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 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
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.
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.
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.
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.
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.
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.
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.
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.
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
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
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
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
SUMMARY FINANCIAL RECORD
Material request, Purchase order, Invoice
Document price, quantity, specifications, terms, parties, origination
Receiving report, Packing Slip Invoice
Accounts Payable, Cost of Goods Sold, Inventory Record
Validate above data: e.g., ordered to received
Check, Letter of Credit, Wire Transfer
Accounts Payable, Disbursements Journal
Account for all applicable payments
Stock record card, Automated database
Inventory Ledger, Raw Material, Work in Process, or Finished Goods
Validate quantity, price, description of Material received and used
Bill of Lading, Shipping Order
Validate source & disposition of Material
Work Order, Batch or lot traveler
Manufacturing Ledger Costs of Goods Sold Ledger
Determine transformation, use, continuity and identity
Sales Order, Invoice
Sales Journal or Ledger
Validate price and disposition
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
1 month to 6 months
6 months to 1 year
1 year to 3 years
3 years to 5 years
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).
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.
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: