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