Customs Clearance

Customs Clearance

Customs Clearance Duty Non-Tariff Barriers Customs Clearing Process Foreign Trade Zones

http://www.youtube.com/watch?v=Z9UQ7yFEeJ8 • Duty free in the Dubai airport (Watch 1-2 minutes)

Duty • The tax an importer must pay to allow goods into a country, based upon a tariff schedule. • Three criteria determine the tariff(the duty rate) to be charged on an imported product: • Classification • Valuation • Country of Origin

Duty Classification • Products are classified using a worldwide coding scheme called the Harmonized Commodity Description and Coding System, or Harmonized System. • Each product has an HS code; the HS is updated annually by the World Customs Organization. • The HS Code uses up to 10 digits: • First six digits of a product code are the “root” digits—they are the same for all countries • Last four digits are country-specific

http://www.youtube.com/watch?v=FjBDrYAlpoA • Harmonized number video

Duty Harmonized System • System is divided into 21 sections logically determined by type of product and material. • Sections are divided into one or more chapters (totaling 97 chapters). • For example, Chapter 64 is for “footwear, gaiters and the like,” and subchapter 6402.19 is for “other sport footwear.” • Golf shoes for children are classified as 6402.19.0590

Duty Rules of Classification • Importer and customs officers interpret classification according to a number of rules of classification: • Classification of an unfinished product is that of a finished product • The correct classification of a product made of different parts, each classified differently, is the one that gives it its “essential character” • If no classification is available, the correct classification is that of a product “most like it” • Containers of products are not classified separately (camera cases), unless they have a separate purpose, in which case they are classified separately

Duty Binding Rulings • U.S. Customs will issue a Binding Rule on correct classification of good prior to entry into the country. • Only applicable to the United States • It classifies a specific product and assigns it a tariff rate, before the goods are imported. • The ruling is binding on the United States Customs, which means that it cannot “change its mind” after the product is imported.

Duty Valuation • Countries of World Trade Organization base product value on the value of the transaction (invoice). • The value of an import, though, can be increased by the value of assists: • An assist is an item provided by the importer (customer) to the exporter (seller) so that the exporter can manufacture the goods: a mold or a die, for example • The value of an assist must be included in the valuation of the imported goods for U.S. Customs’ purposes (value of the assist divided by the number of items made by the assist)

Duty Valuation • If Customs suspect incorrect valuation on invoice, it can: • Use the Comparative Method:the value of goods is based on value of identical or similar goods imported into the country • Use the Deductive Method:the price at which identical or similar goods sold for within 90 days of importation • Use the Computed or Reconstructed Value Method:the value of goods determined by computing manufacturing costs of goods plus usual profit and expense • Use the Method of Last Resort:Customs officials determine the value in some arbitrary fashion

Duty Country of Origin • The country of origin is the country in which the goods were made. It is determined through the Rules of Origin of Customs: • Substantial Transformation: the country of origin is the country where the most substantial transformation of a product takes place • Change in HS classification: the country of origin is the country where the last change in Harmonized System classification occurred. This method is always used by the United States for textile imports • Often it is difficult to determine country of origin of a complex product.

Duty Tariffs • An importing country usually manages its imports under a tariff system that is dubbed “N-column tariff system,'' with N, the number of columns, corresponding to the number of different classes of countries that the importing country considers. Tariff Schedule • A document listing all the possible Harmonized System classification categories, as well as their associated tariff rates for the different classes of countries.

http://www.usitc.gov/publications/docs/tata/hts/bychapter/1002C01.pdfhttp://www.usitc.gov/publications/docs/tata/hts/bychapter/1002C01.pdf • US Live animal tariffs.

Duty Tariffs • The United States is considered to operate under a 2-column Tariff Schedule, with the Most-Favored Nations [MFN] subject to column 1 tariffs and other countries to column 2 tariffs. • In 2000, the MFN designation was officially changed to Normal Trade Relations [NTR], but this terminology has not yet been universally adopted. • The number of columns is often quite an oversimplification of the actual tariff system; Column 1 for the United States also includes tariff rates for more than a dozen different multilateral agreements with other countries, some of which can import duty-free in the United States.

Duty Tariffs • Tariffs are generally calculated ad valorem or as a percentage tax on the value of the goods imported (see “Springs for watches,” H.S. 9114.10.4000 on the next slide). • Other methods exist: • A fixed amount per unit imported (see “Plates and Bridges,” H.S. 9114.40.2000) • A fixed amount per unit in addition to a percentage of the value of the goods imported; such a tariff is called a compound duty rate (see “Dials not exceeding 50mm in width,” H.S. 9114.30.8000) • Some other method: Switzerland calculates duty by using the weight of the product

Duty Dumping • The strategy followed by some exporters to sell the products they are exporting at a price that is considered “too low” by the importing country’s Customs Office • Depending on the importing country, the products’ price is considered too low when it is either below their manufacturing costs or below their “normal” wholesale price. • In cases of dumping, Customs can add an “anti-dumping” duty. • Customs can also use a “countervailing” duty to tax products that the exporting government is found to have subsidized.

http://www.youtube.com/watch?v=c3EsgYtzruY • US and China dumping

Duty Dumping • The United States has a process to determine whether anti-dumping duty will be assessed: • A complaint has to be filed with the International Trade Commission by a competitor • The Department of Commerce has to determine that the complainant was economically “injured” • The United States also has the “Byrd Amendment” which takes the anti-dumping duty collected by U.S. Customs and gives it to the injured firms in the industry.

