Importing into the U.S.

IMPORT 101: WHAT YOU NEED TO KNOW

By Gary L. Gardner

COPYRIGHT

©2014 Gary Gardner

i

FOREWARD This book is intended to help first time importers of goods to the United States understand some of the regulations and import processes. From a brief history of importing, to current rules and policy, this guide will answer some of the questions most commonly encountered for customs and import. However, you need to know what you don’t know! This book is intended to give you that knowledge and answer the questions “What are my roles and responsibilities when importing goods into the United States? and “What are the roles and responsibilities of my Customs Broker?” The rules and regulations change often and a licensed customs broker should be consulted for the most current information. For additional questions, you may contact Hawthorne Global, Customs Brokers and Freight Forwarding, to see how importing is right for you and your business.

Thank You and enjoy, Gary Gardner E.R. Hawthorne www.erhawthorne.com

ii

CHAPTER 1

Customs History

The Constitution of the United States went into effect on March 4, 1789 and four months later the U.S. Customs Service was one of the first federal agencies to be formed. One of the first problems for the new nation was its massive debt load and the collection of duties on imported goods was seen as a critical component of the survival of the United States. Shortly after the Office of Customs was opened Captain James Weeks sailed into New York with miscellaneous goods from Italy and was accessed a duty of $774.41.

3

SECTION 1

U.S. Customs Bureau of Customs & Border Protection

Figure 1.1 Port of Entry into the United States

1. http://www.cbp.gov/ 2. Tips for Importing from CBP

U.S. Customs is the Bureau of Customs & Border Protection website map

U.S. Customs is now a part of the Department of Homeland Security and is now a part of the “Bureau of Customs & Border Protection,” which includes all the functions of the original U.S. Customs combined with the Border Patrol in 2003. The primary functions of the United States Customs & Border Protection (CBP) is the enforce4

ment of Customs regulations and the collection of duties, fees, and taxes related to the importation of goods from foreign countries. Ultimately, they are a taxing organization with a complex set of rules and regulations based on trade agreements with foreign entities. Certain goods may be duty free if from a country that we have a spe-

cial relationship with while the same good may be forbidden if from a country deemed an enemy of the state or under embargo. Additionally we have special agreements with developing countries in an effort to help them become more economically viable. Much like the IRS tax codes, common sense does not reign, and only the rules and regulations are pertinent. You cannot use logic to navigate your way through the Harmonized Tariff code and this is where an experienced customs broker is worth their weight in gold. Extra duties, not to mention significant fines and penalties for improper actions, can significantly outweigh the any gains received through the importation of the product. The CBP is responsible of enforcement of regulations to control and facilitate the movement of carriers, people and commodities between the United States and other nations. Not only do they detect smuggling and other illegal practices but they investigate fraudulent activities related to payment of duties, taxes and fees. All of the above being said there are thousands of companies that benefit daily from the commercial import of products. You can too!

5

CHAPTER 2

Overview of Importing

The bringing in of products or goods to the United States from foreign countries can be a complicated and overly documented process. Goods may be entered for consumption, entered for warehouse at the port of arrival, or transported in-bond to another port of entry. Outlined below is the ‘easy path’ to a legal and efficient system to having your goods arrive on schedule and without penalty. 6

SECTION 1

Easy Steps for Importing Figure 2.1 Importing Goods is easiest when following the proper sequence of events.

1.

Contact a US Customs Broker as your partner 1.1.

Customs Brokers are licensed by CBP, but the importer is ultimately responsible

3.5.

Certificate of Origin

3.6.

Documentation as required for involved U.S. Agencies. (i.e. FDA, FCC, etc.)

2.

Provide your Customs Broker limited Power of Attorney

4.

Obtain an Import Bond

3.

Arrange for proper documentation of goods to include:

5.

File the Importer Security Filing (ISF) in advance of goods arriving by vessel (some exceptions are provided for)

6.

Schedule shipping and transportation of goods to US per INCOTerms guidelines.

3.1.

Commercial Invoice

3.2.

Packing List

3.3.

Bill of Lading or Airway Bill

3.4.

