CHAPTER 12
Imports, Customs, and Tariff Law
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a part of South-Western Cengage Learning.
Formal Entry Process
• Administrative process required to import goods into
the customs territory of a country.
• Goods have officially “entered” when:
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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.
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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).
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Enforcement and Penalties
• Materially false statements.
• Negligent- see the U.S. v. Golden Ship
Trading case.
• Gross negligence “ actual knowledge or
reckless disregard.”
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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.
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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.
• Should be submitted in writing.
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Judicial Review of Binding Rulings
• Judicial review of formal rulemaking.
• Judicial review of binding rulings, see the U.S. v
Mead Corp case: U.S. agencies and courts
must grant limited deference to U.S. Customs
letters and rulings.
• Pre-Importation Judicial review in emergency
situations
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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.
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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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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.
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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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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.
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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.
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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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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
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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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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.
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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.
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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.
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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?
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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
• See the Nissan Motor Mfg. Corp. v. United
States case: machinery entering a foreign trade
zone for assembly is not merchandise (not duty
free).
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