Abady Law Firm, P.C. – Customs and Import/Export Attorney Blog
Learn the Basics of Customs and International Trade Policy and Procedure
Archive for December, 2011
A quick explanation of substantial transformation:
As mentioned in the earlier post – Country of Origin – substantial transformation is the degree to which processing of an article leads to a new article, with a different name, character, and use. In addition, Customs uses a second method known as the “tariff shift” i.e. change in tariff classification, which is also used to determine substantial transformation. As of now, there are no uniform rules that settle country of origin questions.
As a result, substantial transformation can be highly subjective and tend to be based on political considerations. There has been much litigation in this area and have case-specific interpretations. Further, determinations as to what is considered a substantial transformation change periodically. Thus, it would be wise to discuss the nature of the product with Customs prior to importation because you are not excused from exercising reasonable care when determining the proper country of origin for your goods.
What is the “Country of Origin?”
Generally, the country of origin refers to the country where the product was grown, produced, or manufactured. This is easily applied when the product is produced in one country using domestic materials. For example, a bicycle that is manufactured in India using components all made in India has the country of origin “Made in India.”
However, today it is unrealistic to think that all materials, components, and labor all stem from the same country. Using the bicycle example, the wheels may be from USA, the bicycle frame from India, but the labor was done in China. In this example, it is not always clear as to where the country of origin is. In these situations the law created the concept of substantial transformation – it is a degree of processing requiring to change the country of origin (more on substantial transformation to be discussed next post).
An incorrect determination as to an imported product may lead to incorrect marking, incorrect duty, and incorrect documentation upon attempted entry. The consequences for these errors can be delays, additional costs, or seizures.
Happy Importing and Happy Holidays 🙂
What are countervailing duties?
Countervailing duties, similar to anti-dumping is a trade remedy to neutralize foreign economic threat. Specifically, countervailing duties are duties imposed by the U.S. government against tax reduction, grants, bounties, or any other subsidy provided by a foreign government on exported goods.
For example, in our country the government provides corn growers a tax credit whereby they pay them to use their corn for ethanol instead of food.
Who determines if a countervailing duty is applicable?
Same as in the anti-dumping matters, “Commerce determines whether the alleged . . . subsidizing is happening, and if so, the margin of dumping or amount of subsidy. The International Trade Commission determines whether the U.S. industry is materially injured or threatened with material injury by reason of the imports under investigation.”
If the investigation of both agencies finds that goods are provided subsidies, countervailing duties will be implemented in addition to any duties they must pay under normal circumstances – enforcement of the anti-dumping duties via Customs and Border Protection. Countervailing duty is approximately equal to the amount of any subsidy that exists to which is creating harm in the U.S. market.
Happy Importing 🙂
What are anti-dumping duties? Duties imposed against goods from foreign countries that are sold significantly lower in their country of origin or comparable third country markets – destroying the U.S. market for that product in the process.
For example: Company X, an exporter from China is selling massive quantities of iPod’s to U.S. resellers for the wholesale price of $50 a piece when the average price for an iPod sold at wholesale price in China is $200 a piece.
So what? A great deal is just that, a great deal, who determines whether it reaches the level of anti-dumping.
There are two players involved. The International Trade Commission (USITC) and the U.S. Department of Commerce, but each address a different issue.
“Commerce determines whether the alleged dumping . . . is happening, and if so, the margin of dumping. The USITC determines whether the U.S. industry is materially injured or threatened with material injury by reason of the imports under investigation.”
If the investigation of both agencies finds anti-dumping, Company X from China will face anti-dumping duties in addition to any duties they must pay under normal circumstances – enforcement of the anti-dumping duties via Customs and Border Protection.
How do these agencies find out about the potential anti-dumping? Generally, the agencies are prompted to investigate after receiving word from a business harmed by the influx of cheap goods (e.g., your competitors!)
What is “Drawback”? A program that provides a refund for a majority of goods that are exported or destroyed after importation into the United States.
If the goods are exported or destroyed drawback permits Customs to refund 99% of the duties when the goods were imported into the U.S. The only difficult part about drawback is that you must maintain precise compliance with the drawback rules and regulations – the government is not going to just return money willy nilly. The importer must fill out the drawback application before exportation.
There are (4) types of drawback:
1. Merchandise not conforming to sample or specifications – Imported goods that were not solicited not conform to the samples or specifications at the time it was imported. Must be done within 3 years from the time the merchandise was released from Customs.
2. Unused merchandise drawback – Imported goods that have not been “used” (speak to an expert about whether your particular product qualifies as used). Must be done within 3 years from the time the merchandise was released from Customs.
3. Manufacturing drawback – Imported goods used to manufacture new goods. Manufacturer’s Drawback requires that a “ruling” be approved by Customs so that Customs is aware of how the product is being manufactured.
4. Substitution for drawback purposes – Like manufacturing drawback, but you may substitute components of exported products with “commercially interchangeable” (again speak to an expert as to whether you qualify) components. For example: You import Company A screws into the U.S. but instead use Company B screws to manufacture your product. Company A screws and Company B screws are found to be commercially interchangeable, in other words industry equivalents. Must be done before the close of the 3-year period beginning on the date of importation of the imported merchandise
Contact us at 347-512-9007 for legal assistance in applying for drawback refunds regarding your imports.
Happy Importing 🙂