Principles of Classification
Export & Import
By Clement Key
This book provides the means to master the classification process. By properly applying the General Rules of Interpretation, you can improve compliance in this area. This training book can be integrated into corporate compliance policy. Caveat: The Federal Register is the official source of information regarding import and export activities.
Copyright 2003, 2018 Clement Key. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the written prior permission of the owner. Written by Clement Key
SAMPLE 18 pages of 144 Phone 704 664 1932 www.exportimportcompliance.com Introduction Chapter 1 provides an overview of import procedures with recommended references. It includes classification flags that you do not want to show. Purpose of the chapter is to provide background and a beginning in the study of classification. Chapter 2 covers the classification process and contains selected customs regulations. Chapter 3 concentrates on the classification process with the intention of providing the core of rules and application. Explanation of each General Rule of Interpretation is given. Examples are provided to illustrate the rules. Terms are covered and specific chapters of the Harmonized Tariff are addressed. The content applies to Schedule B. This chapter provides information in a manner enabling the reader to classify using the rules. GRI 1 emphasized! Appendix contains examples, solutions, questions and answers are included for understanding and applying the rules of interpretation. Selected pages (Harmonized Tariff and Schedule B) are furnished to allow working towards solution in a systematic manner. A guide is provided for use in evaluating the integrity of your classification system. The purpose of the appendix is to offer the means to master classification cases in a system solutions approach.
Recognizing that many complicated factors may be involved in customs issues, an importer may wish to obtain a ruling under Customs Regulations, 19 C.F.R. Part 177, or obtain advice from an expert (such as a licensed Customs Broker, attorney or consultant) who specializes in Customs matters. Reliance solely on the general information in this system may not be considered reasonable care. Federal Register controls! This is a system for training only.
Table of Contents INTERNATIONAL TRADE: Export/Import Classification Chapter 1 IMPORT PROCEDURES Import Requirements Arrival of goods Formal vs. Informal Entry Formal Entry of Goods Other Types of Entry Classification Determining Admissibility/Customs Examination of Goods Protest Mail Shipments Restricted Merchandise Foreign Assets Control Publications Ports of Entry Common Errors found on previous Customs audits: References Classification Red Flag Indicators General Rules of Interpretation ADDITIONAL U.S. RULES OF INTERPRETATION
5 6 7
11 12 13 14 15 16
Chapter 2 INTRODUCTION â€“ CLASSIFICATION 17 Harmonized Commodity Description and Coding System History & Development Customs Regulations Citations 18 Harmonized System Structure 21 I TERMS II Coding of the Harmonized System 22 III STRUCTURE OF HS TARIFF IV. Headings, Section and Chapter Notes 24 Chapter 3 Classification 27 I. Introduction II. GENERAL RULE OF INTERPRETATION NO. 1 28 III. GENERAL RULE OF INTERPRETATION NO. 2(a) 30 IV. GENERAL RULE OF INTERPRETATION NO. 2(b) 33 V. GENERAL RULE OF INTERPRETATION NO. 3 35 VI GRI 3(a) VII. GRI 3(b) Essential Character 37 VIII. GRI No. (3c) 40 IX. GENERAL RULE OF INTERPRETATION NO 4 41 X. GRI 5(a) 42 XI. GRI 5(b) 43 XII. GENERAL RULE OF INTERPRETATION NO. 6 44 XIII. ADDITIONAL U.S. RULE OF INTERPRETATION NO. 1 47 XIV. SUMMARY XV. PARTS AND ACCESSORIES 50 Parts of General use 53 XVI. THE WORD "OF" 55 XVII. USE PROVISIONS 56 Actual use 56
PRINCIPAL USE Suitable for use Solely or Principally TECHNICAL USES FUNCTIONAL UNIT CLASSIFICATION CONCEPT COMPOSITE MACHINES Specific Chapters Chapters 1-2 Chapters 7, 8, 9 Chapters 10 – 18 Chapters 19 – 24 Chapter 25 Chapters 26, 27 Chapter 28 Chapters 29-31 Chapters 32-34 Chapters 35–38 Chapter 39 Chapter 40 Chapters 41 – 42 Chapter 43 Chapters 44-48 Chapters 47 – 49 Chapter 49 Section XI Textiles Chapters 50, 51 Chapters 52 – 55 Chapters 56 – 59 Chapters 60 – 62 Chapter 63 Chapters 64 Chapters 65-67 Chapters 68-70 Chapters 71 Chapter 72 – 74 Chapters 75 – 82 Chapter 83 Section XVI Chapter 84 Chapter 85 Chapters 86 – 89 Chapter 90 Chapter 91, 92 Chapter 93 Chapters 94 Chapters 95 Chapters 96-97 Chapters 98, 99 Summary of 98 and 99 Appendix Explanations, Problems and References Classification Questions/Answers
57 58 59 61 62 63 64 65 66 67 68 69 70 71 72 72 74 75 76 76 77 78 79 80 81 82 83 84 85 86 87 89 90 92 92 93 95 97 99 100 101 102 102 103 104
105 110 – 125 127 – 146
INTERNATIONAL TRADE: Export/Import Classification Chapter 1
Merchandise that crosses the border must satisfy requirements for export declaration or import entry. In this part, import procedures are considered with classification principals applicable to both export and import. Import Requirements • An individual may make his/her own Customs clearance of goods imported for personal use or business. •
All merchandise coming into the United States must clear Customs and is subject to a Customs duty unless specifically exempted by law (see pg. 23 GN19). Clearance involves a number of steps: entry, inspection, appraisement, classification and liquidation.