Duty Other Taxes • Some additional taxes can be collected by the importing country. They are designed to get more revenue while still “complying” with the General Agreement on Tariffs and Trade (GATT) and rules of the World Trade Organization (WTO). • Examples include: • Punitive duty --a tax in retaliation to another country’s trade action • Border traffic tax --Russia taxes all goods crossing its borders • Safeguard tax --Argentina has a special tax to make up for WTO-influenced reduction of duty rate on footwear • Temporary protection tax --a temporary tax to protect a domestic industry

Duty Value-Added Tax (VAT) • A tax that is very similar to a sales tax, but that is collected whenever the product’s value is increased • Only the final consumer eventually pays the tax, but every company involved in the production or supply chain is required to collect the Value Added Tax that its customers pay and pay the Value Added Tax to its suppliers. • The difference between what a firm collects and what it pays must be sent to the government. • The Value Added Tax on imports is collected at the point of entry in the country. • The basis for the tax is the sum of the value of the goods and of the duty paid.

http://www.youtube.com/watch?v=SMfh36J6ieM&feature=related • Vat… to 3:30

Non-Tariff Barriers Quotas • A limit, set by the importing country’s government (sometimes in agreement with the governments of the concerned exporting countries), on the quantity of a specific commodity that can be imported in a given year. • There are two different types of quotas: • An absolute quota, which limits the quantity of goods imported, and beyond which no good can be imported • A tariff-rate quota, which places a low duty rate on goods imported until the quota is reached, and a very high duty rate on quantities of the goods imported beyond the quota

http://www.youtube.com/watch?v=jVWrllMosIU • Import duty- 2 min

Non-Tariff Barriers Adherence to national standards • Countries demand that products sold within their borders meet the standards that their governments have enacted. • Countries' efforts to make imports adhere to national standards are often considered to be trade barriers.

Non-Tariff Barriers Other Non-Tariff Barriers • Countries can slow the Customs clearance process in order to deter imports and increase importers' costs. • Countries can require a mind-numbing number of documents and approvals. • Countries can require additional forms that are not readily available or that are close to impossible to gather. • Countries can threaten importers with income tax audits. • Countries can require that each individual item be inspected, when it is essentially impossible to achieve a 100% inspection rate.

Non-Tariff Barriers Pre-shipment inspections • Some countries require that all of their imports be inspected by an independent inspection firm in the port of departure: • The country wants an expert opinion on the classification and the value of the products that are about to enter its territory • The country wants to fight corruption in its own ports of entry and wants an independent party to certify classification, value and country of origin • The country wants an estimate of the currency requirements it will face in the short term, and uses the value of the shipments subject to PSI to forecast its foreign currency needs

Customs Clearing Process General Process • May start with an import license that the importer has to acquire • Process usually starts when importer files an entry. • The importer has to include documents with the entry: • Invoice • Certificate of inspection (when required) • Certificate of insurance • Certificate of origin • In most developed countries, importer is responsible for: • Classifying goods according to tariff schedule of importing country • Determining amount of duty

Customs Clearing Process General Process • Once the goods are imported in a country and the importer has paid the duty that was due on those goods, the goods are said to have cleared Customs; they were released by the Customs authorities. • Once an entry has been successfully reviewed by Customs authorities and the duty has been paid, the entry is said to be liquidated. No further processing is required. • If an importer requests Customs to reconsider the classification, valuation, or country of origin, the importer is said to file a protest. A protest is generally filed when an importer feels that the amount of duty paid is excessive, or when a good is not allowed in the United States because a quota has been met.

Customs Clearing Process Customs Brokers • Customs brokers are experts hired by importers (or employees of the importer) whose responsibilities include interacting with Customs. Customs Bond • A bond is an amount of money that the importer puts in escrow with Customs, so that Customs is certain to be paid the duty due. • For many time-sensitive imports, a bond is posted, so that the clearance of the imported product is expedited.

Customs Clearing Process Reasonable Care • If an importer has practiced informed complianceand shown it is exercising reasonable carein importing goods, U.S. Customs often will exempt its shipments from inspection. • Both terms refer to efforts by the importer to ensure that the employees or agents who interact with Customs are competent, thorough and ethical.

Customs Clearing Process Required Documentation • There are three documents required of all imported shipments: • A form designated for entry (specific to the record-keeping requirements of the importing country) • A Certificate of Origin to ascertain the country of origin • A Commercial Invoice with enough information to determine value and classification

Customs Clearing Process Required Markings • Products imported in a country will generally require a marking --“made in [country] or “product of [country]” to inform the final customer of the origins of the product. • Such label should be printed or affixed on the product itself or its packaging.

http://www.youtube.com/watch?v=AQYKz7H0p8U • Made in china

Customs Clearing Process Merchandise Visas • A document provided by the government of an exporting country for a product that is subject to a quota in the United States • It is a document granting the exporter the “right” to export such goods. • The United States Customs will not allow the import of a product subject to quotas if the shipment is not accompanied by a visa from the exporting government.

Customs Clearing Process Duty Drawbacks • In U.S., The Customs Service will refund 99 percent of the duty paid by an importer in one of three cases: • For merchandise that is rejected by the importer as non-conforming to the original purchase order • For imported products that are reexported unused • For imported parts that are used without substantial transformation

Foreign Trade Zones • FTZs are specific locations of a country that have acquired a special Customs status. Such FTZs are physically located in the importing country, but are not part of the country from Customs’ perspective: goods that have entered an FTZ have not cleared Customs and have not paid duty. It is only when these goods leave the FTZ to enter the importing country that duty is collected and the goods clear Customs. • The most common form of FTZs is that of a location where cargo transits; in those cases, most of the goods never formally enter the country in which the FTZ is located. • FTZs are sometimes also called Free Trade Zones.

Customs Clearance