Imports, Customs
and Tariff Laws
Chapter 12
© 2005 West Legal Studies in Business/Thomson Learning
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Entry Process
• Customs and Border Protection
department under Dept. of Homeland
Security
• Documents filed within 10 days
• Pay duties
• Electronic filing
2
Entry Process
• Request binding ruling
• Liquidation- final computation and
payment of duty, within one year of entry
• Protest within 90 days
• Judicial review within 180 days (CIT in
NYC)
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Electronic Entry Processing
• Automated
• File electronically
• Remote location
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Enforcement and Penalties
• Materially false statements
– Negligent- U.S. v. Golden Ship Trading
– Gross negligence “ actual knowledge or
reckless disregard”
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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
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Aggravating factors
• Obstruction, withholding evidence,
providing misleading information, prior
improper shipments, illegal transshipments
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Mitigating Factors
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Errors by Customs
Cooperation
Immediate remedial action
Inexperience
Prior good record
Inability to pay penalty
Encouraged to report errors through
PRIOR DISCLOSURE
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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
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Binding Rulings
• Requesting one can help plan business
strategy
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Judicial Review
• Judicial review of formal rulemaking
• Judicial review of binding rulings, see U.S.
v Mead
• Pre-Importation Judicial review in
emergency situations
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How to classify goods? Ask for
binding ruling or ruling letter.
• Harmonized Tariff schedule of U.S. 1989
called the Harmonized Code
• Special schedules in NAFTA agreement
• Camel case: how to classify a tent?
• Mead Diary case
• Classification, value country of origin
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How to classify goods? Ask for
binding ruling or ruling letter.
• Classification by name , physical
characteristics and principal use
• May also be classified by actual use
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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
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General Rules of Interpretation
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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
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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
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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
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Examples of rules applications
• Relative specificity: stereo cabinet case
• Essential character: Better Home Plastics,
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)
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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.
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Relevance of Country of Origin?
• Very important in NAFTA
• Substantial transformation? Ferrostaal
Metals v. U.S.
• Name, character or use test
• NAFTA tariff shift rule
• Trade preference rules
• Textile and apparel rules of origin
• WTO rules- under development
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GSP: Generalized System of
Preferences
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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
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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
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Caribbean Basin Economic
Recovery Act (1983)
• Encourages manufacturing in Caribbean
• The goods are imported to U.S. at
favorable tariff rate
• 2000 Caribbean Basin Trade Partnership
Act: increased benefits
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Africa Growth and
Opportunity Act
• 2000
• GSP through 2008
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FTZ: Foreign Trade Zones
• Goods may be imported without being
subjected to tariffs until goods are
released into the stream of commerce
• Nissan v. U.S
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Business Implications
• Margin may be ruined by adverse
Customs ruling
• Thus, planning is essential
• Knowledge of appropriate classification
and entry process
• Stay current with agreements like NAFTA
which may affect your company’s
products
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