The U.S. Customs Service does not require an importer to have a license or permit. Other agencies may require a permit, license, or other certification, depending on what is being imported. Customs entry forms do ask for your importer number. This is either your IRS business registration number, or if your business is not registered with the IRS or you do not have a business, your social security number.
The importer must declare the dutiable value of merchandise. The final appraisement is fixed by Customs. Several appraisement methods are used to arrive at this value. The transaction value serves as the primary basis of appraisement. Transaction value is the price actually paid or payable by the buyer to the seller for the goods imported. Other factors may also add to the dutiable value of merchandise, such as packing costs, selling commissions, royalty or licensing fees, etc. When the transaction value cannot be determined, then the value of the imported goods being appraised is the transaction value of identical merchandise. If merchandise identical to the imported goods cannot be found or an acceptable transaction value for such merchandise does not exist, then the value is the transaction value of similar merchandise. Similar merchandise means merchandise that is produced in the same country and by the same person as the merchandise being appraised. It must be commercially interchangeable with the merchandise being appraised. The identical or similar merchandise must have been exported to the United States at or about the same time the merchandise being appraised is exported to the United States.
The importer must determine the classification number of the merchandise being imported. The Harmonized Tariff Schedule of the United States (HTSUS), issued by the United States International Trade Commission, prescribes the classification of merchandise by type of product; e.g., animal and vegetable products, textile fibers and textile products.
The importer must pay estimated duties and processing fees if applicable. Customs makes the final determination of the correct rate of duty. The duty rate of an item is tied to its classification number. The HTSUS provides several rates of duty for each item: general rates for countries with which we maintain normal trade relations (NTR); special rates for special programs (free, or lower than the rates currently accorded NTR countries); and column 2 rates for imports not eligible for either general or special rates. Customs duties are generally assessed at ad valorem rates, a percentage of which is applied to the dutiable value of the imported goods. Some articles, however, are dutiable at a specific
rate (so much per piece, liter, kilo, etc); others at a compound rate of duty (i.e., combination of both ad valorem and specific rates). â€˘
If formal entry is required - the importer may have to post a surety bond.
It is the importers responsibility to ensure that his or her goods being imported meet admissibility requirements - such as proper marking, safety standards, etc. - and that the proper permits, if required, have been obtained in advance of the goods arriving in the United States.
Arrival of Goods BACK Imported goods may not legally enter U.S. commerce until the shipment has arrived within the port of entry and Customs has authorized delivery of the merchandise. This is normally accomplished by filing the appropriate documents, either by the importer or by the importer's agent. To expedite this process, Customs entry papers may be presented before the merchandise arrives; entry will not take place until the merchandise arrives within the port limits. The Customs Service does not notify the importer of the arrival of the shipment. The carrier of the goods usually provides notification of arrival. Arrangements should be made to ensure that the importer or their agent is informed immediately of arrival so that the entry can be filed and delays in obtaining the goods avoided. The Customs Service defines "entry" not merely as the arrival of goods at a port, but as the process of presenting documentation for clearing goods through Customs. Imported merchandise not entered through Customs in a timely manner (within 15 calendar days of arrival) is sent by Customs to a general order warehouse to be held as unclaimed. The importer is responsible for paying storage charges while unclaimed merchandise is held at the ware-house. If it remains unclaimed at the end of six months, the merchandise is sold at auction. Some type of Customs entry must be made at the first port of arrival. Ordinarily entry is made there for consumption, for entry into a bonded warehouse, or for transportation in bond to another port where a consumption or warehouse entry will be made. If an importer is unable to be there to prepare and file the entry, commercial brokers, known as customs brokers and licensed by the Customs Service, may act as an agent for the importer. These brokers charge a fee for their services. A list of customs brokers may be obtained from the local Customs office or found in the yellow pages of the local telephone directory. In the case of a single noncommercial shipment, a relative or other individual may act as the importer's agent for customs purposes. This person must know the facts pertaining to the shipment and must be authorized in writing to act for the importer. The law prohibits Customs employees from performing these tasks for the importing public. However, they will advise and give information to importers about Customs requirements. Formal vs. Informal Entry Informal entries cover personal shipments, commercial shipments and mail shipments that are being entered for consumption, i.e. for use or sale. In most cases informal entry can be used if the merchandise is valued at $2500 or less. There are some exceptions such as textiles, certain types of footwear and other goods subject to quota/visa restrictions. Personal shipments valued over $2500 will also require a formal entry. The difference between an informal entry and a formal entry is the bond requirement and the liquidation process. Liquidation* is the final computation of duties or drawback accruing to an entry and is the final step in the entry process. (*see protest page 9 and CR 159.1 page 19) Formal entries are generally commercial shipments supported by a surety bond to ensure payment of duties and compliance with Customs requirements. A bond is like an insurance policy that is payable to Customs in the event that the importer does not comply with import requirements. Having a bond on file, allows an importer to take possession of his merchandise before the payment of duties, taxes and fees. Obtain a bond from a surety, an insurance company that has been authorized by the Treasury Department to write Customs bonds.
A port director can require a formal entry for any importation if he or she deems it necessary for the protection of the revenue or for admissibility or enforcement issues. Goods admitted as informal entries do not require the posting of a bond and goods are liquidated on the spot. After the importer receives notification of the arrival of merchandise from the carrier and it is determined that all shipping charges are satisfied an invoice is presented to Customs. When an informal entry is being made, the inspector, not the importer, is responsible for determining the classification number of the goods being imported. The inspector also completes the Customs forms used for informal entry. Formal Entry of Goods BACK To make or file a consumption entry (for imported goods going directly into the commerce of the United States without any time or use restrictions placed on them) the following documents are generally required: ABI in paperless entry requires RECORDKEEPING! 1. A bill of lading, airway bill, or carrier's certificate (naming the consignee for customs purposes) as evidence of the consignee's right to make entry. 2. A commercial invoice obtained from the seller, which shows the value and description of the merchandise. 3. Entry manifest (Customs Form 7533) or Entry/Immediate Delivery (Customs Form 3461). 4. Packing lists, if appropriate, and other documents necessary to determine whether the merchandise may be admitted. When a consumption entry is filed, the importer indicates the tariff classification and pays any estimated duty and processing fee. A surety bond may also be required; it contains various conditions, including a provision for paying any increased duty, found to be owed. Other Types of Entry Imported goods may be sent in-bond from the first port of arrival to another Customs port. Inbond entries (sometimes referred to as IT, T & E, TIB and Exhibition) postpone final Customs formalities including payment of duty and processing fees, until the goods arrive at the final port. Arrangements for in-bond shipments should be made before the goods leave the country of export. Imported merchandise may also be sent to a bonded warehouse under a warehouse entry. Duties and processing fees are not paid on warehoused merchandise until the goods are withdrawn for consumption. Storage fees are paid to the warehouse proprietor by the importer. Classification All goods that enter the United States are categorized according to the Harmonized Tariff Schedule. The act of placing goods into the correct category is called classification. Classification determines how much duty will be collected. Classification is more than simply looking up an item in an index. It is a very complicated process requiring the application of the General Rules of Interpretation; the section, chapter and subheading notes; and the Explanatory Notes. The importer is responsible for properly classifying his merchandise before entry. If he is not sure how to properly classify an item, he can submit a request, in writing, for a binding classification ruling to the National Commodity Specialist Division, U.S. Customs, Attn: Classification Ruling Requests, New York, NY 10048. The rulings will be binding at all ports of entry unless revoked by the Headquarters' Office of Regulations and Rulings. If an importer is not satisfied with the binding ruling received from New York, he or she can appeal it to the Headquarters' Office of Regulations and Rulings, Washington, DC 20229. The Customs Service will not issue binding rulings in response to oral requests. Import Specialists can give oral advisory rulings but the classification-related opinions or advice of Customs Service personnel at
one port are not binding on the Customs ports elsewhere. Oral inquiries may be made to Customs offices regarding existing binding rulings that might cover your importation. Binding rulings may also be researched on the Customs web site at www.cbp.gov/ (Customs expects 95% accuracy in classification) Determining Admissibility/Customs Examination of Goods BACK In simple cases involving small shipments or certain classes of goods such as bulk shipments, examination may be made on the docks, at container stations, cargo terminals, or the importers premises. The goods are then released to the importer. In other shipments, sample packages of the merchandise may be retained by Customs for appraisal or classification purposes and the remainder of the shipment released. These sample packages will also be released to the importer after examination. [You may receive a bill if your shipment is examined by Customs] - Under Title 19, section 1467, of the United States Code (19 U.S.C. 1467), Customs has a right to examine any shipment imported into the United States and it is important to know that you, the importer, must bear the cost of such cargo exams. Per the Customs Regulations, it is the responsibility of the importer to make the goods available for examination-- "The importer shall bear any expense involved in preparing the merchandise for Customs examination and in the closing of packages" (19 C.F.R. 151.6). Household effects are not exempt. No distinction is made between commercial and personal shipments. In the course of normal operations, Customs does not charge for cargo examinations. However, there may still be costs involved for the importer. For example, if your shipment is selected for examination, it will generally be moved to a Centralized Examination Station (CES) for the Customs exam to take place. A CES is a privately operated facility, not in the charge of a Customs officer, at which merchandise is made available to Customs officers for physical examination. The CES facility will unload (de-van) your shipment from its shipping container and will reload it after the exam. The CES will bill you for their services. There are also costs associated with moving the cargo to and from the exam site and with storage. Rates will vary across the country. A complete stripping may cost several hundred dollars. The CES concept fulfills the needs of both Customs and the importer by providing an efficient means to conduct exams in a timely manner. CES(s) are discussed in part 118 of the Customs Regulations and are available for viewing on the Customs web site (19 C.F.R. 118)]. Examination of goods is necessary to determine: • The value of the goods for Customs purposes and their dutiable status. •
Whether the goods are properly marked with the country of their origin. Special marking or labeling may apply. Generally, imported merchandise must be legibly marked in a conspicuous place and with the English name of the country of origin. Certain specific articles are exempt from this requirement. (For further information see Customs Publication No. 539 Marking of Country of Origin on U.S. Imports.)
Whether the goods have been correctly invoiced.
Whether the shipment contains prohibited articles.
Whether the requirements of other federal agencies have been met.
Whether the amount of goods listed on the invoice is correct, and no shortage or overage exists.
If necessary, goods may be analyzed by a Customs laboratory to determine proper classification and appraisal, to determine that the goods meet safety requirements, or to ensure that they are not counterfeit or otherwise in violation of U.S. laws. (admissibility issues - marking, dumping, licensing, etc. are admissibility issues)
If Customs determines that the goods are different from the entered descriptions in quantity or value, that the classification of the goods is incorrect, or that a different rate of duty than the one indicated by the importer applies, an increase in duties may be assessed. If Customs determines that the importer has deliberately failed to properly classify and value his goods, he may be liable for a fine, or other penalty. When all the information has been acquired, including the report of the Customs import specialist as to the customs value of the goods, and the laboratory report, if required, a final determination of duty is made and the entry is liquidated. At this time, any overpayment of duty is returned or under-payments billed. BACK Protest [importance of courtesy liquidation notice FORMERLY CF 4333-A – should be matched to entry] Currently done Automated Commercial Environment (''ACE'') Secure Data Portal . Within 90 days after the date of liquidation or other decision, an importer or consignee may protest the decision and receive an administrative review. The protest is filed with the port director whose decision is being protested. At the time the initial protest is filed, the importer or consignee must make a request for further review if one is desired. Review of the port director's decision by the Customs Service Center or Headquarters is then automatic. Notice of the denial of all or part of the protest will be mailed to the person filing the protest or to his agent. Any person whose protest has been denied may contest the denial by filing a civil action in the United States Court of International Trade. (see Definition of Liquidation page 19) Mail Shipments Shipments by mail which do not exceed $2500 in value, whether commercial or noncommercial importations (except for commercial shipments of textiles from all countries and made-tomeasure suits from Hong Kong, regardless of value), are entered under a mail entry prepared by a Customs officer after the Postal