NAFTA Certificate if applicable

7

CHAPTER 3

Entry of Goods into U.S.

Customs requires proper documentation be presented for the entry of goods into the country. The three base documents you must provide are: •! commercial invoice •! packing list •! bill of lading or airway bill 8

SECTION 1

Entry Forms Prepared by Customs Broker

Image 3.1 Entry Forms for Import Documentation and Release

1. Form 3461 - Entry / Immediate Delivery 2. Form 7501 - Entry Summary 3. Power of Attorney - You will need to sign a limited Customs Power of Attorney which allows your customs broker to conduct Customs business on your behalf.

As more and more imports are completed, there will be a familiarity of the entry developed and this portion of the process should become more routine. From the information provided, your customs broker will prepare the required entry forms. Customs personnel may review the packet and may examine the goods in part or in its entirety. Based on the information and the inspection the customs officer will then make a determination if they will approve the release of the goods. Often, 9

new importers will be required to provide additional documentation to obtain a release. A customs broker with years of experience, knowledge and relationships can be instrumental in the navigation of this process.

SECTION 2

Entry Documents Figure 3.1 Goods released Customs for clearance

When presenting your shipment to Customs for clearance you must present a complete set of documents to ensure they are released timely and to avoid, to the best of your ability, any holds. As stated before, these documents will minimally include:

Additionally, certain products may require: • a NAFTA Certificate (if the goods are from Mexico or Canada) • a Certificate of Origin (if from a country where knowing this could reduce/remove duties)

• a commercial invoice

• documents required by other government agencies such as FDA, FCC, etc.

• a packing list • a bill of lading/air waybill

10

SECTION 3

Bonds for Customs Activities Figure 3.2 Continuous bonds for entry payment of goods

Customs requires that Importers obtain a bond or Surety, which is used as a guarantee of payment, for their shipments.  There are two types of customs bond:  Single entry bond and Continuous bond. 

ments per year. If you are importing goods that may involve governmental agencies such as FDA, FCC, Fish & Wildlife, etc. it will be very important to understand your bonding requirements. E.R. Hawthorne, like most experienced customs brokers, maintains relationships with bonding agencies which specialize in the bonding of customs related activities and can guide you through this process.

A continuous bond is more cost effective if you are planning multiple entries per year while a single entry bond is less complex and is usually used if you are planning only one or two small ship11

SECTION 4

Importer of Record Right to Make Entry

Figure 3.3 Import of Goods with Right to Make Entry

1. 19 CFR 141.11

Shipping Containers transport goods and require a bill of lading or air way bill.

The Importer of Record is the person or entity designated or named on the documents listed below as the consignee or the party authorized to make entry. The “Right to Make Entry” requires the you provide sufficient proof along with entry documentation that identifies the person or entity that files for entry as having sufficient inter-

12

est in the cargo to qualify as an importer when the merchandise is not released directly to the carrier (19 CFR 141.11) These can include: 1.

A negotiable and properly endorsed bill of lading or air way bill.

2.

An extract from a bill of lading or airway bill, certified by the carrier.

3.

A certified duplicate bill of lading or airway bill.

4.

A carriers certificate of other means of certification and release order with original signature.

5.

A blanket carrier’s certificate.

6.

A shipping receipt or other document presented in lieu of a bill of lading or air way bill if bearing a carriers certificate, of if entry is made by the actual consignee in person or in his name by a duly authorized agent.

Your customs broker will ensure you have provided the correct documentation to prove you are the Importer of Record and have the Right to Make Entry.

13

SECTION 5

Power of Attorney Entry Made by Others

Figure 3.4 Entry of Goods made by others

1. CBP - Power of Attorney form for goods arriving by commercial carrier.

Merchandise arriving by owner, purchaser, authorized regular employee or licensed customs broker

In addition to a Bond or Surety, a Customs Broker making entry on your behalf will be named in a CBP power of attorney by the person or firm who is bringing goods in to the United States. Customs Brokers are the only persons authorized by the tariff laws to act as agents for importers in their customs business.

14

A power of attorney document requirement is different for resident, non-resident individuals and foreign corporations. Your Customs Broker will provide directions for the needed CBP power of attorney to act as your agent.

