tariff engineering...strung or set” includes drilled pearls –“not strung” implies that...
TRANSCRIPT
-
Tariff Engineering Value-Added Classification
Larry Friedman
Barnes/Richardson
-
Try the other white meat?
• OK with wife?
• OK with kid?
• No other penalties or problems?
• Works for me
-
Apply that to tariff rates and you have
tariff engineering.
-
Merritt v. Welsh, U.S. S.Ct.
1882 • Importer sued the collector at the Port of
New York
• Merchandise was sugar
• Grading scale was “Dutch standard in
color”
– Up to 7: $0.0175/lb + 25%
– Above 7: $0.02 or more/lb + 25%
-
Background
• Collector believed the sugar was colored
intentionally with molasses
• Performed chemical analysis
• Found sugar to be of higher grade than
color indicated
• Applied higher rate of duty
-
Issue 1: What’s the Test? [I]n making its election, Congress did not leave any
room for doubt as to its meaning. It used apt terms to
express it; terms free from all ambiguity and obscurity.
If the test adopted fails to effect the desired object, the
inconvenience, or loss to the treasury, need only be
temporary: it can be changed at any moment. And it is
better to submit to a temporary inconvenience than to
set the laws all afloat by laying down a canon of
construction which leaves the plain words, and seeks to
spell out, or guess at, the supposed intent of the
legislature, contrary or supplementary to that which is
clearly embodied in the words it has used.
-
Issue 2: Is this Fraud? It may be that our tariff of duties is evaded by giving to
sugars, in the process of manufacture, a low grade of
color. If this be so, it is no more than every
manufacturer does; namely, so to manufacture his
goods as to avoid the burden of high duties, provided
he can do it without injuring their marketability, or
injuring it less than the duties involved. So long as no
deception is practised, so long as the goods are truly
invoiced and freely and honestly exposed to the officers
of customs for their examination, no fraud is committed,
no penalty is incurred.
-
U.S. v. Citroen, U.S. S.Ct. 1912
• 37 drilled pearls
• Divided into five lots
• When sold in Paris, they were strung into a
necklace
• ¶ 434 “Articles commonly known as jewelry . . .
Pearls set or strung . . . .” 60%
• ¶ 436 “Pearls in their natural state, not strung or
set . . . .” 10%
-
Decision • Classification is ascertained by an examination of the
imported article itself, in the condition in which it is imported.
• This, of course, does not mean that a prescribed rate of duty can be escaped by resort to disguise or artifice.
• When it is found that the article imported is in fact the article described in a particular paragraph of the tariff act, an effort to make it appear otherwise is simply fraud on the revenue and cannot be permitted to succeed.
-
Holding
• ¶ 436 “Pearls in their natural state, not
strung or set” includes drilled pearls
– “Not strung” implies that pearls may be ready
for stringing
– Pearls are often drilled immediately after
being removed from the shell
• ¶ 434 requires that the pearls be “set or
strung”
-
House Slippers, 2002
HQ 965752
• Slipper with upper of textile material with outer sole composed of unit-molded rubber plastics over which was “thin layer of textile fabric”
• Material could wear off in short period of time
• Customs ruling classified as “other footwear” 6405.20.90, 12.5%
• Domestic shoe industry lost business
• Petitioned for reclassification, slippers with rubber/plastic soles, 6404.19.20, 37.5%
-
Commercial Reality While there is little case law concerning finding tariff
engineering to be a fraud or artifice, there are many Customs rulings on this issue. The general position taken by Customs in these rulings is that if Customs finds the article, at the time of importation, is a commercial reality, then the tariff engineering will not be considered a fraud or artifice. In the cases in which Customs has found that the tariff engineering was a fraud or artifice, Customs concluded that the article was not a commercial reality because the article was not sold or otherwise entered into the stream of commerce in the condition as imported.
-
Ruling
• Customs ruled for the importer
• “No apparent deceit” as to nature of the slippers
• Slippers imported and sold with textile material in tact
• Even if textile material wore off quickly, consumer wore it with textile embedded into outer sole
• Introduced into stream of commerce as entered
• Commercial reality
-
What is ‘Disguise or Artifice’? • For an importer to benefit from tariff engineering, the article
must be a “commercial reality”, have a “commercial identity” or “commercial use” in its imported condition
• Or it must be a finished product traded or used in its condition as imported
• The product, as entered, must be part of a “genuine step” in the manufacturing process
• If the added feature of the product that allows the importer to obtain a lower duty is removed shortly after importation, the tariff engineering is an “artifice”
-
Ford Transit Connect Vans?
-
Background
• Heading 8703 “motor vehicles principally designed for the transport of persons” 2.5%
• Heading 8704 “motor vehicles for the transport of goods” 25% (the “Chicken Tax”)
• Vans imported with four doors, rear bench seat with seatbelts, and rear side windows, importer classified as passenger vans.
• Also available as a wagon model.
