Eu countries maintain their own customs enforcement agency

enforced compliance

the active investigation of customs violations and the prosecution of violators

Formal entry

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

CARL ZEISS INC. V UNITED STATES

· Discusses the RULE OF RELATIVE SPECIFICITY and is one of the most frequently cited cases in this area of the law · Zeiss imported microscopes, stand, and accessories including cameras · Customs classifies it as cameras as means of photographing · Zeiss says no - should be instruments used for medical · Zeiss files protest with Court of international trade who sides with government - zeiss appeals · Decisions - "Customs properly classified the ZMS 319 under Heading 9011 as a "compound optical microscope." Items are to be construed according to their common and commercial meaning."

United States v. Golden Ship Trading Co

· Importer was found negligent in misstating country of origin of t-shirts even though information was coming from the supplier · Decision: Importer did not exercise reasonable care because she failed to verify the information contained in the entry documents

Nissan Motor Mfg. Corp USA v. United States

· Nissans importation of assembly equipment into an automotive manufacturing subzone in Tennessee · Nissans equipment was not merchandise and was therefore dutiable of 3million · Decision: machinery entered into a FTZ for use in the manufacture and assembly of automotive is not "merchandise" under the act and may not be entered duty free

National Juice Products Association v. United States

· 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 you might purchase in a supermarket · court held that the original, imported evaporated orange concentrate imported the "essential character" to the completed orange juice and thus was not substantially transformed into a product of the United States · therefore, had to be labeled as a product of a foreign county

Energizer Batter v United States

· assembly of flashlights in Vermont from parts originating mostly from china · customs held flashlight originated in china · court agreed due to the 7minute assembly process

reasonable care

· must be properly trained and that companies must establish internal controls over import operations to ensure compliance · When requirements are not understood - importer should consult a licensed broker, customs law attorney, or U.S. Customs itself