The Basics of Importing
Importers and their relationship with U.S. Customs
The U.S. Importer of Record is the party that is ultimately responsible for all of their import transactions. Importers must ensure that all information provided to U.S. Customs is complete and accurate. Considering the complexity of the rules and regulations that govern import shipments Importers need professional assistance to help them in this task. It is wise to seek advice from your Customs Broker, Consultant or a Customs Attorney.
U.S. Customs is primarily a law enforcement agency tasked to keep America safe by keeping our borders secure and to protect the nation’s revenue by ensuring that proper duties are collected on all imported products.
Over 45 U.S. government agencies have oversight governing import shipments and each of these agencies has their own rules and regulations. These rules and regulations can change frequently but the Importer cannot use ignorance of the law as a valid excuse for failing to comply. U.S. Customs is the agency responsible for ensuring that all the rules and regulations of these other agencies are enforced.
Informed Compliance and Reasonable Care
Importers are required to exercise due diligence and reasonable care in all their import transactions. U.S. Customs provides a great deal of information for Importers through Customs’ website at www.cbp.gov and Importers are expected to review this information so that they may remain in compliance.
Two of the most critical areas are the proper HTS classification of the imported products and the correct reporting of the value of the imported products. The failure to properly classify imported goods and the failure to declare the correct value are among the most common problems noted by U.S. Customs.
Importers can be subject to severe financial penalties for failing to comply with all applicable rules and regulations, underscoring the importance of utilizing all available resources to protect them from this risk.
The Harmonized Tariff Schedule (HTS) is an international system used by over 70 countries to classify products. The HTS is divided into 22 sections containing 99 chapters and nearly 10,000 HTS classification codes. Importers must ensure that their imported products are properly classified under the HTS as HTS classification determines duty rates, governs product admissibility, and the applicability of other government agency rules and regulations.
The HTS contains “legal text” including General Notes, Section Notes and Chapters Notes that must be used as part of the classification process. Proper HTS classification requires that the person classifying the product have access to a full description of the product; what it is, what it does, what it is made from, etc. Different types of commodities may require additional product information to assist in the HTS classification process.
U.S. Customs can provide the Importer with binding HTS classification rulings to help the Importer ascertain the correct product classification. Importers are encouraged to take advantage of the binding ruling procedure to help them be certain that their products are correctly classified and they are paying the correct duty rate for their products.
HTS classification errors are among the most common errors that Importers make and can have the most detrimental impact.
In most circumstances, the “price paid or payable” is the correct value for imported products however some situations require a further review to ensure the value reported is accurate. Here are a few key points to consider:
· Transactions between “related” companies can be problematic and require extra scrutiny. Even what might be considered a minor tie between two companies may make those companies “related” in the eyes of U.S. Customs.
· Customs considers both direct and indirect payments to be part of the value for the imported product. If you make any payments to a supplier that are not reflected on the commercial invoice you should reveal these to your Customs Broker to ensure that they are reflected properly in the value of the shipment.
· “Assists” are a common problem area in determining shipment value. An “assist” is described by Customs as an item that the buyer of imported merchandise provides directly or indirectly, free of charge or at a reduced cost, for use in the production or sale of merchandise for export to the United States.
· Importers must ensure that the value reported by their foreign suppliers on the commercial documents is accurate. Customs can require the Importer to provide documentation verifying the value reported reflects the true price paid or payable for the goods.
The Commercial Invoice
The invoice between the foreign supplier and the U.S. Importer is a critical document for every import transaction. Customs has specific rules governing the content of commercial invoices and these requirements vary for certain types of products. Some of the basic requirements of a commercial invoice include:
· Invoice must be in English.
· Invoice must contain a description for each product on the invoice that is detailed and accurate.
· Invoice must show the number of pieces for each item.
· Invoice must show the value for each item on the invoice and must also reflect the currency of the sale.
· Invoice must reflect the full name and address of the supplier and of the U.S. purchaser.
· Invoice must indicate the country of origin or manufacture for the products listed.
· Invoice or the accompanying packing list should indicate which package contains each product listed on the commercial invoice.
This is a short list of invoice requirements and more detailed information may be required by Customs.
Duty Rates For Imported Products
The duty rate for an imported product can vary greatly depending on the type of product and even the country of origin for the product. Duty rates vary from duty free up to 30% or more. Duty rates can be based on the product’s value (ad valorem), based on the quantity of product (specific) or a combination of the two (compound).
U.S. Congress sets the duty rate for all products imported into the U.S. Duty rates are subject to change at any time based on Congressional changes.