SECTION 6

Country of Origin Marking Figure 3.5 Containers and goods marked for import 1. 19 CFR 134.11

Goods must be properly identified as to the country of manufacture, production, or growth of any article of foreign origin entering the United States. It is required that every article of foreign origin (or its container) imported into the U.S. must be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such manner as to indicate to an ultimate purchaser in 15

the U.S. the English name of the country or origin of the article at the time of importation into the Customs territory of the U.S. (19 CFR 134.11). Articles, combined goods and containers all must follow strict guidelines. Improper markings can delay the clearance of your goods and potentially lead to fines and penalties.

CHAPTER 4

Commercial Documents

Documents for commercial import and delivery are used to identify goods, their ownership, history and means of transportation.

16

SECTION 1

Commercial Invoice Image 4.1 Commercial Invoice requirements for importing products and goods 1. 19 CFR 141.83

A commercial invoice is a commercial document in a form consistent with the trade, identifying both buyer and seller, reflecting the actual price paid or payable, the terms of payment and sale, the currency used for payment, the articles sold, and other specific information required to substantiate the statistical reporting requirements

17

and to arrive at the transaction value of the product for duty assessment purposes. (19 CFR 141.83) The commercial invoice should include: • The seller’s name, address, and contact information

• The buyer’s name, address, and contact information • The delivery location and address • The date, the invoice number, and a purchase order number • The Commercial Terms of the shipment - INCOTerms • The currency used for the transaction • The description, price, quantity and line total for each item • The shipping, packing, and insurance costs if applicable • Total of all charges • MUST BE IN ENGLISH

If a commercial invoice is not available a “Proforma Invoice” should be created with the same applicable data. Common invoicing errors for international shipments: A. Not including the country of origin for the goods. B. Not including the proper Commercial Terms. Please refer to INCOTerms. C. Inaccurate or incomplete descriptions of the goods. D. Invoice not in English.

18

SECTION 2

Examination of Imported Goods Figure 4.1 Central Examination Stations review of import goods

Customs entry exam holds may be unavoidable and are often a reality for first time importers. Each year thousands of import shipping containers are held for exam based on poor documentation which raises flags in customs. Although you cannot guarantee that

your importable goods will not be held for exam there are steps that can be taken to ensure you are not raising suspicion through improper paperwork.

19

As per Customs Border Protection (CBP), the importer shall bear any expense involved in preparing the merchandise for CBP examination and in the closing of packages” (19 CFR 151.6). Goods may be examined to determine: • value of goods and their dutiable status • proper marking for their country of origin • prohibited articles • correct documentation including invoicing • excess goods over invoiced quantity or shortages • illegal goods including narcotics In the course of normal operations, CBP does not charge for cargo examinations. However, there may still be costs involved for the importer. If your shipment is selected for examination, it will generally be moved to a private Centralized Examination Station (CES) for the CBP exam to take place. The CES facility will unload your shipment from its shipping container and make it available to U.S. Customs for examination. The CES will bill you for their services including any transportation costs associated with relocating the container to the CES. Under 19 USC 1467, CBP has a right to examine any shipment imported into the United States and it is important that you understand that you are responsible for any costs associated with the examination. Textiles and textile products are considered trade-sensitive with several countries and may be examined more often than other goods.

20

SECTION 3

Reasonable Care to Prepare for Customs Clearance Figure 4.2 Freight Forwarders help ensure compliance and responsibility 1. Title VI, PL 103-102 NAFTA, Sec. 621 2. Small Business and Regulatory Enforcement Fairness Act

US Customs assumes you will utilize whatever resources are necessary, predominately a reputable Customs Agent and Freight Forwarder to ensure compliance with customs clearance and other laws and regulations. 21

Such actions include, but are not limited to: 1.

Utilizing experts for advice and assistance;

2.

Obtaining laboratory analysis;

3.

Obtaining binding rulings from Customs;

4.

Attending training provided by Customs or other experts;

5.

Establishing internal controls and audits;

6.

Providing correct information to brokers and Customs regarding the merchandise and terms of sale, etc.

