Abady Law Firm, P.C. – Customs and Import/Export Attorney Blog
Learn the Basics of Customs and International Trade Policy and Procedure
Archive for November, 2011
The United States offers a number of special duty reduction programs for products that originate from certain countries. Each of the programs requires that the good originate from beneficiary country. If the good was imported into the beneficiary country then the material must be “transformed” by a process or manufactured into a product of that country. Transformation is where things get a bit gray, contact an expert to determine if and how a good can be transformed.
The amount of value to be added consists of:
1. the materials produced in the beneficiary country
2. the direct costs of processing operations performed in the beneficiary country
Most duty reduction programs require a certificate of origin and basis for qualifying under the program. It must be filed with each entry of goods into the U.S.
Some examples of Duty Free Reduction Programs:
The U.S.-Australia Free Trade Agreement
The U.S.-Israel Free Trade Area Agreement
The North American Free Trade Agreement
Happy Importing 🙂
THE FOLLOWING WILL BE IN EFFECT DECEMBER 3, 2011.
Ever since an intelligent business man designed footwear with a textile outer sole (i.e. textile bottom) that footwear was subject to duty rates approximately 25% – 35% lower than equivalent footwear with a rubber or plastic outer sole – what a way to utilize Tariff Engineering!
President Obama signed Presidential Proclamation 8742 that was published in the Federal Register on November 3, 2011. What the Proclamation did was add a U.S. Note 5 to the footwear Chapter in the tariff schedule (“Chapter 64”).
The new note, Note 5 states “For the purposes of determining the constituent material of the outer sole pursuant to note 4(b) of this chapter, no account shall be taken of textile materials that do not possess the characteristics usually required for normal use of an outer sole, including durability and strength.” Consequently, based on this note duty rates for certain footwear with the textile bottom may be affected.
What does “normal” mean?
How does an importer determine “durability and strength”?
As always it is in the importers best interest to consult an expert and/or have your goods tested during the production phase to evaluate the best model for the lowest duty rates.
Happy Importing 🙂
What is a Foreign Trade Zone?
A United States Foreign Trade Zone (FTZ) is a geographic location within the United States but is considered to be outside of Customs territory. Similar to a Bonded Warehouse, (inside Customs territory) many prerequisites for entry such as quotas are not to be adhered to. Additionally, goods may be transferred to a foreign trade zone with less formality than the bonded warehouse.
What are its advantages?
1. Both Domestic as well as foreign goods may be stored in a foreign trade zone for an UNLIMITED amount of time (for a bonded warehouse only 5 years).
2. Good may be stored, manipulated, processed, and manufactured.
3. Domestic merchandise can be taken from the FTZ duty free. Customs duties are only due on foreign goods when removed from the FTZ and entered into the domestic market (unlike if exported – no duty requirements).
4. Ability to get “PRIVILEGED” status for goods – Dutiabilility based on the condition of the goods and the duty rate when the goods entered the FTZ even though they may have been changed by the time they are withdrawn from the FTZ. Meaning that you can alter the goods in the FTZ whereby they would have been subject to a higher duty rate. However, because they were placed in an FTZ, you the importer only pays the duty rate for the goods when entered in the FTZ.
5. Ability to get “NON-PRIVILEGED” status for goods – Dutiable based upon when the goods were withdrawn from the FTZ. An importer can manufacture goods within the FTZ whereby foreign materials are used to lower the duty rate.
What is a bonded warehouse?
Customs bonded warehouses are licensed warehouses that satisfy strict security regulations. It is within bonded warehouses that goods may enter the United States but are not considered “cleared” through customs. Merchandise in a bonded warehouse is considered still to be in Customs custody and duties do not have to be paid.
What are its advantages?
1. Customs duties do not have to be withdrawn until goods are released from the warehouse.
2. Duty rates that are applied are based on the time the goods are released not the time that they enter into the bonded warehouse.
3. No duty is paid if the goods are exported (so no need for drawback claim – to be discussed in another blog entry).
4. Merchandise can remain in a bonded warehouse for up to 5 years from the date of importation.
5. Manipulation of goods within warehouse is LIMITED to: cleaning, sorting, packing, repacking which are not considered manufacturing.
Happy Importing 🙂
For Tariff Classification purposes, there are circumstances in which more than one word can describe an item. What do you do?! Well the law provides under the “General Rules of Interpretation” 2(b) that consideration is to be given to every heading that identifies an item by name, language or description. Okay, that is great but my goods can be described in more than one way.
General Rules of Interpretation 3 comes along and simplifies the identification of the goods.
Relative Specificity More SPECIFIC language is preferred over general language, thus the heading which more precisely describes the good will be used and the others will be ignored.
Composite Goods and Goods Sold in Retail Sets when a good is a mixture or a composite of different material, components, or sets Customs again uses the concept of Essential Character. In these cases, the question becomes which part of the retail set is causing you to purchase the item? To qualify as a retail set 1) there must be two or more articles with different classifications 2)a single commercial purpose and 3) packaged as ready for sale.
More Than One Essential Character What happens if the good has more than one essential character? Customs Answer: Look to the feature of the good that appears in the Tariff Schedule the last numerically.
Good Cannot be found in the Tariff Self Explanatory. Answer, General Rule of Interpretation 4 says pretend like the goods have changed to one in the tariff to which it is most akin.
Packing and Packaging Whether certain types of packaging are treated as part of the merchandise or must be classified separately. Fitted cases for example, camera cases, musical cases, gun cases, specifically designed for the particular product and have long term use are to be classified with the merchandise for which they are imported. However, if you import these separately then they would need there own tariff number.
Many goods are unassembled or incomplete when they arrive at the port. The U.S. Harmonized Tariff Schedule for classification predominantly addresses complete and assembled products. However, the law provides via the “General Rules of Interpretation” for unassembled or incomplete goods by allowing certain goods to be classified as though they are complete and assembled.
The rule qualifies these goods by its ESSENTIAL CHARACTER. Essential character is not defined in the law but all depends on the specifications of the product. Can a person objectively recognize the product for what it is when incomplete? While Customs may have their own opinion it is within the importers best interest to convince them of the goods essential character for beneficial duty treatment.