-
Ford Transit Facts As
Imported • Swing-out front doors
• Second row sliding doors
• Second row windows
• Swing-out rear doors (some with windows)
• Second row bench seat – No headrests — No tumble lock
– No “comfort wires” — Inexpensive fabric
• Second row seatbelts
• Child locks, carpeted rear footwells, dome lights, full cloth headliner
-
Conversion • After CBP clearance, but still in port
• Remove rear seat
• Remove rear safety restraints and
seatbelts
• Cover rear footwell
• Add cargo mat
• Add scuff plates to second-row door sills
• Optional: remove side door windows
-
Discussion
What do you think?
Artifice or disguise?
-
Ford Preliminary Decision
• CIT Slip Op. 16-92 (Oct. 5, 2016)
• “The dutiable classification of articles imported must be ascertained by an examination of the imported article itself, in the condition in which it is imported.”
• Articles cannot escape a prescribed rate of duty “by resort to disguise or artifice.”
• Does the article, as imported, fall within the description of a passenger vehicle?
-
Ford Preliminary Decision
• Test for car or truck is Marubeni Am. Corp. v. U.S.
• Look to how the vehicle is designed for evidence of “principally designed” use
• Court says it has numerous detailed and undisputed facts about the Transit
• But, the court does not have facts on the cost of the reduced rear seats
• Parties are to submit additional information.
-
Summary
• Goods are classified in their condition as
imported
• Importers may configure goods to achieve
a lower rate of duty
• Importers may not engage in artifice or
disguise
-
Avoiding Artifice or Disguise
• Truthful and complete descriptions to CBP
• The product should have a commercial
identity or use as imported
• Avoid temporary products
• Production should be for a commercial
purpose other than duty avoidance
-
Questions
Larry Friedman
www.barnesrichardson.com
www.customslawblog.com
-
Tariff Engineering: How to do it Properly
Jennifer R. Diaz, Esq.
Diaz Trade Law
Customs & International Trade
Board Certified in International Law
Office: (305) 456-3830
-
Disclaimer • This presentation is for informational purposes only and does not purport to
provide legal advice as all cases and facts are different.
• The information in this presentation is provided “as is” and no representations are made whatsoever.
• You should not rely on the information included in this presentation as an alternative to legal advice from your attorney.
• For questions related to a specific matter, you should consult your attorney.
• To the extent permitted by law, this presentation is Copyright © 2017 by Diaz Trade Law, P.A.
-
Agenda
• What About After
Importation?
• Case Studies
– CBP Rulings
– $$ Refunds! 1520d
– FTZ
-
QUIZ TIME!
You can only
review HTS’s prior
to importation?
True or False
-
HTSUS REVIEW
– Confirm you’re using the correct
HTSUS necessary for proper
assessment of duties.
-
QUIZ TIME!
The HTS is universal
throughout the world
up until the __ digit?
A. 2nd
B. 4th
C. 6th
D. 8th
-
GENERAL RULES OF INTERPRETATION
(GRI’S)
• The classification of merchandise under the HTSUS is governed by the principles set forth in the HTSUS.
• The GRI’s are intended to be consulted and applied each time merchandise is classified under the HTSUS.
• There are a total of six (6) GRI’s dealing with relatively sophisticated concepts such as interpretation by heading levels, and concepts such as unfinished goods, unassembled goods, and goods composed of mixtures or combinations of materials or substances.
• In addition, Section Notes and Chapter Notes should always be reviewed.
-
QUIZ TIME!
It is a brokers
responsibility to use
“reasonable care” in
ascertaining the
correct HTS?
True or False
-
MERCHANDISE DESCRIPTION AND TARIFF
CLASSIFICATION
• Have you obtained a Customs ruling regarding the description of the merchandise of its tariff classification?
• Have you consulted a Customs “expert” (lawyer, customs broker, or customs consultant) for advice?
• If you are claiming a conditionally free or special tariff classification such as NAFTA, how have you verified that the merchandise properly qualifies for such status?
-
Case Study
• Frozen
preserved
Crabmeat
(King Crab)
-
HTS QUIZ TIME!
What’s the main
difference between
the HTS’s?
-
Case Study
– 1605.10.05 – 10% Duty!
• Prepared meals
– 1605.10.40.. – 5% Duty!
• Crabmeat (not in airtight
containers)
– 1605.10.20.. - DUTY
FREE
• Crabmeat (in airtight
containers)
-
CBP Ruling
-
QUIZ TIME!
CBP has published
over _ Binding
Rulings?
A. 50,000
B. 75,000
C. 100,000
D. 170,000
-
CBP Binding Ruling Process (19 CFR Part 177)
• Request Binding Rulings for: – Classification
– Valuation
– Country of Origin
– Free Trade Agreement Verification
• Total Rulings: OVER 171,152!
http://www.cbp.gov/
-
BINDING ADMINISTRATIVE RULINGS (19 CFR PART 177).
• The Ruling will be binding at all ports of entry, unless modified or revoked by CBP’s Office of Regulations and Rulings.