Service submits the package for Customs examination. The parcel is delivered to the addressee by the Postal Service and is released upon the payment of duty, which is shown on the mail entry accompanying the package. A postal handling fee will also be collected from the addressee at the time the package is delivered. This handling fee is not charged on packages sent through military mail channels. Informal see CR 143.21 A formal entry is required for any mail shipment exceeding $2500 in value. Formal entry is also required, regardless of value, for commercial shipments of textiles from all countries and madeto-measure suits from Hong Kong. Certain other articles valued over $250 require a formal entry (billfolds, footwear, fur, gloves, handbags, leather, luggage, plastics, rubber, textiles, toys, games and sports equipment, etc.) If formal entry is required on a parcel, the parcel is held at the Customs international mail branch and notice is sent to the addressee of the package's arrival. The addressee can then go to the nearest Customs office to file the formal entry on the package. An entry must be filed in the same manner as for shipments arriving by vessel or airfreight. Once the mail branch has been notified that entry has been filed, the package will be released to the postal service and forwarded to its final destination. Restricted Merchandise Because Customs officers are stationed at all ports of arrival in the United States, including Puerto Rico, they are called upon to enforce laws and regulations of other government agencies. A license or permit from the responsible agency may be necessary to import: • alcoholic beverages • animal and animal products • certain drugs • firearms and ammunition • fruits, nuts, meat and meat products • milk, dairy, and cheese products
• • • •
plants and plant products poultry and poultry products petroleum and petroleum products vegetables
There are also restrictions on the importation of certain trademarked and copyrighted articles. (For further information see Customs Publication No. 549 U.S. Customs and Protection of Intellectual Property Rights.) Certain items in these categories may also be prohibited. The following items must comply with applicable regulations of other agencies: • art materials • cultural property • hazardous/toxic/flammable materials • household appliances • some electronics products • toys and articles for children Most of the above items are regulated, variously, by: [telephone numbers subject to change- list provides insight to some of other agencies involved] Bureau of Alcohol, Tobacco, and Firearms Washington, DC 20226 (202) 927-8110 (alcoholic beverages) (202) 927-8320 (arms and ammunition)
Animal and Plant Inspection Service (Animals/animal products) USDA-APHIS-VS Hyattsville, MD 20782 (301) 734-7885 Animal and Plant Inspection Service (Plants/plant products) USDA-APHIS-PPQ Hyattsville, MD 20782 (301) 734-8896 U.S. Fish and Wildlife Service Office of Management Authority 4401 N. Fairfax Drive, VA 22203
Food and Drug Administration Division of Import Operations and Policy 5600 Fishers Lane Rockville, MD 20857 (301) 443-6553 Consumer Product Safety Commission Office of Compliance 4330 East West Highway Bethesda, MD 20814 (301) 504-0608
Today, an increasing number of goods and products such as textiles, clothing, automobiles, boats, radios, CD players, television sets, and medical devices, are subject to special standards, declarations, certification, marking or labeling requirements. Other merchandise must be examined for fitness of use, freedom from contamination, or may be subject to quotas on the quantity imported. All these requirements must be met before the merchandise may be released by Customs. Finally, many categories of goods are subject to quota or visa restrictions. Please see our brochure Import Quotas for a complete list. Foreign Assets Control BACK U.S. trade sanctions administered by the Office of Foreign Assets Control (OFAC) generally prohibit the importation into the United States (including U.S. territories), either directly or indirectly, of most goods, technology, or services (except information and informational materials) from, or which originated from Cuba, Iran, Iraq, Libya, North Korea, Serbia, or Sudan; from foreign persons designated by the Secretary of State as having promoted the proliferation of weapons of mass destruction; named Foreign Terrorist Organizations; designated terrorists and narcotics traffickers; the Taliban, and areas of Afghanistan controlled by the Taliban. Vessels and aircraft under the registry, ownership, or control of sanctions targets may not import merchandise into the United States. The importation of Cuban cigars or Iranian carpets is subject to certain restrictions. Contact your local Customs office. Diamonds may not be imported from Angola without a certificate of origin or other documentation that demonstrates to Customs authorities that they were legally imported with the approval of the Angola Government of Unity and National Reconciliation. (changes - check site) Current import restrictions imposed against sanctions targets vary by program. Contact the Office of Foreign Assets Control at (202) 622-2490 with specific questions or concerns or visit OFAC's website at www.treas.gov/ofac. Publications People who are interested in the importing business will find the following publications invaluable. They may be purchased from the Superintendent of Documents, Government Printing Office, Washington, DC 20402. Telephone (202) 512-1800. Prices are subject to change [those shown are approximations]. Several of the following publications are available at www.cbp.gov/ on the U.S. Customs Website. Customs Regulations of the United States A loose-leaf volume containing regulations published for the purpose of carrying out customs, navigation, and other laws administered by the U.S. Customs Service (CBP). Note: Customs regulations are also contained in the Code of Federal Regulations. Title 19, Chapter 1. Customs Bulletin and Decisions A weekly pamphlet containing regulations, rulings, decisions, and notices concerning Customs and related matters, decisions of the United States Court of Appeals for the Federal Circuit and the Court of International Trade. Harmonized Tariff Schedule of the United States (Annotated) This is a technical document for use in classification of imported merchandise for rates of duty and statistical purposes. (This may also be found in many public libraries and on line at www.usitc.gov/taffairs.htm.)
