Introduction to U.S. Trade Compliance

This Thompson Coburn LLP Trade Compliance Handbook is intended to provide an overview of international trade regulatory compliance issues and related terms to corporate general counsel, as well as compliance and audit personnel. We provide this as a source of general information only. This is not intended to constitute legal advice. We suggest that you seek international trade counsel to resolve the specific issues that may arise in your business.

A Brief Summary of Import Trade Compliance

The customs laws of the United States are codified in Title 19 of the U.S. Code and Title 19 of the Code of Federal Regulations. These laws and regulations provide U.S. Customs and Border Protection (CBP) with the authority to collect revenue and trade statistics and to enforce the laws governing the importation, and to some degree the exportation, of goods from the United States.

The importer of record, using reasonable care, must file an entry for imported merchandise and accurately declare the classification, value, rate of duty and such other information (e.g., country of origin, duty-free treatment pursuant to special programs and free trade agreements, and antidumping duties) as that will permit CBP to properly assess duties, collect accurate statistics, and determine whether applicable legal requirements have been met. Generally, CBP has one year from the date of entry to review the entry. After this time the entry is liquidated and the statements made therein are final and binding on all parties.

Classification

Every product entered into the U.S. must be classified under one of the subheadings contained in the Harmonized Tariff Schedule of the United States (HTSUS). The tariff classification of a product will affect the duty to be paid, and is a matter that is often disputed with CBP and in the courts. CBP and other customs authorities regularly publish their classification decisions.

Valuation

Imported merchandise is generally appraised based on transaction value. CBP presumes that all payments, whether direct or indirect, made by the buyer, to or for the benefit of the seller, are part of the transaction value.

If not already included, the declared value of imported merchandise must include:

  • packing costs
  • any selling commissions
  • the value of any "assists"
  • certain royalties

Transaction value may be used between related parties if it can be shown that the relationship did not influence the price paid or payable, or if the transaction value closely approximates certain test values. Alternative methods of valuation may be used if transaction value is unavailable.

Origin

All goods imported into the U.S. must be marked so as to indicate to the ultimate purchaser in the United States the country of origin of the product. For marking purposes, the origin of an imported product is the last country in which the good was substantially transformed. Separate rules of origin, generally based on changes in tariff classification, may be used to determine origin of goods for purposes of free trade agreements.

Additional Duties

Goods that are unfairly traded with the United States may be subjected to Antidumping or Countervailing Duty orders. These orders may be used by U.S. industry as protection against predatory imports. For the importer, ADD and CVD orders create a contingent liability that may extend beyond the sale or use of the imported merchandise.

Duty Savings Opportunities

By carefully selecting suppliers and manufacturing locations, importers may be able to save or recover duties through the use of free trade agreements, special programs, duty drawback, foreign trade zones, the category of American Goods Returned or temporary import programs. Additionally, techniques can be used to reduce the value of imported merchandise.

Penalties

CBP uses Focused Assessments to ascertain an importer's level of compliance. Companies and individuals who fail to comply with the customs laws of the U.S. face severe penalties, but the benefits of the prior disclosure of such violations are statutorily defined. Failure to maintain and produce the necessary records can result in recordkeeping penalties apart from any penalty that may be associated with a violation of a substantive customs law.

Intellectual Property Enforcement

CBP is the agency charged with enforcing intellectual property rights at the U.S. border. When informed, CBP will work vigorously with U.S. intellectual property rights owners to assure that infringing goods are not imported.

Cargo Security

CBP is part of the Department of Homeland Security and is charged with securing the borders while facilitating legitimate trade. The Importer Security Filing allows CBP to review shipment information for potential terrorism risks in advance of the loading of the vessel. See also 10+2. The Customs-Trade Partnership Against Terrorism (C-TPAT) encourages importers, carriers and international trade service providers to take steps to assure that their supply chain is secure. Prudent importers reduce their profile for CBP audits by fully complying with these programs.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.