• The information that should be included with a Binding Ruling Request includes:
A complete and detailed
description of the merchandise.
Cost breakdowns of component materials or parts and their respective quantities shown in percentages.
A description of the principal use of the goods.
Citation to supportive Rulings from CROSS
(Customs Rulings On-line Search
System) http://rulings.cbp.gov/
http://rulings.cbp.gov/
-
Case Study – Stuffed Mattress Cover
HTSUS’s Under Review
• 6304 Other furnishing articles,
excluding those of heading 9404:
• 9404 Mattress supports; articles of
bedding and similar furnishing (for
example, mattresses, quilts,
eiderdowns, cushions, pouffes and
pillows) fitted with springs or stuffed or
internally fitted with any material or of
cellular rubber or plastics, whether or
not covered:
-
Case Study –
Stuffed Mattress Cover
• 6304.91.0040
• 9404.90.2000
-
CBP Ruling Review • Headquarters Ruling Letter (HQ) H015427, dated January 5, 2010
• Heading 9404, HTSUS, is limited to “Articles of bedding and similar
furnishings which are…stuffed or internally fitted with any
material.”
• Articles of bedding properly classified in heading 9404, HTSUS, are
stuffed.
• Linens and other bedding furnishings classified in chapter 63 are
not.
https://rulings.cbp.gov/detail.asp?ru=h015427
-
Explanatory Notes Review
• EN 94.04 clarifies that goods
classified in 9404 may be
stuffed with cotton, wool,
horsehair, down or synthetic
fibers.
• Each of these “materials” are
basic, homogenous, stuffing
materials.
-
QUIZ TIME!
Non originating
components will
automatically
disqualify the use
of NAFTA?
True or False
-
NAFTA
-
NAFTA Review
• Component Parts
(non NAFTA
originating)
– 6006, 6004, 5801,
69
• Cut/Sewn in MX
• General Note 12(b)
– Tariff Shift?
-
NAFTA REVIEW
• General Note 12(t), Rule 7, which regards
the relevant subheadings of Chapter 94
states the following:
– A change to subheading 9404.90 from any
other chapter, except from headings 5007,
5111 through 5113, 5208 through 5212, 5309
through 5311, 5407 through 5408 or 5512
through 5516.
-
NAFTA REVIEW
• General Note 12(t), Rule 4, which regards the relevant
subheadings of Chapter 63 states the following:
– A change to headings 6304 through 6310 from any other
chapter, except from headings 5106 through 5113, 5204 through
5212, 5307 through 5308 or 5310 through 5311, chapters 54
through 55, or headings 5801 through 5802 or 6001 through
6006, provided that the good is both cut (or knit to shape) and
sewn or otherwise assembled in the territory of one or more of
the NAFTA parties.
-
QUIZ TIME!
You can file a PEA
or PSC to make a
post-importation
preference claim
on ALL Free Trade
Agreements?
True or False
-
CSMS #17-000110
-
19 USC 1520d (no Protest) • The 19 U.S.C. 1520(d), post
importation preference claim,
allows for a preference claim to
be made within one year of the
date of importation if a claim
was not made at entry summary.
• It is the ONLY mechanism to
make a post-importation
preference claim on CERTAIN
Free Trade Agreements
-
QUIZ TIME!
You can file a PSC
up until the date of
liquidation via
ACE?
True or False
-
PEA or PSC or Protest (19 USC 1514)
AGOA
Civil Aircraft Agreement
Jordan FTA
Australia FTA
GSP
Morocco FTA
Bahrain FTA
Insular Possessions
Pharmaceutical
CBERA
Israel FTA
Products Agreement
CBTPA
Uruguay Round Concession on
Intermediate
Chemicals for Dyes
Singapore FTA
• PSC = Allows corrections
to ACE
• May be filed 270
calendar days from
date of entry
• Cannot be filed within
20 calendar days of
the scheduled
liquidation date
• PEA = Method to request
correction to entry, prior to
liquidation
-
Case Study
• Potential 45%
China Tax?
– Solution
• Foreign Trade
Zone
-
QUIZ TIME!
If an importer imports
merchandise NOT
intended for U.S.
consumption, a great
way to avoid CBP duty is
to use a FTZ or bonded
warehouse?
True or False
-
Foreign Trade Zones
• Considered outside CBP territory
• Formal CBP entry procedures and
payments of duties are not required on
the foreign merchandise unless and until
it enters CBP territory for domestic
consumption
-
USEFUL LINKS • What is Trump’s 45% tariff on Chinese imports, and how can I avoid it?
• http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-
45-tariff-chinese-imports-avoid/
• Importing into the U.S.: A Guide for Commercial Importers
• https://www.cpsc.gov//PageFiles/113831/iius.pdf • CBP's Legal Decisions/Publications
• http://www.cbp.gov/trade/rulings • Customs Rulings Online –
• http://rulings.cbp.gov/
• