The Import Process

April 24, 2008

Presented by:Robert Stein –Director of Entry Services

Role of the Freight Forwarder

Freight Forwarder – an agent for the exporter or importer in moving cargo between overseas destinations.Familiar with the import and export rules and regulations of foreign countries.Knowledgeable with methods of shipping, and documents related to international trade.Assists and facilitates with international import transactions.

Role of the Freight Forwarder

Well versed with export regulations of the U.S. Government.Export freight forwarders are licensed by the IATA (International Air Transportation Assoc.) to handle air freight and the FMC (Federal Maritime Commission) to handle ocean freight.

Your Customs Broker

Advises you of important regulations and changes that affect your importsProvides information and expertise that allow you to comply with Customs standard of “Reasonable Care”Can consult with you to help train staff and establish compliance programsPrepares your documents for Customs entry using the Harmonized Tariff System of the United States (HTSUS)

Who is responsible for the correct HTS number?

You are!!!!

The importer/exporter of record is responsible for the correct HTS#

The Harmonized Tariff System (HTS)

Is a complete product classification system which is organized in a particular framework and which employs a numbering or coding system consistent with its organizational arrangement.What does this mean?

HTS is organized by chapter from simplest to most complex.

Each chapter is organized from simplest to most complex.

HTS Framework

97 chapters grouped in 21 sectionsAdopted by more than 100 countriesUsed to classify/describe articles for both import and exportUtilizes “General Rules of Interpretation”Is “harmonized” to six digits onlyHTSUS can be downloaded in parts or in its entirety at www.cbp.gov

Classification

Duties are paid based on the HTSUS numberCommodities classified by

Descriptive literature – material fact for commodity;The function of the article in its imported condition; andConsulting with experts (reasonable care)

Experts – Customs brokers, Customs attorneys, Customs consultants

Binding Rulings - The best tool for complianceGuarantee that CBP cannot change your classification after the fact. Shows CBP that you have exercised reasonable care.

Special Tariff Treatments

GSP – Generalized System of PreferencesNAFTA – North American Free Trade AgreementCAFTA – Central American Free TradeCBI – Caribbean Basin InitiativeAPTA – Andean Trade Preference ActIFTA – Israel Free Trade AgreementMany more trade agreements and more are approved each year.

Each agreement has rules of eligibility.

The Entry Process

Your Customs broker receives documents for the shipment to be cleared.Documents are vetted for compliance.

Shipper – must be foreign

Consignee – must be domestic

Description of goods – complete and detailed

Value – can be in any currency as long as currency is shown

Country of origin – where the goods were manufactured (not from where they shipped)

Commercial invoice MUST be in English

The Entry Process

The invoice is “rated” by the broker.HTSUS classifications notated or associated with each itemInvoice value notatedAny deductions or additions to invoice value notatedEntered value circled or marked

For most entries the invoice is recreated electronically and transmitted to CustomsEntry is created using the electronic invoices and transmitted to Customs

For air freight transmission can be when the plane is “wheels up”.For ocean freight transmission can be five days prior to arrival.

The Entry Process

Two forms are transmitted to CustomsCBP 3461 – Entry/Immediate Delivery – This is the release document

CBP 7501 – Entry Summary – Duty is paid to Customs (typically ten days after release) based on this document

Customs certifies the transmission via the Automated Broker Interface (ABI) and results are received by the broker

“Paperless” CBP 3461 – goods are Customs released and can be delivered

“Documents required” or “review” – Customs must review the entry and/or documents in order to release the shipment

The Entry Process

Customs exams – Can be generated by the submission of the entry or the information transmitted by the carrier via AMS (Automated Manifest System)Types of exams

VACIS – The container is X-rayed (using gamma rays)

Intensive exam – Container or shipment is physically unloaded and examined

Stratified Compliance exam – shipment is examined item by item

CET exam – Contraband Enforcement Team – looking for drugs and other contraband

MET exam – Merchandise Enforcement Team – looking for IPR (Intellectual Property Rights) violations and other merchandise related infractions.

The Entry Process

Once the shipment is released by Customs it can be delivered UNLESS:

There is an agriculture hold

There is an FDA hold

There is a “carrier” hold (typically for non payment of charges)

The carrier is an “AMS” carrier and there is no AMS release (manifest discrepancy)

The Entry Process

Duty payment occurs 10 business days after releaseUNLESS……the importer is enrolled in Periodic Monthly Statement (PMS). Importers enrolled in this program pay duty on the 15th business day of the month following release.

Post Entry Processes

Once Customs has accepted the summary (ten days after release) all changes are made through “Post Entry Amendment” (PEA).PEA’s may be filed for any errors made during entry except for NAFTA claims.NAFTA claims are corrected using a 520D letter.Post entry claims are more labor intensive and expensive than fixing errors before entry summary acceptance.

