Table of Contents
Section I: INTRODUCTION TO IMPORT CONTROLS
A: Management Policy
B: Import Controls
C: Glossary of Terms and Definitions
D: Government Agencies Adminstering Import Controls
E: Responsibility for Import Compliance
F: Import Controls and Regulations Training
Section II: U.S. CUSTOMS REGULATIONS
A: Clearing Products Through U.S. Customs
B: Classification
C: Valuation
D: Country of Origin Marking and Labeling of Containers
E: Alternatives to Duty Payments
Section III: CORPORATE COMPLIANCE PROCESSES
A: Response to Customs Questions, Notices, Audits and Investigations
B: Recordkeeping Requirements
C: Internal Reviews and Audits
D: Notification of Suspected Problems or Illegal Activities
E: Customs Enforcement Tools
Section IV: SUMMARY STATMENT
A: President's Statement Policy
B: Responsible Officers
Customs Policy Program
I. INTRODUCTION
TO IMPORT CONTROLS
A. MANAGEMENT
POLICY
As an “importer”
of foreign merchandise, Company Name is, by law, obligated to use
reasonable care in complying with U.S. Customs law and in reporting its
activity to the U.S. Customs Service.
The Customs Compliance Manual is designed to ensure that Company Name
can satisfy the “reasonable care” standard.
The company
policy of Company Name is to comply fully with all governmental
requirements, including all laws and regulations related to taxation, import
regulation, occupational health and safety regulation, transportation
regulation, and the many other areas of governmental regulation which apply to
the company. The company understands
that governmental regulation of these various areas has been recognized as
important public policy, and that the company’s status as a corporate citizen
carries with it the obligation to exercise reasonable care in learning the
requirements of these various regulatory areas, evaluating the company’s
compliance with these areas, and undertaking steps to ensure that the company
follows appropriate practices designed to attain continuous, full compliance.
The company
views compliance with Customs requirements to be an important element in its
governmental compliance program, and as such has determined that it would be
appropriate to institutionalize an internal compliance program which will
maximize the continuous smooth operation of the company’s import operations, and
will minimize the possibility of the delays, increased costs and penalties
which non-compliance would bring. The Company
Name import program is an essential element in the success of the company
and must be conducted in a manner which contributes to the success of the
company.
Company Name personnel should understand the elements
of customs law regarding merchandise imports into the United States. This manual is an outline of basic Customs
requirements and the Company Name policy with respect to those requirements.
The purpose of
this manual is to ensure compliance with all Customs requirements. All Company Name personnel who must
provide to others or file with the Customs Service information relating to the
entry of merchandise should become familiar with the information in this
manual.
1. Background
Company Name policies and responsibilities affecting
the import of commodities into the United States are stated in this Directive.
Every import
into the United States is potentially subject to prohibitions or restrictions,
and duties, taxes and fees which are payable by the importer of record. Duties, taxes and fees are based on the
Harmonized Tariff Number of the commodity and the valuation of the importation.
Company Name is committed to being a global corporation, meaning it will
seek commodities from suppliers throughout the world. Therefore, it is vital to
Company Name to ensure that personnel involved with imports are
knowledgeable of and acting in full compliance with all relevant laws and regulations.
2. U.S.
Government Agencies Involved
The importation
of certain classes of merchandise may be prohibited or restricted to protect
the economy and security of the United States, to safeguard consumer health and
well-being, and to preserve domestic plant and animal life. Some commodities are also subject to an
import quota or a restraint under bilateral trade agreements and arrangements.
The primary
United States agency charged with enforcing the various laws and regulations
are the United States Customs Service.
Many of these prohibitions and restrictions are subject, in addition to
Customs requirements, to the laws and regulations administered by other United
States government agencies with which Customs cooperates in enforcement. Some of those agencies include, but are not
limited to, the Department of Commerce, the Food and Drug Administration, the
Department of Agriculture, the Consumer Product Safety Commission, the Federal
Communications Commission, the Environmental Protection Agency and the Federal
Trade Commission.
3. Violations
Failure of any Company
Name businesses to comply with all applicable United States import laws and
regulations at any location could result in substantial corporate fines, and
penalties, along with the potential seizure of the imported merchandise. Failure of a Company Name business to
respond timely to a U.S. Customs inquiry could result in the disruption of all Company
Name imports. Officers and
employees found to be in violation of these laws and regulations could also be
subject to individual fines, penalties and imprisonment.
4. Policy
Every import
will be reviewed to determine the laws and regulations applicable to such
import. All required duties, taxes and
fees will be paid in accordance with Customs Regulations. No greater import duties, taxes and fees
should be paid than is lawfully required.
5. Administration
Company Name will conduct its operation so that
employees experienced in and knowledgeable of the import laws and regulations
review each import transaction to ensure that the governing agencies’
regulations are adhered to, the proper Harmonized Tariff Number is determined,
the correct method of valuation is used, the correct markings are placed on all
products, and the appropriate duties, taxes and fees are paid.
6. Responsibilities
Each Manager of
a department will be responsible to determine that there are in place, under
his or her control involved in the import of commodities, procedures necessary
to ensure that each import transaction is reviewed by knowledgeable personnel,
so that all regulations are adhered to and all required duties, taxes and fees
are paid.
7. Communication
of Policy
It is the
responsibility of Company Name
Officers and Managers to communicate this policy to all members of
management in their organizations who are in a position to help implement its
provisions and assign operational responsibility to a specific individual(s) or
department.
B. IMPORT
CONTROLS
Import controls
define what products may or may not be imported into the U.S. and at what rate
of duty they must be entered. Products
from certain countries are banned from import into the U.S. There are varying
rates of duty based on the country of manufacture and the specific product
itself with certain countries enjoying more favorable rates of duty than
others.
With the passage
of the Customs Modernization Act in 1993 (“Mod Act”), import controls took on a
much different meaning. The Mod Act
provisions have more clearly defined U.S. Customs’ and the importers’ role for
compliance. Under the Mod Act, the
responsibility for ensuring correct entry of all products has been shifted from
Customs to the importer. While importers
are responsible for proper entry, Customs will attempt to ensure the importer
compliance through post entry audits.
Import controls
under the Mod Act define the principles of “informed compliance” and
“reasonable care”, a new relationship between importers and U.S. Customs. It is the intent of Customs to take all
reasonable steps to educate the importing community on all of the rules and
regulations applicable to imports, thus the term “informed compliance”. On the other hand, importers are responsible
to take all “reasonable care” to make, keep and produce records for all Customs
transactions, and ensure the correctness of information which appears on
Customs transaction documents.
1. Exercising
“Reasonable Care”
To ensure
compliance with all U.S. import laws and regulations, we must take all
reasonable care with each and every import transaction to ensure that Company
Name is paying all required duties, taxes and fees to the U.S.
government. Such steps to ensure
compliance include, but are not limited to:
1. Demonstrating to Customs a thorough
understanding of legal requirements applicable
to our products and transactions.
2. Making proper entry with the correct
declared value, tariff classification and
rate
of duty applicable so that Company Name can properly determine the legal
duties, taxes and fees payable to U.S. Customs and/or other government
agencies.
3. Knowing
what rules of origin or other qualifications must be met to qualify for tariff
preference programs.
4. Keeping
complete and accurate records for each import transaction for the requisite periods of time.
5. Ensuring
the admissibility of all merchandise, including compliance with country of
origin marking and other agency requirements.
6. Providing sufficient financial and
pricing information to permit proper valuation of imported merchandise.
7. Developing quality control programs
to attain and maintain the necessary expertise.