The following publications can be obtained from the U.S. Customs Service free of charge by writing to U.S. Customs Service, PO Box 7407, Washington, DC 20229: Information on CBP (Customs) Automated Commercial System (ACS) and its related systems can be found in pamphlets under ABI and the more detailed ABI Overview. The information can also be found at www.cbp.gov/ on the U.S. Customs web site. Importing Into the United States A book providing extensive details on topics covered. Aimed at those contemplating commercial importing, it also contains sample forms, lists of quotas and other restrictions on a variety of generic merchandise (fibers, fabric, metals, foodstuffs, vehicles, etc.) of interest to commercial importers. This publication is available in both English and Spanish. It is also available on the U.S. Customs website at www.cbp.gov/ Customs Bonds: Q & A Search U.S. Customs website at www.cbp.gov/ using term Customs Bonds Q & A - describes bonds and who may use them, what obligations users assume, terms and definitions. BACK Customs Bonded Warehouse - Search U.S. Customs website at www.cbp.gov/ using term “customs bonded warehouse” - explains what a bonded warehouse is, users' costs, different types of bonded warehouses, advantages to importers of using bonded warehouses; plus entry, treatment, and storage procedures for merchandise and how to establish a Customs bonded warehouse. Import Quotas – Search CBP site “about quotas” – absolute, tariff, TPL etc. "Import Quotas" leads to description of the merchandise subject to U.S. import quotas, as administered by the U.S. Customs Service (CBP). International Mail Imports – Search CBP – “mail imports” Answers most frequently asked questions about mailing merchandise to the United States from abroad. It covers gifts, articles for personal consumption, packaging/labeling requirements, and the like, personal and commercial. Marking of Country of Origin – Search CBP – “marking” Find page describing the purpose, procedures and statutory requirements for marking merchandise and containers under different requirements. North American Free Trade Agreement (NAFTA): A Guide to Customs Procedures This NAFTA guide (search CBP site or Internet Explorer using term) explains the rules of origin and procedural obligations relating to Customs administration of NAFTA. It summarizes various terms of the agreement and gives an overview of the benefits to and requirements of importers. Temporary Importation Under Bond (TIB) Search CBP site or Internet Explorer using above term. TIB is procedure under which merchandise may be entered into the United States Customs territory temporarily free of duty by posting a bond. Page will describe classes of goods, eligibility requirements, restrictions, and benefits of the TIB procedure. Ports of Entry BACK Additional information may be obtained from the ports of entry or you may consult your telephone directory for a Customs port closer to you, as there are 300 ports of entry in the United States, its territories and possessions. The listing is found in Importing Into the US, HTSUS.
Common Errors found on previous Customs audits: 1. Manufacturing Assists 2. Supplemental Payments 3. Non-dutiable Costs BACK 4. Merchandise Classification <<<< supports compliance area to address 5. American Goods Returned <<<< 6. Use of American Components <<<< 7. Related Party Transactions 8. Buying Commissions 9. Record Keeping References [suggested] – from October 1995 Regulatory Audit Program – source U.S. Customs Customs Booklet "Importing Into the United States" published annually. 19 CFR 141 - Entry of Merchandise. access
[For Compliance Program purposes, have to these publications]
19 CFR 142 - Entry Process. Customs Directive 3550-24, dated September 8, 1987, Subject: Entry Simplification - Entry Summary and Entry/Entry Summary Flow. Customs Directive 3550-061, dated September 18, 1992, Subject: Instructions for Preparation of CF 7501 19 CFR 152 (Subpart E) – Valuation of Merchandise. Customs Handbook, dated October 1981 Re: Customs Valuation Under the Trade Agreements Act of 1979. Customs Handbook, dated December 1984, Re: Customs Valuation Rulings Under the Trade Agreements Act of 1979 (Volume I). Customs Handbook, dated August 1987, Re: Custom Valuation Rulings Under the Trade Agreements Act of 1979 (Volume II). Customs Valuation Encyclopedia 1980 - 2015 Notice to the Public entitled Transfer Pricing; Related Party Transactions, published in the Federal Register on January 21, 1993 (58 FR 5445). 19 CFR 24.23 - Fees for processing merchandise 19 CFR 24.24 - Harbor Maintenance Fee While subsequent audit plans did not refer to these references as in the initial publication (10/95), it can be inferred that in establishing your competence, adequate reference materials (or access) are a factor.