Import Compliance Resources

Customs website – www.cbp.govNCBFAA – educational webinars and daily updatesCustoms experts – such as Mohawk Global LogisticsCustoms attorneysOther training courses offered through local agencies such as the Syracuse Transportation Club, Rochester Transportation Council, International Business Council (Rochester), Chambers of Commerce and Mohawk Global Logistics.

NAFTA Documentation

April 24, 2008

Presented by:Robert Stein –Director of Entry Services

NAFTA

Goods must qualify before they are granted duty free treatment under NAFTAOnce goods qualify a PROPERLY completed NAFTA certificate must be createdPenalties for improper NAFTA claims are $10,000 per occurrence. This is per import or export transaction, not per NAFTA certificateALWAYS consult with an expert before claiming NAFTA

NAFTA – Proper qualification

Proper qualification means:Classifying your finished goods.

Looking up the rules of origin in the HTSUS.

Creating a bill of materials for your product.

Determining country of origin for each item on the BOM.

Classifying each item on the bill of materials.

Entering the value for each item on the BOM.

Determining if your goods qualify based on the rules of origin using the information on the BOM.

Once they qualify, using the information on the BOM to determine how they qualify.

NAFTA – Preference Criterion “A”

You must use the proper “preference criterion” to assure a valid form 434 (Certificate of Origin)Preference Criterion A – Wholly obtained or produced in the USA, Canada, or Mexico.

Probably should not be used on finished goods.

The smallest amount of non-territorial inputs will disqualify a product from this criterion.

Typically applies to live animals, mineral and forest products as well as most agricultural goods.

Applies to scrap created in a NAFTA country as a result of a production process such as machining, drawing, stamping, etc, regardless of the origin of the raw material.

NAFTA – Preference Criterion “B”

Preference Criterion B – Goods made entirely in a NAFTA country and the rules of origin have been satisfied.

Goods must contain foreign inputs or inputs of unknown origin.

Goods satisfy the Annex 401 rules that may include tariff shift, regional value content, or both.

Goods containing less than 7% of non-originating goods that do not meet the rules in Annex 401 (rules of origin) still qualify for NAFTA under the De minimis provision.

NAFTA – Preference Criterion “C”

Preference Criterion C – Goods produced entirely in the territories of one or more NAFTA countries of exclusively originating materials.

No foreign or unknown components can be directly used in production.

Each item used to make the finished good qualifies for NAFTA by itself.

You must be able to prove the NAFTA eligibility of each component.

NAFTA – Preference Criterion “D”

Preference Criterion D: Unassembled or Disassembled Goods, PartsBecause of certain classification rules, some merchandise will never undergo a sufficient tariff shift from processing in North America. One example of this is where the tariff schedule classifies parts with the complete article. As a result, the imported parts have the same classification as the assembled article. Another example is where a complete but disassembled article is imported. Customs classifies such articles as if they were assembled.

No tariff shift will take place because of the assembly process. In these cases, the NAFTA rules permit the producer or exporter to certify the good provided it has a RVC of 50% by the net cost method or 60% by the transaction value method.

NAFTA – Preference Criteria “E” & “F”

Preference criterion E – This is applicable to certain electronic and computer goods and does not require processing or value added.

This is a very specific criteria and should be claimed with great care.

Preference criterion F - relates to certain agricultural commodities that are subject to quantitative import restrictions.

Under this rule, if the goods are originating under preference criterion A, B or C, the quantitative restriction is inapplicable.

NAFTA

NAFTA Certificate of Origin is a legal document.Ideally it should be signed by an officer of the company.

If not signed by an officer it should be signed by someone with intimate knowledge of the product and process and is authorized to legally bind the company.

It should be stored with the BOM and all paperwork used to confirm qualification of goods.

Should NOT be completed by you simply because your client demands it.

C of O’s completed by vendors should be reviewed for accuracy and validity. Invalid or suspect C of O’s should not be accepted without further confirmation.

NAFTA – Focused Assessment

Focused Assessment program is used by Customs to gauge compliance with specific programs and regulations.Starts with a “Pre-Assessment Survey” (PAS) of the importer’s internal controls for NAFTA and evaluating the results.Customs looks for “Red Flags”

Category 1 – Indicates potential problems that can probably be addressed by the importer.

Category 2 – More likely to necessitate exporter involvement and may need to be addressed outside of FA.

NAFTA – Focused Assessment Red Flags

Category 1 (examples)Importer has insufficiently documented, poorly defined, or no internal controls for accurately declaring NAFTA preferences.

Importer offers unreasonable explanations to Customs.

Importer fails to cooperate or respond to Customs.

Importer has high turnover of people in key positions.

One importer representative dominates NAFTA preference claims procedures and record keeping without monitoring or management oversight.

The importer and NAFTA producer are related.

Specific issues are identified in the profile.

NAFTA – Examples of Best Practices

The importer’s internal controls over NAFTA claims:Are in writing,Include procedures for monitoring and feedback, andAre monitored by management.

One manager is ultimately responsible for control of the Import Department, including NAFTA eligible merchandise. That manager has knowledge of Customs matters and the power to ensure that internal control procedures for imports are established and followed by all importer departments.Written internal control procedures assign NAFTA duties to a position rather than a person.

NAFTA – Examples of Best Practices

Importer has good interdepartmental communication about NAFTA matters.Importer conducts and documents periodic reviews of NAFTA, and uses the results to make corrections.The importer’s internal controls contain prudent business practices that are meant to ensure that the importer can reasonably rely on certification provided by the exporter.The importer’s internal controls involve a verification process to determine that the imported merchandise qualifies for NAFTA.

NAFTA – Examples of Best Practices

Importer has procedures in place to furnish Customs copies of applicable certificates of origin when requested.The importer visits the plant in the NAFTA country where the products are produced.The importer performs and annual review of specific rules of origin that apply to imported merchandise to remain current with any changes to NAFTA requirements.

NAFTA Qualification WorkshopCeiling Fan with 150 Watt Motor

Ceiling Fan with 150 watt motor – 8414.59Component

Supplier Origin Tariff(non-territorial)

Value

Nuts & Bolts U.S. (A)

Wiring Mexico (A)

Housing Canada (A)

Motor U.S. (B)

Rubber Gaskets

Mexico (A)

Nut U.S. (A)

Washers U.S. (A)

This ceiling fan can be certified under criterion (C). Each input qualifies by itself under NAFTA using (A) or (B) criteria. At least one input is not wholly of territorial origin.

Ceiling Fan with 150 watt motor – 8414.59Component

Supplier Origin Tariff(non-territorial)

Value

Nuts & Bolts China 7318

Wiring Germany 7408

Housing Korea 7326

Motor Japan 8501

Rubber Gaskets

Taiwan 4016

Nut China 7318

Washers India 7318

Rule 30B(A) of the Annex 401 requires a shift to 8414.59 through 8414.80 from any other heading. Since each input is classified outside of 8414 the fan complies with rule 30B(A).

Ceiling Fan with 150 watt motor – 8414.59Component

Supplier Origin Tariff(non-territorial)

Value

Nuts & Bolts China 7318

Wiring Germany 7408

Housing Korea 8414

Motor Japan 8501

Rubber Gaskets

Taiwan 4016

Nut China 7318

Washers India 7318

Rule 30B(A) of the Annex 401 requires a shift to 8414.59 through 8414.80 from any other heading. Now that the housing is classified under 8414 the fan no longer meets the tariff shift requirements required by rule 30B(A).

Ceiling Fan with 150 watt motor – 8414.59Component

Supplier Origin Tariff(non-territorial)

Value

Nuts & Bolts China 7318 .25

Wiring Mexico 9.00

Housing Korea 8414.90 10.00

Motor Canada 30.00

Rubber Gaskets

US .25

Nut Mexico .25

Washers US .25

Does this qualify for NAFTA?

Regional Value Content Calculation

Value of non-originating materials $10.25Value of originating materials $39.75Total material cost $50.00Selling price of fan $75.00RVC calculation is (75-10.25)/75 X 100 = 86.33% (transaction value)The fan qualifies for NAFTA under rule 30B(B) where a regional value content requirement of 60% must be met using transaction value.

Ceiling Fan with 150 watt motor – 8414.59Component

Supplier Origin Tariff(non-territorial)

Value

Nuts & Bolts China 7318 .25

Wiring Germany 7408 9.00

Housing Korea 8414.90 10.00

Motor Malaysia 8501 30.00

Rubber Gaskets

Taiwan 4016 .25

Nut China 7318 .25

Washers India 7318 .25

Does this qualify for NAFTA?

Regional Value Content Calculation

Value of non-originating materials $50.00Value of originating materials $0.00Total material cost $50.00Selling price of fan $75.00RVC calculation is (75-50.00)/75 X 100 = 33.33% (transaction value)The fan does not qualify for NAFTA under rule 30B(B) where a regional value content requirement of 60% must be met using transaction value or under rule 30B(A).

Utilize your tools

Go to the CBP web site (www.cbp.gov) and download the “informed compliance publications”Consult with your Customs broker and Freight ForwarderObtain binding rulings when possible