Your customs broker is a key element in your efforts to exercise reasonable care. Our job is NOT to help you misclassify goods to avoid duty but rather to ensure you correctly classify your goods to obtain the most accurate classification possible.

22

CHAPTER 5

Rules of Transportation

The INCOTerms or International Commercial Terms are pre-defined by the International Chamber of Commerce (ICC) and widely supported. Their use is not mandatory, but it is a recommended practice to aid in import and shipping.

23

SECTION 1

ICC Rules for Any Mode of Transport Figure 5.1 International Chamber of Commerce (ICC) Rules

The seven rules defined by Incoterms 2010 for any mode(s) of transportation are:

EXW – Ex Works (named place of delivery) (ex: “EXW Hong Kong”) The seller makes the goods available at its premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. 24

FCA – Free Carrier (named place of delivery) (ex: “FCA Hong Kong” The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. CPT - Carriage Paid to (named place of destination) (ex: “CPT Hong Kong”) The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier. This does not include other Export costs. CIP – Carriage and Insurance Paid to (named place of destination) (ex: “CIP Houston”) The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. DAT – Delivered at Terminal (named terminal at port or place of destination) (ex: “DAT Houston”) Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal. DAP – Delivered at Place (named place of destination) (ex: “DAP Houston”)Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer. DDP – Delivered Duty Paid (named place of destination) (ex: “DDP Houston”) Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes.

25

SECTION 2

Rules for Sea and Inland Figure 5.2 Water transport of international goods 1. INCOTerms 2010, ICC publication 715

The above table is referenced from Wikipedia illustrating the costs to buyer or seller according to the terms.

The four rules defined by INCOTerms 2010 for international trade where transportation is entirely conducted by water are: FAS – Free Alongside Ship (named port of shipment) (ex: “FAS Hong Kong”) The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. 26

Suitable only for maritime transport but NOT for multimodal sea transport in containers (see INCOTerms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo. FOB – Free on Board (named port of shipment) (ex: “FOB Hong Kong”) The seller must load the goods on board the vessel nominated by the

buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for export. CFR – Cost and Freight (named port of destination) (ex: “CFR Houston”) Seller must pay the costs and freight to bring the goods to the port of destination. Risk is transferred to the buyer once the goods are loaded on the vessel. CIF – Cost, Insurance and Freight (named port of destination) (ex: “CIF Houston”) Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only. Determining who is responsible throughout a shipment process and when ownership is transferred can be complicated.

27

CHAPTER 6

Duties / Fees / Taxes

Duties, Fees and Taxes are determined by a goods Classification and the Country of Origin. All goods imported into the U.S. are subject to duty or duty-free entry determined by their classification.

28

SECTION 1

Harmonized Tariff Schedule Classification and Value for Import

Figure 6.1 Ships at Port with goods to be offloaded

1. http://www.usitc.gov/ tata/hts/bychapter/

Classifying goods under proper categories is critical for correct assessment of duties. Customs Brokers have experience in applying the HTSUS. All goods entering the United States must be classified using the Harmonized Tariff Schedule of the United States (HTSUS). This publication lists the duty rates for all products, as well as the conditions of various trade agreements negotiated with other countries. The classification system has been standardized by more than 150 coun-

29

tries around the world. Your customs agent will work with you to determine the correct classification of your goods. HTSUS classification will determine your duty rate and the eligibility of your goods for preferential status of goods under current trade programs or if there are potential penalties or restrictions currently in place.

When goods are assessed a duty, they will fall into one of three categories. Duty is ad valorem, specific or a compound rate. Ad Valorem is a percentage of the value of merchandise. A specific rate is per unit of weight or other quantity. A compound rate is a combination of both ad valorem and specific. The proper classification of goods in your shipments is based on both skill and experience and requires a unique understanding of the HTS and all it’s sub-parts. Much like understanding tax code, a significant amount of time is devoted to parsing out the confusion of overlapping sections. This becomes increasingly difficult if your imports are made up of varying parts and origins such as textiles or clothing. Improper classifying goods may lead to fines and penalties. Additionally the improper classification of goods could mean paying more duties than you are required to pay. Properly classifying goods is a skill learned by import and customs entry professionals through their years of experience and overseen by a licensed customs broker. It is important that you work closely with your customs agent and are forthcoming with all required documentation to ensure an accurate classification.