Classification Red Flag Indicators The following examples are conditions that may indicate a potential problem in classification: • The company has insufficiently documented, poorly defined, or no internal controls for accurately reporting classifications to Customs. BACK • The company does not monitor or interact with the broker on classification issues. • The company relies on one employee to handle classification issues, and there are poor or no management checks or balances over this employee. • Company import staff lacks knowledge of classification requirements. • The company offers unreasonable explanations to Customs. • The company fails to cooperate with or respond to Customs. • The company has a high turnover of people in key positions. • There are significant variances between the importer’s data and Customs data. • Customs (e.g., import specialist, account manager, compliance measurements, prior audit) shows a history of problems with classification. • The company uses HTSUS(s) with known or suspected problems as identified by Customs. • HTSUS(s) are complex, or merchandise is classified under a broad range of HTSUS(s) that would require extensive knowledge to classify. • The company imports a wide variety of merchandise but enters the merchandise under only a few classifications. • The company’s import pattern has changed. • Competing HTSUS(s) have a lower duty rate or relaxed admissibility requirements. • The company has been referred to enforced compliance (Enforcement Evaluation Team). Classification principals are the same for export and import. The Harmonized Tariff System is used for imports and exports (with some exceptions – stated in the front of the tariff). Following the General Statistical Notes in the front of the Harmonized Tariff Schedule of the United States (particular year) you will find NOTICE TO EXPORTERS which states – Through this notice, this publication may be used in place of the reporting codes of Schedule B for reporting exports on the Shipper’s Export Declaration or under the program fro electronic reporting of exports. Except as noted below, the statistical reporting numbers (with the article descriptions and units of quantity) for articles falling in Chapters 1 through 97 may be used in place of those in Schedule B. The special prefix symbols, which denote special tariff treatment should not be included. Exceptions: The following provisions are applicable for export purposes in lieu of the corresponding provisions in the HTS: [listed by ascending HS numbers are the excepted commodities – if using the HTSUS in lieu of Schedule B, you would need to check off your good against the list] Schedule B is used to classify for export (note preceding exception – use of HTSUS).
General Rules of Interpretation They are found in the front of both the Harmonized Tariff and Schedule B. BACK Classification of goods in the tariff schedule shall be governed by the following principles: 1. The table of contents, alphabetical index, and titles of sections, chapters and subchapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions: 2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3. 3. When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading, which provides the most specific description, shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. 4. Goods, which cannot be classified in accordance with the above rules, shall be classified under the heading appropriate to the goods to which they are most akin. 5. In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein:
(a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and entered with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character; (b) Subject to the provisions of rule 5(a) above, packing materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use. 6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis (necessary changes made), to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes also apply, unless the context otherwise requires.
ADDITIONAL U.S. RULES OF INTERPRETATION 1.
In the absence of special language or context which otherwise requires--
(a) a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use; (b) a tariff classification controlled by the actual use to which the imported goods are put in the United States is satisfied only if such use is intended at the time of importation, the goods are so used and proof thereof is furnished within 3 years after the date the goods are entered; (c) a provision for parts of an article covers products solely or principally used as a part of such articles but a provision for "parts" or "parts and accessories" shall not prevail over a specific provision for such part or accessory; and (d) the principles of section XI regarding mixtures of two or more textile materials shall apply to the classification of goods in any provision in which a textile material is named.
The preceding rules govern classification!