Importers must be certain that they are paying the correct duty for their products. The failure to pay the correct amount of duty can subject the Importer to back payment of duties plus interest along with significant financial penalties.
Country of Origin Marking Requirements
Almost every product imported into the U.S. must be properly marked to indicate its country of origin or manufacture. The ultimate purchaser in the U.S. must be able to determine the origin for products they purchase and the Importer is required to ensure that this origin marking is legible, indelible and conspicuous.
Special rules apply to the country of origin marking required for goods that show a U.S. address or any other marking that would seem to indicate U.S. origin. Companies that import products that have this type of marking should consult with their Customs Broker or a Trade Consultant to help ensure their marking is correct.
Customs can detain or even refuse entrance into the U.S. for products that are not properly marked with country of origin at the time of import. If Customs chooses to allow the Importer to mark the goods after arrival into the U.S. they may assess a marking duty equal to 10% of the value of the imported goods.
Five Priority Trade Issues
Congress has demanded that U.S. Customs focus on five priority trade issues at this time including:
· Trade Remedy Laws (Antidumping and Countervailing Duty)
· Import Safety
· Intellectual Property Rights (IPR)
· Textiles and Wearing Apparel
· Trade Agreements
Trade remedy laws include Antidumping Duty (ADD) and Countervailing Duty (CVD). ADD is an additional duty that is added to products imported into the U.S. where the U.S. Department of Commerce and the International Trade Administration have ruled that the products are being sold at less than “fair market value.” CVD is an additional duty that is added to products imported into the U.S. where the U.S. Department of Commerce and the International Trade Administration have ruled that the products are receiving an unfair export subsidy from the government of the country of origin for the product.
ADD and CVD rates can be in excess of 200% and these rates can vary depending on the actual manufacturer of the goods. Congress has advised Customs that they must increase enforcement and collect all the ADD and CVD duties that have been overlooked in the past. Importers need to take steps to determine if any of their products might be subject to ADD or CVD and act accordingly.
Import safety is another key area of concern for Customs. Recent safety issues involved hoverboards and pet treats have shown that this is an area that needs extra attention. A number of U.S. government agencies have rules and regulations that govern the safety of imported products and Customs assists those agencies in enforcing those rules.
The Consumer Product Safety Commission (CPSC) has broad oversight when it comes to imported products. The CPSC is stationing their own inspectors in some ports to work with Customs’ staff in those ports to increase the number of cargo examinations. Since the CPSC rules can govern so many types of products this is a particular area of concern for Importers.
Importers need to know which government agency or agencies have rules that regulate their products and must work with their suppliers to ensure their products meet the required standards. The failure to be in compliance can lead to the detention or refusal of shipments by Customs and even penalties for the Importer.
Intellectual Property Rights (IPR) is another trade priority focus area. IPR can include copyrights, trademarks and patents. The owners of IPR are being encouraged by Customs to register their IPR with Customs and Customs will be stepping up efforts to enforce the IPR owner’s rights on imported products. It is critical that Importers are aware of any IPR issues that may pertain to their products and that they take steps to make sure that this will not become an issue at the time of import.
Another priority area is to monitor imports of textile goods and wearing apparel. The duty rates on textile goods and wearing apparel can exceed 40% and vary greatly based on the type of product and its material composition. It is extremely important for import documents to fully describe the imported item and provide a breakdown of its material composition in percentages.
Customs is also checking closely the country of origin for textile goods and wearing apparel to ensure it is being accurately reported. When an Importer wishes to claim duty free treatment for these types of goods under a Free Trade Agreement it is critical that the Importer have documentation to back up their claim. Due to the complexity of this issue Importers are urged to speak with their Customs Broker or Trade Consultant for assistance.
Finally the last trade priority focus is on products imported under any of the 30 plus Free Trade Agreements (FTA). Products imported under these agreements receive either duty free treatment or reduced duty rates however the Importer
must be certain that their goods qualify for entry under the FTA. Customs closely reviews shipments entered under these agreements and will expect the Importer to provide full documentation to prove their products are eligible.
To Summarize This Module
· All liability and responsibility belongs to the Importer of Record for the shipment
· Importers must be able to show that they have exercised due diligence and reasonable care in all their import transactions
· The correct HTS classification for every imported product is critical for many reasons and it is the Importer’s responsibility to ensure the HTS classification used is correct
· U.S. Customs works with limited resources and is using technology to help identify and target high risk shipments
· Importers are strongly encouraged to utilize experts (Customs Broker, Trade Consultant, Customs Attorney) to assist them in ensuring they are in compliance
· Mistakes cost money – and the amounts can be significant!
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