30

SECTION 2

Trade Programs NAFTA

1. 107 Stat 2057 2. Public Law 103-182 3. 19 CFR 181

Figure 6.2 Free Trade Agreements help foster import incentives

Trade Programs have been put in place to assist developing countries and emerging technologies. Your customs broker can assist in determining what items are eligible for trade programs. The most commonly used trade programs and agreements include:

NAFTA: North American Free Trade Agreement 31

The North American Free Trade Agreement, effective January 1, 1994, provides duty preferences and other benefits to goods that qualify as products of the NAFA territory, i.e. Canada, Mexico and the United States (107 Stat 2057; Public Law 103-182; 19 CFR 181) Goods must meet country of origin rules and other documentation requirements.

A.

were made entirely in one of those countries and

B.

have a completed NAFTA Certificate included with the documents to prove it.

The majority of NAFTA related goods are duty free. In addition, they do not require paying a Merchandise Processing fee. This combination makes it a well incentivized program.

GSP: Generalized System Of Preferences This is a preferential program positioned to help underdeveloped programs by lowering the cost of import. This is accomplished by waiving the duty on many of the goods and has been in place in some form since January 1, 1976. Other trade programs include the Caribbean Basin Economic Recovery Act (CBERA), Andean Trade Promotion and Drug Eradication Act (ATPDEA) and the U.S.-Israel Free Trade Area Agreement (ILFTA). One side effect of programs like the GSP or is the ability to intentionally outsource production and import to other countries, lowering costs to below levels of primary markets. This ultimately hurts those primary businesses and constrict the number of producers. For this reason, there are also Dispute options including Antidumping. If you have concerns over any of the Trade Programs, consult your Customs Broker for more detailed information.

32

SECTION 3

Dispute Settlement Review and Enforcement

Figure 6.3 Additional duties may be assessed for unfair practices

1. Anti-Dumping 2. General Dispute Settlement

Additional duties may be assessed against a product found by the International Trade Commission (ITC) to be sold at less than the fair market value. “Dumping” occurs when a foreign vendor or manufacturer sells the product in the U.S. for less than its cost of production, or less than the sale price in the home market.

33

Countervailing is the leveling or additional subsidy of the duty. ITC will investigate inquiries. Other reviews are conducted such as the position of NAFTA Secretariat has been charged with oversight of general disputes regarding the implementation or interpretation of NAFTA assessments.

CHAPTER 7

Additional Resources

For specific information regarding your goods and products, please consult your qualified Customs Broker and Freight Forwarder. Additional information can be found in the following Resources Section.

34

SECTION 1

Import Resources Figure 7.1 U.S. Transportation and Shipping Resources

Full list of Informed Compliance Publications: http://www.cbp.gov/trade/rulings/informed-compliance-public ations

Importing Into The United States United States Customs and Border Protection http://www.cbp.gov/sites/default/files/documents/Importing %20into%20the%20U.S.pdf International Chamber of Commerce (ICC) - InCo Terms

NAFTA Compliance http://www.naftanow.org/about/default_en.asp

Ports of Entry: http://www.cbp.gov/contact/ports

Customs Broker And Freight Forwarder

Port of Houston: http://www.portofhouston.com/

E. R. Hawthorne of Hawthorne Global: http://www.erhawthorne.com

35

CBP United States Customs and Border Protection

Related Glossary Terms Drag related terms here

Index

Find Term

HTS Harmonized Tariff Schedule

Related Glossary Terms Drag related terms here

Index

Find Term

INCOTerms INCOTerms or International Commercial Terms are a series of pre-defined commercial terms published by the International Chamber of Commerce (ICC) widely used in commercial transactions. The ICC is the largest international business organization in the world. The use of their terms is not mandatory, but considered a recommended practice. They intention of these terms is to reduce interpretation of rules between countries and allow for simplified trade worldwide. Below is a list of the accepted terms with a short definition, followed by some recommendations.

Related Glossary Terms Drag related terms here

Index

Find Term