Chapter 2 INTRODUCTION – CLASSIFICATION BACK When goods are imported into the Customs Territory of the United States (the fifty states, the District of Columbia and Puerto Rico), they are subject to certain formalities involving the U.S. Customs Service. In almost all cases, the goods are required to be “entered,” that is, declared to the Customs Service, and are subject to detention and examination by Customs officers to insure compliance with all laws and regulations enforced or administered by the United States Customs Service. The required entry process may take the form of a simple “baggage declaration” (for individuals), or one of the many types of customs “entries,” for consumption, warehousing, or transit. Low value importations may be subject to simplified or informal Customs clearance procedures. For example, certain low value mail importations may be declared on a sticker obtainable at post offices, while importations by individuals that do not exceed their duty-free personal exemptions may often be made by an oral declaration to a Customs officer. On the other hand, in most cases involving commercial goods, and some involving non-commercial importations, the importer or his agent must “enter” the goods by filing an electronic or paper “entry” to obtain release of the goods followed by an electronic or paper “entry summary.” As part of the entry process, goods must be “classified” (determined where in the U.S. tariff system they fall) and their value must be determined. Prior to enactment into law of the Customs Modernization Act (Title VI of the North American Free Trade Agreement Implementation Act, Public Law 103-182), on December 8, 1993, an importer was required to accurately describe the merchandise and tell Customs how much it cost. It was the Customs Service’s responsibility to “classify” the goods and determine their “value” (appraise them to allow the correct duty to be applied). Pursuant to the Customs Modernization Act, it is now the responsibility of the importer of record to use “reasonable care” to “enter,” “classify” and “value” the goods and provide any other information necessary to enable the Customs Service to properly assess duties, collect accurate statistics, and determine whether all other applicable legal requirements are met. Classifying goods is important not only for duty purposes, but also to determine whether the goods are subject to quotas, restraints, embargoes or other restrictions. The act of classifying goods requires an importer to be familiar with the Harmonized Tariff Schedule of the United States, and its international counterpart, the Harmonized Commodity Description and Coding System. To assist in meeting the reasonable care requirement, importers may request binding rulings from the Customs Service or may use the services of an expert in Customs law and procedures to assist them. The Customs Service is responsible for fixing the final classification and valuation of the goods. The Customs Service performs this in a process called “liquidation of the entry.” The following process explains the classification of goods under the Harmonized Tariff Schedule of the United States. The classification and valuation of goods is important. At a minimum, incorrect classification or valuation may lead to delays and increased duties plus interest. The failure to use reasonable care in either situation may also lead to detention or seizure and the imposition of civil or criminal penalties. Harmonized Commodity Description and Coding System History and Development Merchandise imported into a country is classified under a tariff system for such purposes as tariff (or duty) assessment and import restrictions. The movement of merchandise in international trade, however, would be very slow and costly if the merchandise had to be classified under differing tariff systems of various countries. Therefore, in the late 1960s, the major trading countries of the world decided that a modern and internationally recognized product or tariff classification system
was needed in order to facilitate the international trade of merchandise. This new system was intended to be a single modern structure for product classification that would also be used for customs tariff-related statistical and transport-documentation purposes (i.e., to collect statistics on trade and for exportation purposes). Work on this new system began in the early 1970s (with participation by the United States) under the auspices of an international organization known as the “Customs Cooperation Council” (now informally known as the “World Customs Organization” or simply the “WCO”) which is based in Brussels, Belgium. 1 This work resulted in the “Harmonized Commodity Description and Coding System” (“Harmonized System” or simply the “HS”). 2 It went into effect internationally on January 1, 1988, with the entry into force of the International Convention on the Harmonized Commodity Description and Coding System (“Harmonized System Convention”) to which the Harmonized System is appended as an annex. To classify goods, it is important to know your merchandise. The description in commercial terms is important. Use and application assists in the process. With that knowledge you should apply the GRI(s) in order. To do this you must be familiar with the tariff. Another important tool is the use of rulings. Go to http://www.cbp.gov/ Then CLICK on (right side bar) Customs Rulings Online Search System CROSS Type in Search word(s) and Go You should find rulings...to assist in classification. Customs expects 95% accuracy on Classification. By studying and applying the content of this book, you should be able to reach this goal. Customs Regulations Citations BACK 152.11 Harmonized Tariff Schedule of the United States. Merchandise shall be classified in accordance with the Harmonized Tariff Schedule of the United States (19 U.S.C. 1202) as interpreted by administrative and judicial rulings. (We assign a HS number and derive the rate of duty.) 152.12 Applicable rates of duty. Rates of duty shall be based on the detailed instructions in § 141.69 of this chapter, which provides in general that the rates of duty applicable to merchandise shall be those in effect on the date of entry or withdrawal for consumption, except for certain merchandise covered by an entry for immediate transportation or over carried and returned to the port of entry. (Classification is how the rates are derived) 152.2 Notification to importer of increased duties. If the port director believes that the entered rate or value of any merchandise is too low, or if he finds that the quantity imported exceeds the entered quantity, and the estimated aggregate of the increase in duties on that entry exceeds $15, he shall promptly notify the importer on Customs Form 29, specifying the nature of the difference on the notice. Liquidation shall be made promptly and shall not be withheld for a period of more than 20 days from the date of mailing of such notice unless in the judgment of the port director there are compelling reasons that would warrant such action. 152.103 Transaction value.
(In majority of cases this is what we want to use & thoroughly know) (a) Price actually paid or payable(1) General. In determining transaction value, the price actually paid or payable will be considered without regard to its method of derivation. It may be the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula, such as the price in effect on the date of export in the London Commodity Market. The word ``payable'' refers to a situation in which the price has been agreed upon, but actual payment has not been made at the time of
Published on Mar 7, 2018