CHAPTER 12 Imports, Customs, and Tariff Law

1. CHAPTER 12 Imports, Customs, and Tariff Law

2. Formal Entry Process • Administrative process required to import goods into the customs territory of a country. • Goods have officially “entered” when: • Arrived at U.S. port of entry. • Goods are permitted. • Delivery is authorized by Customs after inspection and release. • Estimated duties have been paid or customs bond posted. • Documents filed within five (5) days. • Commercial Invoice.

3. Formal Entry Process • Liquidation- final computation and payment of duty, within one year of entry. • Protest within 90 days. • Judicial review within 180 days (CIT in NYC).

4. Enforcement and Penalties • Materially false statements. • Negligent- see the U.S. v. Golden Ship Tradingcase. • Gross negligence “ actual knowledge or reckless disregard.”

5. Enforcement and Penalties • Civil Fraud: clear and convincing, knowingly made materially false statements or omissions (goods can be seized, penalties up to the value of the merchandise). • Criminal Fraud: 2 years plus fine. • Smuggling of certain items will carry longer penalties. • Better to disclose before investigation.

6. Aggravating Factors • Obstruction, withholding evidence, providing misleading information, prior improper shipments, illegal transshipments.

7. Mitigating Factors • Errors by Customs. • Cooperation. • Immediate remedial action. • Inexperience. • Prior good record. • Inability to pay penalty. • Encouraged to report errors through PRIOR DISCLOSURE.

8. Mitigating Factors • Statute of limitations: 5 years from the date of the violation. • Or 5 years from the date of discovery of a violation involving fraud.

9. Binding Rulings • Requesting one can help plan business strategy. • Should be submitted in writing.

10. Judicial Review of Binding Rulings • Judicial review of formal rulemaking. • Judicial review of binding rulings, see the U.S. v Mead Corpcase: U.S. agencies and courts must grant limited deference to U.S. Customs letters and rulings. • Pre-Importation Judicial review in emergency situations

11. Dutiable Status of Goods • Since 1989, Harmonized Tariff Schedule of U.S. (HTSUS). • Special schedules in NAFTA agreement. • How to classify a tent? See the Camel Manufacturing Co. v. United States case: tents were not sporting goods but camping equipment. • Classification, value country of origin.

12. General Rules of Interpretation • Headings are only guides. • Article described includes the completed finished product as well as the uncompleted if it has the character of the completed product. • Specificity/ essential character. • If does not fit, should go into the same category as a similar item. • Last in numerical order.

13. General Rules of Interpretation • EO nominee- common name. • Physical characteristics • Article’s use • Common popular over commercial meaning • Use most specific • Essential character controls • All else equal, last in numerical order

14. General Rules of Interpretation: GRI • GRI 1: classification by terms of the headings. • GRI 2: classification includes complete as well as incomplete article if it has the essential character. • GRI 3: when goods could be classified under 2 headings. • Go to the most specific, if components go to essential character, when can’t be classified by above go to the last in numerical order

15. General Rules of Interpretation: GRI • GRI 4: If goods can not be classified based on above, one should find heading for goods they are most like. • GRI 5: a) cases (camera, music) should be entered with the article normally sold with b) packing goods shall be classified with the goods, unless containers have repetitive use. • GRI 6: subheadings at the same level are comparable.

16. Classification of Items Packaged for Retail Sale as a Set • Relative specificity: stereo cabinet case. • Essential character: Better Home Plastics Corp. v. United States,essential character not relative specificity applies, goods are classified by shower liner not curtain. • An importer is free to engineer his product in order to take advantage of the tariff laws (Tariff engineering.

17. Customs Valuation • Dutiable value equals transaction value or price actually paid for goods when sold for export plus packing costs, selling commission paid by buyer, value of an assist, royalty buyer is responsible to pay, proceeds of any resale that accrues to buyer. • It does not include freight charges, insurance/broker’s fee, inland freight, assembly fees or import duties.

18. Country-of-Origin Rules • Very important in NAFTA. • Substantial transformation: The “Name, Character, or Use” test. See the Ferrostall Metals Corp. v. United States case. • What about trade preference rules? • WTO Committee on Rules of Origin—under development.

19. Special Rules of Origin for Textiles and Apparel • Textiles and clothing present complicated trade issues because companies move operations from country to country, raw materials from many locations. • Textiles are governed by special rules into U.S. • U.S. imports from Canada and Mexico are governed by separate rules.

20. Marketing and Labeling of Imports • U.S. Customs. • FTC- if states Made in USA means, “all or virtually all of the materials, processing or component parts are made in the U.S. and that their final assembly or processing took place there”. • Only negligible foreign content- all or virtually all is a very high standard.

21. U.S. Trade Preferences for Developing Countries • Trade Preference: granting of preferential access or trade advantage to imported goods not similar to other goods. • Encourages manufacturing in Caribbean • The goods are imported to U.S. at favorable tariff rate • 2000 Caribbean Basin Trade Partnership Act: increased benefits

22. GSP: Generalized System of Preferences • Beneficiaries are developing countries. • Goods enter at lower tariff rate. • 1976 program- benefits 140 countries. • In 1980’s 4 countries graduated: Hong Kong, Singapore, S.Korea & Taiwan. • GSP rules of origin-35% value added in GSP country.

23. Caribbean Basin Economic Recovery Act of 2000 • CBERA Rules of Origin similar to GSP. • Caribbean Basin Trade Partnership Act of 2000. • Now includes footware, luggage, and watches.

24. Africa Growth and Opportunity Act of 2000 • Established to help with political freedom in forty-eight poor countries in sub-Saharan Africa where per capita income is $500/year. • AGOA broadens GSP for Africa and extends it to 2008.

25. Andean Trade and CAFTA • Andean Trade Program: U.S. program to promote economic development in Andean countries while combating drug trafficking and encouraging democracy. • CAFTA: Central America-Dominican Republic Free Trade Agreement with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.

26. Other Customs Laws Affecting U.S. Imports • Drawbacks: refund of duties already paid. • Most common is the manufacturing drawback. • Same-condition drawbacks are utilized when the imported goods are not processed or manufactured, but are reexported in the “same condition” as they were imported. • What about Returns of U.S. Exports?

27. FTZ: Foreign Trade Zones • Goods may be imported without being subjected to tariffs until goods are released into the stream of commerce • See the Nissan Motor Mfg. Corp. v. United Statescase: machinery entering a foreign trade zone for assembly is not merchandise (not duty free).