In order to
achieve compliance, Customs recommends the use of a number of potential
resources/methods. Those resources
include: (1) using in-house employees having experience with Customs issues,
(2) using in-house employees having technical expertise about particular
merchandise, (3) seeking guidance from Customs through binding/advanced
rulings, pre-importation review program and other programs that U.S. Customs
may have available, (4) consulting with an accountant, attorney, customs
consultant or customhouse broker, and (5) establishing voluntary compliance
programs for recordkeeping and drawback.
Company Name understands that reasonable care should
be process-oriented, not result-oriented.
The key is not whether the importer reached the right conclusion in each
case, but whether the importer has in place, procedures designed to promote the
furnishings of correct information to Customs, and that all claims affecting
the import of merchandise are reasonable under the applicable laws.
2. Use
Of Corporate Broker
Company Name counts with corporate Customs brokers
and In-house personnel to effect the entry of their imports into the U.S. These
brokers and key personnel are licensed by Customs and have Company Name
Power of Attorney to enter goods on Company Name behalf. The corporate broker is considered an
extended arm of Company Name.
The Customs broker typically prepares the majority of the required
Customs documentation based on the specific transaction involved. However, in order for the broker to enter
properly goods on Company Name behalf, it is imperative that Company
Name provides the Customs broker with all of the required and necessary
information to enter and pay the appropriate duties. Such information could include, but not be limited to,
classification and valuation. Any
statement or declaration made by the brokers is considered a statement or
declaration by Company Name in the eyes of Customs. In those cases where a corporate broker
cannot be used, documented approval for use of an alternative broker must be
given by the Import Manager or the
Logistics Manager prior to importation.
C. GLOSSARY
OF TERMS AND DEFINITIONS
The following
list contains terms and definitions used throughout these guidelines.
1. a (1)
A List. A list of the records
and entry information that is required to be maintained and produced within a
reasonable time after demand by Customs, if such record is required by law or
regulation for the entry of the merchandise (whether or not Customs required
its presentation at the time of entry).
2. Binding
Ruling. A written statement
issued by the Headquarters Office or the appropriate office of Customs that
interprets and applies the provision of the Customs and related laws to a
specific set of facts.
3. Buying
Commission. A commission paid
to a buying agent who is independent of the seller.
4. Classification. The process of determining the correct
Harmonized Tariff number and its associated duty rate.
5. Consignee. The party in whose name an import entry is
made other than a Customs broker or Integrated Carrier.
6. Country
of Origin. The country of
manufacture, production, or growth of any article of foreign origin entering
the United States.
7. Customs
Bonded Warehouse. A public or
private warehouse under Customs control and supervision where imported goods
may be stored for a specific period of time without the payment of duty or
taxes.
8. Customs
Directives. Detailed
instructions issued by Customs generally dealing with a change in procedure.
9. Customs
Entry. That documentation
required to be filed with the appropriate Customs officer to secure the release
of imported merchandise from Customs custody, or the act of filing that documentation.
10. Customs
Modernization Act. The popular
name given to Title VI of Public Law 103-182, the North American Free Trade
Agreement Implementation Act, dated December 8, 1993, which allows Customs to
modernize their procedures and legalize automation of the entry process.
11. Customs Notices. Any formal notice received from Customs.
12. Customs
Special Agent. Customs employee
who usually investigates wrongdoing and serves summons, or in criminal cases,
to seize goods, books and records.
13. Customs
Broker. A person who is
licensed to transact Customs business on behalf of others.
14. Drawback. A refund or remission, in whole or in part,
of a Customs duty, internal revenue tax, or fee lawfully assessed or collected
because of a particular use made of the merchandise on which the duty, tax or
fee was assessed or collected.
15. Duties. Customs duties and any internal revenue
taxes collected by the Customs Service on imported merchandise.
16. Duty
Preference Programs. Any
program that gives special duty treatment on merchandise of a special type or
from a special country.
17. Fees. Various charges assessed and collected by
Customs. Examples include Merchandise
Processing Fees (MPF) and Harbor Maintenance Fees (HMF).
18. Fines
and Penalties. Customs is
authorized to assess fines and penalties for infractions of U.S. laws and
regulations.
19. Foreign
Trade Zones. These special
purpose areas allow goods to be placed in the zones around the U.S. without
payment of duties (or in some cases duty paid goods) for storage, manufacture
and manipulation.
20. Harmonized
Tariff Schedule of the United States.
The U.S. version of the tariff used on a global basis. It contains 99 chapters which provide an
individual tariff item and rate of duty for most articles of commerce.
21. Importer. The person primarily liable for the payment
of any duties on the merchandise, or an authorized agent acting on his
behalf. The importer may be: (1) The consignee, or (2) The importer of
record, or (3) The actual owner of the merchandise, if an actual owner’s
declaration and superseding bond has been filed, or (4) The transferee of the
merchandise, if the right to withdraw merchandise in a bonded warehouse has
been transferred.
22. Importer
of Record. The party shown on
the Customs entry in the Import of Record block, that is the legal importer,
for Customs purposes, of merchandise imported into the U.S.
23. Incoterms. A standardized list of shipping and selling
terms published by the International Chamber of Commerce.
24. Power
of Attorney. A document used to
allow another party to legally transact Customs business on behalf of the
importer.
25. Pre-Importation
Review Program. A program
established by Customs to allow importers in good standing to have their
process for classification and valuation reviewed by Customs and, if approved,
shipments are examined less frequently and are entered on paperless entry and
paperless entry summary.
26. Related
Persons. As defined Customs
Regulations, “Related person” means: (1) Members of the same family, including
brothers and sisters (whether by whole or half blood), spouse, ancestors, and
lineal descendants. (2) Any officer or
director of an organization, and that organization. (3) An officer or
director of an organization and an officer or director of another organization,
if each individual also is an officer or director in the other
organization. (4) Partners.
(5) Employer or employee. (6)
Any person directly or indirectly owning, controlling, or holding with
power to vote, five percent (5%) or more of the outstanding voting stock or
shares of any organization, and that organization. (7) Two (2) or more
persons directly or indirectly controlling, controlled by, or under common
control with, any person.
27. Royalties. A share of profit reserved by the grantor.
28. Selling
Commission. Any commission paid
to the seller’s agent, who is related to or controlled by, or works for or on
behalf of, the manufacturer or the seller.
29. Surety
Bond. A bond required by law,
regulation or specific instruction to secure a Customs transaction or multiple
transactions. In the event of a debt or
liability, the surety posting the bond is legally liable.
30. Temporary
Importation Bond. A bond posted
for the temporary admission into the U.S. of merchandise subject to
exportation, without payment of duties.
If exportation is not effected within a prescribed period of time, the
liability is exacted against the bond.
31. Transaction. The act of transacting business with Customs
involving the entry and admissibility of merchandise into the U.S.
32. Ultimate
Purchaser. Generally the last
person in the U.S. who will receive an article in the form in which imported.
33. Valuation. The reporting to Customs of the complete
financial transaction of an importation.
It is the responsibility of the importer to ensure that the full value
is reported at the time of entry.
D. GOVERNMENT
AGENCIES ADMINISTERING IMPORT CONTROLS
Many agencies
within the U.S. Government administer import regulations. The primary agencies and their areas of
concern are as follows:
1. Treasury Department - U.S. Customs Service -
Import Regulations
Primary
duties include the assessment and collection of all duties, taxes and fees on
imported merchandise, and the enforcement of Customs and related laws.
2. Department of Commerce - Bureau of Export
Administration, Export Administration
Regulations
Issuance of import licenses for
controlled, dual-use products entering the United States.
3. Food and Drug Administration (FDA)
Regulate such things as medical
equipment, monitors and laser devices.
4. Department of Agriculture (USDA)
Food,
safety and inspection regulations for imported products. Regulate the spread of
bacteria and virus and wooden pallets and packing materials containing wood
products which may contain harmful bacteria.
5. Consumer Product Safety Commission (CPSC)
Protect
the consumer from hazardous consumer products such as freon in refrigeration
equipment and ozone depleting devices.
6. Federal Communications Commission (FCC)
Protection from harmful
electromagnetic exposure from radio frequency devices.
7. Environmental Protection Agency (EPA)
Regulations
dealing with the protection of the environment from toxic substances and chemicals.
8. Department of Transportation (DOT)
Regulate motor vehicle, motor
vehicle safety and the importation of containers.
9. Federal Trade Commission (FTC)
Protecting consumer rights with
regard to proper labeling of country of origin.
E. RESPONSIBILITY
FOR IMPORT COMPLIANCE
Company Name management has communicated corporate
policy with regard to U.S. Import Controls in Section I of these
guidelines. This policy mandates the
review of every import against the appropriate U.S. government regulations to
ensure strict compliance with U.S. law.
Responsibility
for compliance with U.S. import controls is delegated to the Import Manager and
the Logistics Manager. These
individuals are responsible for ensuring that there are in place, under his or her
control, procedures, subject to corporate audit, necessary to ensure that each
import initiated is reviewed by personnel knowledgeable of Company Name
corporate policy and U.S. import regulations.
This responsibility may be delegated to an individual or individuals in
other departments to ensure effective compliance.
From a
transactional approach, compliance is a multi-functional responsibility shared
by Purchasing, Engineering, Manufacturing, Logistics and suppliers focused
through the Import Manager.
Every Company
Name employee involved in transactions that will result in an import has an
obligation to be cognizant of this policy and to assist in ensuring
implementation of its various provisions.
Any questions concerning the policy or any transactions covered by the
policy should by referred to the Import Manager. Possible violations of this policy or the underlying U.S. laws
governing imports, such as the Customs Regulations of the United States, should
immediately be brought to the attention of the Import Manager and the Logistics
Manager.
F. IMPORT
CONTROLS AND REGULATIONS TRAINING
In order to
understand and comply with the U.S. Government import regulations, it is
essential that proper training be obtained and provided to those individuals initiating,
directing and processing an import transaction. To that end, a number of resources are available to facilitate
this learning process.
1. U.S. Government regulations published
by the various administering agencies
2. Title 19 C.F.R. (Code of Federal
Regulations) Customs regulations
3. Harmonized Tariff Schedule of the
United States and its Explanatory Notes
4. Trade bulletins issued by U.S. Customs,
customs brokers and various
trade
agencies and Customs rulings and directives
5. Electronic Bulletin Board available
through U.S. Customs, Washington, D.C.
6. Incoterms 2000
7. Company Name Corporate Import
Controls Guideline
8. Custom Brokers/Consultants seminars
9. Customs seminars
The Import
Manager and the Logistics Manager provide assistance in training, compliance
and consultation, as well as through other internal or external sources. All Company
Name employees are strongly encouraged to contact the Import Manager or the
Logistics Manager with import compliance issues.
Appropriate records
should be maintained by the various businesses for formal training provided to
each employee.
II. U.S.
CUSTOMS REGULATIONS
A. CLEARING
PRODUCTS THROUGH U.S. CUSTOMS
Merchandise is
considered imported when it arrives from a foreign country into the “customs
territory” of the United States, which is the fifty states, the District of
Columbia and Puerto Rico. A shipment
between the United States and Puerto Rico is not subject to U.S. Customs
requirements. The process for obtaining legal clearance from the U.S. Customs
Service (“Customs”) is called the “entry” process.
The United
States Customs Service is part of the Department of the Treasury. It is a revenue collection and law
enforcement agency with the power to stop products at the border and to assess
civil and criminal penalties. Customs
is organized into three management layers: one Headquarters office, 20 Customs
Management Centers (“CMCs”), and 301 customs ports of entry. In most instances, Headquarters and the
ports of entry interact directly with each other and with the public. The CMCs primarily provide operational and
administrative support to the ports.
The port director of Customs for the port of entry has considerable
discretion regarding legal clearance of imported merchandise.
The U.S. Customs
Service is responsible for collecting duty on imports and enforcing the
requirements of many other agencies at the border. The normal import process involves the seller (who may or may not
be the actual manufacturer), the shipper (again this may be the same as the
seller), the customs broker and freight forwarder, the U.S. Customs Service,
and the importer (generally the buyer).
The broker is provided with the invoice and shipping documents by the
importer or his agent, and prepares documentation based on information from the
importer, which Customs reviews for various elements, including whether the
goods are classified properly (the classification determines the duty rate),
whether the goods are valued correctly, and whether the goods are admissible
into the U.S.
1. The
Entry Process
There are
several types of entry. Imported
merchandise may be entered for consumption, entered for warehouse (in bond) at
the port of importation, or entered for transport (in bond) to another port of
entry where it is entered for consumption or for warehouse. Company Name
almost always uses the “entry for consumption“, which is the process of clearing merchandise through Customs for
consumption or use in the United States.
Company Name is the “importer of record” for customs
purposes because it is owner of the merchandise at the time of importation. Company
Name either prepares and files the required documentation or retains a
Customs broker as its agent to prepare and file the required documentation with
Customs.
As importer of
record, Company Name is responsible for payment of all customs duties
and fees as well as for the accurate and complete documentation of the entry,
even though a licensed broker accomplishes the filing.
In order to
classify and value products accurately, it is important that the broker be
provided with complete information detailing the facts of an importation. Normally, absent specific communication with
or direction from the importer, the broker will assume that the classification
they have arrived at is correct, and that the value contained on the invoice
properly includes all amounts being paid by the buyer (usually the importer) to
the seller. Thus, while the broker is
an important professional, it is ultimately the obligation of the importer to
assess whether all facts being represented to Customs are complete and
accurate.
Entry is a
two-part process consisting of (1) the filing of information or documents
necessary for the release of the merchandise from Customs’ custody, and (2) the
filing of information or documents necessary for Customs to assess the proper
customs duty. Entry documents for
release of merchandise must be filed within five working days of
importation. Entry summary documents
must be filed within ten working days after Customs “releases” the
merchandise to the importer of record or consignee. Information may be filed electronically or in paper form.
The fact that
Customs releases merchandise or assesses a particular amount of duty without
questioning the information filed by the customs broker or employee does not
mean that Customs has accepted the information as correct. In fact, Customs reviews only a small
percentage of the entry information and inspects a small percentage of imported
merchandise before releasing the merchandise to the importer of record or the
importer’s agent. Most problems are
uncovered during customs audits, which may occur up to five years after the
date of entry.
Completeness and
accuracy in entry documentation and record-keeping is extremely
important. Careful review the
information filed by Company Name or its Customs broker with the U.S.
Customs Service is needed. Serious
civil and criminal penalties can result if incorrect information is submitted
to Customs or if information is missing from the documents. Using a customs
broker to complete and file documents does not relieve Company Name
of its legal obligation to comply with all applicable U.S. customs laws.
2. Documentation
and Information Required
Within five
working days after arrival of a shipment at a U.S. port of entry, Company
Name or its broker must file an Application for Immediate Delivery (CF
3461) and a Commercial Invoice to obtain delivery of the merchandise from
Customs. Within 10 working days after
these documents are filed and the merchandise released Company Name or
the broker must file an Entry Summary (CF 7501), Commercial Invoice, shipping
documents and any documents required by other federal agencies. Some or all of the required information may
be filed electronically through the Automated Commercial System (“ACS”) that
links importers, brokers, and U.S. Customs Service offices.
Estimated
customs duties and fees due on the imported merchandise must be deposited with
the Entry Summary. Import fees include
the merchandise processing fee and the harbor maintenance fee, although the
latter is only collected on ocean shipments.
(1) Invoice Requirements
The
Customs Service has established specific rules on the contents of a commercial
invoice or electronic equivalents. It
must include complete and accurate information in the English language. The required information is detailed in Appendix A.
(2) Certification
On
behalf of Company Name, the customs broker signs a certification on each
entry summary that the information supplied to Customs is correct and complete
in every detail, and that Company Name will supply any additional
information necessary to ensure the continued accuracy and completeness of the
entry. The declaration puts Company
Name under a continuing obligation to notify Customs of all
circumstances, including changes after the date of importation, which may alter
the classification or value of the merchandise for duty purposes.
3. Customs
Review of the Documentation
Typically,
the Customs Service has one year from the date of filing to complete its review
of the entry documentation. In certain
circumstances, Customs may delay completing its review up to four years, as
long as it notifies the importer of the extension of time. Customs’ final action to close out an entry
and settle accounts with the importer is known as “liquidation” of the
entry. A notice of liquidation is
usually sent to the importer at that time.
Company
Name must monitor all
liquidations to ensure that Customs has made no errors. If Company Name disagrees with the
action of Customs on any entry, the company has only 90 days to
protest the liquidation. The 90
day deadline is absolute. After 90
days, the importer usually loses all opportunity to challenge Customs’
determination, and the liquidation becomes final.
B. CLASSIFICATION
All goods
imported into the U.S. must be classified under the Harmonized Tariff Schedule
of the United States (“HTSUS”). The
HTSUS is the U.S. Government statute utilized to determine how goods imported
into the U.S. are treated. Knowledge to
utilize this statute allows the user to determine reasonably the tariff
classification and rate of duty applicable to the good.
1. Responsibility
Classification is the responsibility of the importer of record. Formal classification requires a thorough knowledge of the goods being imported. Many products could possibly be classified under more than one tariff number. In order to use the most appropriate and proper number, technical knowledge and intended end use of the good is required, as tariff numbers are described in technical terms. The assistance of a classification expert may be required in order to classify accurately products. All of the specific rules found in each section, chapter and legal notes of the HTSUS must be reviewed and complied with for each classification as the rules can vary from heading to heading. The general rules of interpretation in the HTSUS should be the first step in determining proper classification. In addition, use of the Explanatory Notes to the HTSUS is strongly encouraged. U.S. Customs will also formally determine a classification through the issuance of a binding ruling. A request in writing to Customs should be made accompanied with all of the necessary technical information, in order for Customs to make a fully informed decision. Company Name may make its own preliminary determination prior to submission of the request, in order to assist Customs in their decision.
2. The
Harmonized Classification System
All products imported into the United States are subject to customs duties, or exempt from them, depending on how they are classified in the tariff law in effect at the time the products are imported into the United States. The tariff classification of a product establishes the rate of duty that applies to that imported product.
All U.S. tariff classification items consist of ten (10) characters. The general rule is if a good is specifically mentioned in a tariff, it must be classified in that tariff regardless of its end use. There are however, exceptions to this rule and these exceptions are noted in the section and chapter headnotes.
There
are many parts provisions in the tariff but only proprietary items that are not
specifically mentioned elsewhere can be classified as parts. Examples of this would be hardware, nuts,
bolts, screws, bearings and
belts. These items can be used in many
products, however, because they are specifically described in their own tariff,
they must be classified there, regardless of the end use.
The
U.S. tariff is a law enacted by the Congress and enforced by Customs. The tariff classification system in use in
the United States since 1988 is known as the Harmonized Tariff Schedule of
the United States (HTSUS). See Appendix
B for sample pages from the 1996 HTSUS.
The HTSUS is based on a common, worldwide nomenclature for imports which
was developed by international agreement through an organization known as the
Customs Cooperation Council. The HTSUS
contains over 8,000 product descriptions or subheadings.
Most imported products are not described by name in the HTSUS. They may be described by use, composition, or other characteristics. Often a product is described in more than one HTSUS heading. The rules of classification under the HTSUS strive for simplicity, but unfortunately the wide diversity of products makes for many ambiguous situations. Where no one classification clearly applies and one classification carries a higher duty rate than another, there is an obvious concern with accurately classifying a product. Proper classification requires analysis of the HTSUS headings, subheadings, chapter notes, General Rules of Interpretation, Explanatory Notes, and administrative and judicial precedent. Incorrect classifications can cost the company money and delay release of merchandise.
Most
classifications provide at least three different duty rates. The principal duty rate, or Most Favored
Nation rate, is the rate usually used for developed countries with which the
U.S. has no free trade agreement. A
second rate is a “Special” rate, where a reduced or free duty rate is accorded
products from certain countries identified in the HTS. For example, GSP goods may have a reduced or
free rate of duty if the products qualify for the program. The third rate of duty is the high rate
reserved for “unfriendly” countries such as North Korea and Cuba (many of which
are also subject to sanctions prohibiting most imports).
Company Name may obtain from Customs prior to importation a written classification ruling whenever the classification is in doubt. The ruling, which becomes binding on every Customs office in the United States, eliminates any delay and confusion in the entry and release of the imported merchandise. A copy of the ruling must be filed with each entry to which it pertains.
3. Improper
Classification
Failure to
exercise reasonable care and the improper classification of goods under the
appropriate HTSUS number could lead to:
1.
incorrect
duty assessment
2.
additional
duties and interest
3.
fines and
penalties
4.
denial of
preference program benefits
Special care
should always be taken to ensure that the most appropriate tariff number is
used for all imports. The appropriate
tariff number, once determined, should always be provided to the foreign
supplier for inclusion in all documentation related to the import
transaction. If the classification is
made internally, the review should be conducted by individuals with experience
in and knowledge of the HTSUS. If the
classification is made by a corporate broker, it is essential that the broker
be provided with all of the necessary technical and commercial information
relative to the import to allow them to make an educated and accurate decision
on behalf of Company Name
C. VALUATION
1. Introduction
It is a general requirement under U.S. law to declare accurate values for all merchandise imported into the United States. Accurate values are required for (1) the assessment of duties on merchandise, (2) the collection of statistics, and (3) for compliance with other provisions of the law.
2. Basis
of Appraisement
The customs valuation code provides for four methods of appraisement as follows:
1.
Transaction
Value
2.
Transaction
Value of Identical Merchandise or Similar Merchandise
3.
Deductive
Value
4.
Computed
Value
The methods of appraisement are to be applied in the order listed above. For example, if transaction value is applied first and a proper value cannot be determined, then transaction value of identical or similar merchandise is used. (Note: the importer at his option may request the use of the computed value method before the application of the deductive value method.)
(1)
Transaction Value
Transaction
value is the price actually paid or payable by the buyer to the seller, whether
direct or indirect, for the merchandise when sold for exportation to the United
States with adjustments for certain costs detailed below.
A test for
transaction value is required to be applied first, under all circumstances.
(a) Additions to Transaction Value
The following
costs (and no others) must be added to the transaction value, if not already
included in the price:
1.
Packing costs
2.
Selling commissions
3.
Assists
4.
Royalties or License Fees paid as a condition of sale
5.
Proceeds of any subsequent resale, disposal, or use paid directly
or indirectly
to the seller
(b) Exclusions from Transaction Value
The following
costs, if identified separately, can be excluded from the price actually paid
or payable:
1.
U. S. domestic construction, erection, or assembly costs
2. U.S. domestic transportation
3. U.S. customs duties or taxes
4. International transportation, insurance, and related incidental
costs incurred from the country of
export to the United States
5. Buying commissions
(c) Related Party Transactions
When determining
values to be declared on merchandise entered into the U.S., consideration must
be given to the relationship the importer has with the foreign supplier. If the importer is related to the foreign
supplier, the price paid for the goods may be affected by that
relationship. If so, the transaction
value, or price payable, may not be the appropriate value to be declared for
the entry.
If such
situations occur, consultation should be held with the Import Manager before
any action is taken as there are ramifications between both U.S. Customs laws
and the Internal Revenue Code.
(d) Special Rules
The transaction
value method can only be used under the following circumstances:
1. there are no restrictions on the disposition or use of the imported merchandise which substantially affect the value;
2.
there are no conditions on the price payable for which a value cannot be
determined;
3.
an
adjustment can be made for the proceeds of subsequent resale or use that accrue
directly or indirectly to the seller; and
4.
the buyer
and the seller are not related, or if related, that relationship does not affect the transaction value.
(2)
Transaction Value of Identical or Similar Merchandise
If transaction
value cannot be determined, then appraisement will be based on the sales of
similar or identical merchandise exported to the U.S. on or about the time of
the appraised merchandise and in like quantities.
(3)
Deductive Value
Deductive value
is the value of the merchandise being appraised, or identical or similar
merchandise according to one of the following criteria:
1. the unit price at which the merchandise is being appraised, or
identical or similar merchandise is sold at the time of import and in the
greatest quantity;
2. the unit price at which the merchandise is being appraised, or identical or similar merchandise is sold in the greatest quantity within ninety (90) days of importation;
3.
the unit
price at which the merchandise is being appraised, or identical or similar
merchandise is sold in the greatest quantity within one hundred eighty (180)
days of importation, if similar or identical merchandise is not sold in the
condition as imported within ninety (90) days after importation and after
further processing; provided the importer elects this method and so notifies
Customs.
(a) Exclusions from Deductive
Value
The following
costs may be excluded from deductive value:
1. Commissions paid or additions made for
profits and general expenses
2. International transportation and
insurance costs
3.
U.S.
Domestic transportation and insurance costs
4.
U.S.
Customs duties and taxes
5.
U.S.
Domestic processing
(b) Additions to Deductive Value
To the extent
not otherwise included packing costs shall be added to deductive value.
(4)
Computed Value
Computed value
is the sum of the following:
1.
Cost of
materials
2.
Costs of fabrication or processing
4.
Profit and
general expense
5.
Assists
6.
Packing
3. Assists
Assists as used
in transaction and computed value are the costs - whether supplied directly or
indirectly or free of charge or at reduced cost by the buyer - of the
following:
1. Materials, components or parts used in
the imported merchandise
2. Tools, dies, molds used in the production
3. Merchandise consumed in the production
4. Engineering, development, artwork, design
work, and plans undertaken elsewhere than in the United States.
Due to the fact
that so many different departments can play a role in determining the actual
value of an import, it is extremely important that coordination be maintained
among all concerned parties. As can be
seen above, coordination is required among departments such as Purchasing,
Engineering, Manufacturing, Logistics and Customer Service, just to name a
few. Without coordination, critical
information that may impact valuation can be omitted at the time of entry,
possibly leading to an incorrect valuation.
All import
transactions should be reviewed by the Import Manager or an individual
responsible for import activities to ensure that the proper method of valuation
is used and the correct value declared for each and every entry made into the
U.S. In addition, after the importation
of the goods, any change in the terms or payment affecting the value should be
referred to the Import Manager.
D. COUNTRY
OF ORIGIN MARKING AND LABELING OF CONTAINERS
1. Customs
Regulations Requirements
All containers,
cartons, packages, etc. must be marked as “MADE IN (COUNTRY OF ORIGIN)”. Country of origin means the last country of
manufacturing, production, or growth of any article of foreign origin entering
the U.S. Further work or material added
to an article in another country must effect a substantial transformation, or
change in tariff classification under the NAFTA rule, in order to render such
other country as the new country of origin.
All containers,
cartons, packages, etc. must be marked in a conspicuous place, in English, as
legible as possible, as permanently as the nature of the container will permit,
and at a size accessible to read by the ultimate purchaser. If the ultimate
purchaser of the product could possibly receive the product in an unpackaged
state, the product itself must be marked as “Made In (Country Of Origin)”. The
country of origin marking must be of a permanent nature so it does not become
removed from the product until received by the ultimate purchaser. The country
of origin marking label must be conspicuously placed in view of the ultimate
purchaser.
The country name
must be preceded by “Made In”, “Product of”, or “Assembled In”. Country name must be specific. “Made in E.E.C.” or “Product of West Indies”
is not specific.
Exceptions to
product marking are listed below.
However, even though the product itself may not require country of
origin marking, the packing container may be required to be marked. A Customs ruling is required if any doubt
exists of the exception.
3. Articles that cannot be marked prior to shipment except at an expense prohibitive of its importation
4. Articles which are crude substances
Specific
instructions should be provided to the foreign supplier detailing the markings
required. Failure by the supplier to
mark properly all products could lead to seizure of the goods by U.S. Customs
and penalties imposed on Company Name as the importer. In addition, Customs could request
redelivery of the merchandise, with the imposition of liquidated damages if the
goods are not redelivered.
2. Failure
to Mark
If Customs
decides an article is not legally marked, it likely will require the importer
to re-mark the product under Customs’ supervision or to redeliver the product
into Customs’ custody. If marking under
supervision is allowed, the importer must certify it has marked the goods
properly before they may be sold.
Failure to
redeliver products when required by Customs may subject the importer to a
liquidated damages claim up to the amount of the declared value of the
shipment.
In addition,
Customs may also assess marking duties of ten percent of the declared
value. It is imperative to respond
promptly to any demand from Customs for redelivery.
The filing of
false certificates of marking or false repackaging certificates may cause
Customs to seize the goods and/or claim a civil penalty. Criminal sanctions may also result from any
fraudulent statements made with respect to the country of origin marking, or if
markings are deliberately altered, obliterated, or removed after importation.
E. ALTERNATIVES
TO DUTY PAYMENTS
It is the policy
of Company Name to pay all duties, fees and taxes owed the U.S.
Government. However, Company Name
should not pay any more duty than is required or necessary. In order to minimize the amount of duty
paid, Company Name needs to take advantage of the various alternatives
to the payment of duty offered by Customs.
Those alternatives include special classification provisions found in
Chapter 98 of the Harmonized Tariff Schedule of the U.S., special preferential
tariff treatment as provided in the general notes, Temporary Importation Bonds,
ATA Carnets, Duty Drawback, and Foreign Trade Zones.
1. Harmonized
Tariff Schedule of the United States, Chapter 98 and Special Preferential Tariff Treatment as
Provided in the General Notes
Under Subchapter
I, articles exported and returned, not advanced in value or improved in
condition can be imported duty free if they meet the required provision as
stated below:
1. Products of the United States, returned
after export, without being advanced in value or improved in condition; after
temporary use abroad; -or-; articles returned for repair, etc., which will be
re-exported.
2. Articles, previously imported, on which
duties were paid, without being advanced in value or improved in condition,
returned after lease or use agreement abroad, re-imported by the original
importer.
3. Articles, previously imported, on which
duties were paid, exported within three (3) years of original importation,
re-imported without advance in value or improved in condition, returned for
noncompliance with specification, re-imported by the original importer.
4. Articles returned after temporary use
abroad for; scientific or educational purposes, exhibition in a circus,
exhibition in a public fair or convention.
These provisions
do not apply to items exported with benefit of drawback, items on which an
internal revenue tax is imposed, and items manufactured or produced in the
United States in a Customs Bonded Warehouse.
Under Subchapter
II, articles exported and returned, advanced or improved abroad, can be
returned duty free if they meet the following provisions:
1. Articles assembled abroad from U.S.
components.
2. Photographic films and plates,
manufactured in the United States (except commercial motion picture films),
exposed abroad, developed or undeveloped.
3. Under certain conditions, articles
returned to the United States after export for advance in value, repaired or
altered under warranty, or otherwise.
4. U.S. metal articles processed abroad and
re-imported for further processing.
2. Preferential
Duty Programs
The U.S. has a
number of duty preference programs which can minimize the amount of duty
payable for eligible commodities from the participating countries involved in
each program. Such programs include:
1. GENERALIZED SYSTEM OF PREFERENCE (GSP)
2. CARIBBEAN BASIN INITIATIVE (CBI)
3. ISRAEL FREE TRADE AGREEMENT
4. ANDEAN TRADE PREFERENCE ACT (ATPA)
5. NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA)
For a complete
listing and further information on these programs refer to the general notes of
the HTSUS.
It is important
to note that there are specific rules which must be complied with in order for
a good to qualify under a specific program.
The rules vary from program to program, but primarily deal with the
requirement that a substantial portion of the value of the imported good must
have come from the eligible country, or must have been substantially
transformed in the eligible country.
Generalizations cannot be made about a product’s eligibility. All of the requirements must be understood,
followed and documented before a good is entered claiming preferential duty
treatment under a particular program.
NAFTA represents
a unique situation, as NAFTA Country of Origin certificates will either be
requested from or provided to a Company Name operation for purposes of
asserting NAFTA benefits. In instances
where a certificate is requested from a U.S. Company Name operation,
such certificates should only be issued after a product has been formally
qualified
under the NAFTA
rules of origin, and signed by those individuals with specific knowledge to confirm
that a product is eligible for NAFTA preferential duty, if applicable.
Where a U.S. Company
Name operation is claiming NAFTA preference for a product imported from
Canada or Mexico, a copy of the NAFTA Certificate of Origin from the Canadian
or Mexican supplier must be obtained prior to entry and retained in your
records for the required period of time.
When a good is
being procured from a source outside the U.S., all these factors must be
considered, along with transportation costs and currency exchange rates, in
order to calculate a correct landed cost.
3. Temporary
Importation Under Bond (TIB)
Certain goods,
when not imported for sale within the U.S. or sale on approval, may be admitted
without payment of duty, under bond, for their export within one (1) year from
date of import. Only with U.S. Customs
written approval, bonds may be extended in one (1) year increments up to two
(2) additional years. Generally, the
amount of the bond is double the estimated duty. Merchandise imported under a TIB MUST be documented as
exported within the term of the bond, or extended before the bond expires, to
avoid assessment of liquidated damages.
A partial list of eligible transactions follows:
4. ATA
Carnet
ATA Carnet is an
international customs document which may be used for temporary duty-free import
of certain goods in lieu of usual customs requirements. The carnet serves as a guarantee against
payment of duties if goods are not re-exported. A carnet is valid for one year with no extensions. The United States currently allows use of
ATA carnets for professional equipment, commercial samples and advertising
material. Importers should insist on
shippers using ATA carnets where the transaction qualifies for its use.
5. Duty
Drawback
Drawback is the
refund or remission of duties or certain federal excise taxes because of a
particular use (or destruction without use) of merchandise on which the import
duty or tax was collected or assessed. The rationale of drawback, which dates
to the first U.S. tariff law in 1789, is to encourage U.S. commerce. It permits
U.S. companies, including U.S. manufacturers, to compete in foreign markets
without having to include in their costs, and consequently in the sales price
of exported merchandise, the cost of duty paid on imported merchandise.
(1)
Types of Drawback
There are
several important types of drawback, as follows:
(a) Manufacturing Direct Identification
Upon the
exportation or destruction under Customs’ supervision of articles manufactured
or produced in the United States with the use of imported merchandise, provided
that those articles have not been used prior to such exportation or
destruction, the full amount of the duties paid upon the merchandise so used
shall be refunded as drawback, less one percent of such duties. Where two or more products result from the
manufacture or production of imported merchandise, the drawback shall be
distributed to the several products in accordance with their relative values at
the time of separation, 19 U.S.C. §1313 (a)
(b) Manufacturing Substitution
If
imported duty-paid merchandise and any other merchandise (whether imported or
domestic) of the same kind and quality are used in the manufacture or
production of articles within a period not to exceed three years from the
receipt of such imported merchandise by the manufacturer or producer of such
articles, there shall be allowed upon the exportation, or destruction under
Customs’ supervision, of any such articles (notwithstanding the fact that none
of the imported merchandise may actually have been used in the manufacture or
production of the exported or destroyed articles), an amount of drawback equal
to that which would have been allowable had the merchandise used therein been
imported, but only if those articles have not been used prior to such
exportation or destruction. The total
amount of drawback allowed upon the exportation or destruction under Customs
supervision of such articles shall not exceed 99 percent of the duty paid on
such imported merchandise, 19 U.S. C. § 1313 (b).
(c) Rejected Merchandise
Upon the
exportation, or destruction under the supervision of the Customs Service, of
merchandise-
a) not conforming to sample or
specifications, shipped without the consent of the consignee, or determined to
be defective as of the time of importation;
b) upon which the duties have been paid;
c) which has been entered or withdrawn for
consumption; and
d) which, within three years after release
from Customs’ custody, has been returned to the custody of Customs Service for
exportation or destruction under the supervision of the Customs Service;
e) the full amount of the duties paid upon
such merchandise, less 1 percent, shall be refunded as drawback, 19 U.S. C. § 1313 (c).
(d) Unused Merchandise
If imported
merchandise is exported or destroyed within three years of the date of
importation, without having been used in the United States, 99 percent of the
duty paid on the merchandise may be recovered as drawback, 19 U.S. C. § 1313 (j) (1).
(e) Unused Merchandise Substitution
If merchandise
commercially interchangeable with imported merchandise is exported, or
destroyed under customs supervision within three years of the date of
importation of the imported merchandise, and (at the time of exportation or destruction)
the imported and exported merchandise is unused in the United States, then 99
percent of the duty paid on the imported merchandise may be recovered as
drawback, 19 U.S. C. § 1313 (j)
(2).
(2)
Duties Subject and Not Subject to Drawback
Drawback
is permitted for normal Customs duties and for marking duties (which are paid
for the failure properly to mark imported merchandise with its foreign country
of origin).
Drawback
is not available for the harbor maintenance fee (ocean shipments only), the
merchandise processing fee, or for antidumping or countervailing duties.
(a) Drawback on exports to Mexico or Canada
is available as follows:
·
Manufacturing Direct Identification and
Substitution Drawback -
For goods exported to Canada on or after January 1, 1996, or to Mexico on or
after January 1, 2001, drawback may be paid up to the lesser of the amount of
duties paid on the imported goods entered into the Unites States (e.g.,
the parts or materials) or on the U.S. manufactured goods entered into Canada
on which drawback is claimed.
·
Rejected Merchandise and Direct
Identification Unused Merchandise Drawback - For goods that qualify under these drawback provisions,
full drawback is allowed.
·
Substitution Unused Merchandise Drawback - Not allowed after January 1, 1994.
(3)
Obtaining Drawback
a) Drawback time limits.
b) With proper documentation, drawback may
usually be paid to the importer, the exporter, or (under 19 U.S. C. § 1313 (a) or (b) the manufacturer.
c) Failure to use reasonable care in preparation
of drawback claims may result in substantial civil penalties. Proper recordkeeping is essential.
6. Foreign
or “Free” Trade Zones (FTZ)
Foreign or
“free” trade zones are secured areas within the U.S. which are legally outside
the customs territory. These zones are
operated by various entities as a public utility to promote international trade
and commerce. Goods in foreign trade zones may be manipulated in certain
fashion, including stored, broken up, repacked, assembled, distributed, sorted,
graded, cleaned, mixed with domestic goods, etc. Duty on goods therein are not assessed until entered in the
domestic commerce. Duty on goods
re-exported from the U.S. are not assessed.
7. Customs
Bonded Warehouse
Although there
are several types of bonded warehouses, the most general one is a public bonded
warehouse used for the storage, cleaning, sorting, repacking, or other wise
changing the condition of imported merchandise at the expense of the importer,
under Customs supervision. It is
important to note here that, unlike a foreign trade zone, manufacturing is not
permitted at any time in a bonded warehouse.
The extent that
the local Customs office will supervise such a warehouse will vary, but Customs
defines supervision as periodic audits of the warehouse, spot checks for count
or procedures, review conditions of recordkeeping, security or storage in the
facility.
There is a
storage and maintenance fee charged by the proprietor of the warehouse which is
usually higher than a non-bonded warehouse. The true benefit of storing goods in a bonded facility is that
duties do not get paid to the U.S. Government until the merchandise is removed
from the warehouse with a proper Customs entry, which may be up to five (5)
years from the date of importation.
III. CORPORATE
COMPLIANCE PROCESSES
A. RESPONSE
TO CUSTOMS QUESTIONS, NOTICES, AUDITS AND INVESTIGATIONS
Responding to
Customs inquiries or notifications of any type should be only through the
Import Manager. It is important that Company
Name cooperate with U.S. Customs in a timely manner through the proper
channels identified for the Business Unit.
Customs inquiries can be categorized as described below.
1. U.S.
Customs Questions
Questions from
U.S. Customs can occur in the form of telephone inquiries, importer premises
visits, or Requests for Information/Customs Form 28. All Requests or Notices from Customs should be directed to the
Import Manager with a copy to the broker.
All responses must be provided within the allotted time frame as stated
on the Customs Requests or Notices unless an extension is granted. Failure to respond within the allotted time
could minimize any opportunity to provide information beneficial to support Company
Name’s position and lead to a denial of benefits being claimed.
2. U.S.
Customs Notices
Notices from
U.S. Customs can occur in the form of Notices of Action (Customs Form 29),
Liquidation, Penalty, Seizures, Detention, Demands for Liquidated Damages, and
Marking/Redelivery. All such notices
should be directed to your Import Manager for handling. All responses must be provided within the
allotted time as stated on the Customs Notice.
Certain notices,
such as Detention, Liquidation and Redelivery may be challenged by the filing
of an administrative protest within ninety (90) days of the date of Customs
action. Such protest should be filed by
your Import Manager.
In certain
circumstances, clerical errors or mistakes in fact could be corrected up to one
(1) year after date of liquidation.
Other notices,
such as Seizure, Penalty, or claim for Liquidated Damage under the bond, may
only be address through the filing of a written petition and should be referred
to your Import Manager.
3. U.S.
Customs Audits
The Customs
examination of records is authorized by specific law. This gives Customs the authority to examine records maintained by
the importer to ensure compliance with the laws and regulations administered by
the Customs Service. Auditors are
responsible for determining the accuracy, completeness, and overall integrity
of financial and other pertinent data reflecting various business
transactions. Under the Customs
Modernization Act, importers can expect to be audited every three (3) to five
(5) years. The Customs officer
requesting to examine records must provide reasonable notice, either orally or
in writing to the recordkeeper and describe the records to be audited with
reasonable specificity.
Upon receipt of
a U.S. Customs notification of audit, advise the Customs representative that
their request will be forwarded to the Import Manager. The Import Manager must
notify Company Name’ chief counsel of any pending audit.
4. U.S.
Customs Investigations
Customs Special
Agents are part of the investigation arm of Customs. It is the policy of Company Name that any questions from
Customs Special Agents should only be answered with counsel present. No answers should be given to any questions
unless Customs presents a subpoena or search warrant. The Import Manager should
be contacted immediately.
B. RECORDKEEPING
REQUIREMENTS
All transactions
related to U.S. imports are subject to recordkeeping requirements. Those required to maintain records include
any owner, importer, consignee, importer of record, entry filer, carrier, agent
(broker, forwarder, person holding an importer power of attorney) of any party
described above or person whose activities require the filing of any entry or
declaration or both.
1. What
Records Must Be Kept?
a) Recordkeepers must make, keep and render
for examination and inspection records which:
b) Involve any customs activity (entry,
bonded warehousing, carriage, brokerage activities);
c) Pertain to the information contained in
the records required by the Customs laws with respect to such activities; and
d) are normally kept in the ordinary course
of business.
e) Any record or entry information that is
required to be maintained and produced under Customs regulations (e.g., (a)(1)(A) list).
Sample Importer
Recordkeeping Process Table
|
IMPORTER PROCESS |
SOURCE DOCUMENTS |
SUMMARY FINANCIAL RECORD |
CUSTOMS PURPOSE |
|
Purchasing |
Material
request, Purchase order, Invoice |
Purchase
Journal |
Document
price, quantity, specifications, terms, parties, origination |
|
Receiving |
Receiving
report, Packing Slip Invoice |
Accounts
Payable, Cost of Goods Sold, Inventory Record |
Validate above
data: e.g., ordered to received |
|
Payment |
Check, Letter
of Credit, Wire Transfer |
Accounts
Payable, Disbursements Journal |
Account for
all applicable payments |
|
Inventory |
Stock record
card, Automated database |
Inventory
Ledger, Raw Material, Work in Process, or Finished Goods |
Validate
quantity, price, description of Material received and used |
|
Logistics |
Bill of
Lading, Shipping Order |
Shipping Log |
Validate
source & disposition of Material |
|
Manufacturing |
Work Order,
Batch or lot traveler |
Manufacturing
Ledger Costs of Goods Sold Ledger |
Determine
transformation, use, continuity and identity |
|
Sales |
Sales Order,
Invoice |
Sales Journal
or Ledger |
Validate price
and disposition |
|
Financial
Reporting |
Summary
Journals and Ledgers |
General
Ledger, Trial Balance, Financial Statements |
Validate
source documents and journal entries, relationship and impact |
Note: This is a sample of the type of documents
that should be retained.
All required
documents must be retrievable, when requested by Corporate Audit, U.S. Customs
or other government agencies, in a reasonable period of time. Customs would expect required documents to
be retrieved within the following time frames:
|
AGE OF ENTRY |
MAXIMUM RETRIEVAL TIME |
|
1 day to 1
month |
5
days |
|
1 month to 6 months |
10
days |
|
6 months to 1
year |
15
days |
|
1 year to 3
years |
20
days |
|
3 years to 5
years |
30
days |
2. How
Long Must Records Be Kept?
a) Required records must be kept, as
appropriate, for a minimum of five (5) years from date of entry or date of
importation.
b) Drawback records must be kept until the
third anniversary of the date of payment of the claim.
However, there
may be additional requirements for maintenance of these records beyond five (5)
years.
Approved third
party recordkeepers may supply recordkeeping systems as agents for importers of
record. Such parties must confirm to
all procedures and requirements and be approved by Customs. Decisions to use third parties should only
be made after careful thought and consideration.
If an agent,
official or employee of the U.S. Government requests information or copies of
any records, such requests should be referred to the Import Manager for review
and action.
C. INTERNAL
REVIEWS AND AUDITS
Periodic audits
of each division’s import transactions will be conducted by the Import Manager.
The purpose of such audits is to:
1.
Ensure that
internal controls are adequate and functioning properly for compliance with
import regulations and Company policies and procedures;
2.
Ensure that
the processes and procedures are sufficient for the business involved;
3.
Recommend
any improvements to the department managers for strengthening internal controls
for compliance with import regulations and Company policies and procedures; and
4.
Ensure that
records are maintained in compliance with government and Corporate
requirements.
A written report
will be issued by the Import Manager
to the Logistics Manager with the results of each review. Key management will be notified of the
results and what corrective actions are needed.
D. NOTIFICATION
OF SUSPECTED PROBLEMS OR ILLEGAL ACTIVITIES
When
questionable, unauthorized, or illegal activities are discovered or suspected
by any employee, they must immediately report such suspicions to the Import
Manager. All information will be reviewed
to determine what action, if any, must be taken. If information is received that an illegal import may occur,
notification will be made by the Import Manager to the appropriate government
agency.
Employees must
not ignore or cut off the flow of information that comes to them in the normal
course of business, in order to avoid potential compliance issues. Knowledge possessed by an employee of Company Name can be imputed to the
Corporation as to make it liable for any violation. Therefore, it is imperative that any suspicions be brought to the
attention of the appropriate company officials for thorough review and
evaluation. Such suspicions should be
referred to the Import Manager and the Logistics Manager.
E. CUSTOMS
ENFORCEMENT TOOLS
Customs has a
variety of tools for enforcing the laws governing importation of
merchandise. Depending on the
situation, the law provides for criminal sanctions, civil penalties, seizure
and forfeiture of merchandise, or liquidated damages. In addition, Customs may detain merchandise in its custody at the
time of importation or demand redelivery of merchandise later suspected of not
being in compliance with laws enforced by the U.S. Customs Service.
Customs enforces
over 400 different legal requirements on behalf of approximately 60 different
agencies. Customs may refuse entry to
an imported product which does not meet the U.S. (or state) legal requirements
which it enforces.
In addition,
imported products that bear counterfeit trademarks, or marks which copy or
simulate a registered trademark of a U.S. or foreign corporation, are
prohibited importation, provided a copy of the U.S. trademark registration is
filed with U.S. Customs Headquarters and recorded in the manner provided in the
Customs regulations. Customs affords
similar protection against unauthorized importation of products bearing
recorded U.S. trade names.
1. Liquidated
Damages
Company Name posts a bond with Customs in order to
obtain release of the imported merchandise. The bond is a contractual obligation
in which the principal (Company Name), a surety (an insurance company
approved by Customs), and Customs agree that either Company Name or the
surety will pay all duties and taxes due, make or complete the entry, produce
required information and documents, redeliver the merchandise to Customs on
demand, and comply with any other importation and entry requirements set forth
in the bond. If the contract (bond) is
broken, Customs can assess liquidated damages.
Liquidated damages for breach of the bond are most often assessed for
deficiencies in document filings and failure to redeliver merchandise (e.g.
country-of-origin marking problems).
If Customs
serves a “Demand for Liquidated Damages” (CF 5955A) on the importer and surety,
the importer has 60 days to petition for cancellation of the demand. The demand usually will be for the full
value of the shipment. Customs usually
will consider canceling the claim on payment of a mitigated fine.
2. Civil
Penalties
Another primary
enforcement tool used by the U.S. Customs Service is the civil penalty
statute. It applies to false statements
and material omissions made in connection with an entry.
(1)
Elements of a Violation in Connection with Entry of Merchandise:
a) no person (includes U.S. exporters,
foreign exporters, officers of corporations, brokers)
b) by fraud, gross negligence, or negligence
c) by means of a document, oral statement,
omission, or act which is material and false
d) may enter, attempt to enter, or introduce
any merchandise into the United States, 19 U.S.C. §1592 (a).
(2) Violation
Violation occurs
whether or not entry is successful and whether or not there is a loss in
duties. False declarations to avoid
import quotas may constitute a violation.
(3) Maximum Penalties
Fraud: Domestic
(U.S. resale) value.
Gross Negligence: Four times loss of duty or 40 percent of value of
shipment, whichever is lower.
Plus collection of unpaid duties, if any, and
interest on unpaid duties from date payment was originally required by law.
(4) Administrative Proceeding
·
Pre-penalty
Notice from the local Customs office
·
Response -
oral & written
·
Penalty
Notice from the local Customs office
·
Response -
oral & written
·
Decision
from local Customs office or Customs Headquarters in Washington, D.C. - may be
mitigated
·
Payment of
penalty by importer
·
Action in
Court of International Trade if importer fails or refuses to pay
(5) Statute of Limitations/How Far Back
Can Customs Go?
·
Fraudulent
Five Years from Customs discovery of the Violations:violation
· Negligence or gross negligence: Five years
from date of entry.
3. Voluntary
Disclosure of Material Errors in Entry
“Voluntary
disclosure” procedures permit the importer or other “person” subject to
potential civil penalty (above) to limit potential liability by voluntarily
informing Customs of a violation before Customs commences an
investigation or before the person has reason to believe that Customs has
commenced an investigation.
A successful
voluntary disclosure will likely reduce potential civil penalties to the
following levels:
For fraud, an
amount not to exceed the lost duties;
For negligence
or gross negligence, an amount not to exceed the interest on lost duties.
Voluntary
disclosure permits the importer to correct an error which has resulted in the
underpayment of Customs duties.
However, Customs will carefully scrutinize each voluntary disclosure to
ensure that it complies with the legal requirements for voluntary disclosure. Company
Name personnel should consult legal counsel before attempting to make a
voluntary disclosure.
4. Seizure
Customs has very
broad authority to seize “any merchandise introduced or attempted to be
introduced into the United States contrary to law.” In practice, Customs uses this authority to seize commercial
importations of merchandise which is not legally marked, infringes a trademark,
violates a textile quota agreement, violates FDA requirements, or has otherwise
entered the United States illegally.
Customs’ policy is not to seize merchandise when it is an importer’s
first offense or when a less severe remedy (such as a Notice of Redeliver) is
available.
5. Criminal
Penalties
In addition to
civil penalties and seizures, there are several provisions of the U.S. criminal
code which pertain to Customs violations.
The most commonly used provisions are those which make entry of
merchandise by means of false statement a crime and those which make a false
statement to a U.S. government official a crime.
Any action taken
by a Company Name employee that is in violation of U.S. Customs law may
subject the company and/or employee to criminal, as well as civil,
investigation and/or sanctions. Company Name’s policy is absolute
compliance with U.S. customs laws.
Every employee must immediately report any failure in compliance to the
appropriate authority within the company so that corrective action can be
taken. (Please refer to Section III - D. Notification of Illegal Activities.)
IV. SUMMARY
STATEMENT
A. PRESIDENT’S
STATEMENT POLICY
It is important
for all of us to recognize that our Company policy is to be in compliance with
Customs laws and regulations at all times. I would like to remind everyone
involved of several key points in order to ensure that all appropriate efforts
are made to provide for expeditious entry of imported/exported materials at our
company:
All goods
(including manufactured products, promotional merchandise, samples, equipment,
packaging and advertising literature) sent from across an international border
must be properly declared, with entry made to U.S. Customs. There are no
exceptions.
Internal
procedures have been established to improve the accuracy, classification,
country of origin marking and valuation of
products. However, these measures are not foolproof and may require
technical expertise and continuing education for everyone involved in the
importing/exporting process. If you have any questions, contact our Import
Manager or Logistics Manager for information prior to shipping or
purchasing.
Procedures have
been established for import/export and shipping personnel to follow to ensure
accurate, complete and timely information is provided to Customs by employees
of Company Name
Purchasing must
contractually require foreign vendors to provide the appropriate Customs
information when necessary. All documents utilized to support the entry of
goods mentioned above must be kept for a minimum of five (5) years from the
date of entry.
We should ensure
that we establish and adhere to these above procedures on a continuing,
rigorous basis. I know we will all work together on this effort to ensure
continued success by Company Name, in the global marketplace. If
everyone does their share, we will succeed.
_________________________
President, Company
Name, Incorporated
B. RESPONSIBLE
OFFICERS OF Company Name Corporation,
The following
are the responsible officers of Company Name, Incorporated:
President
Vice
President
Division
Managers
TBD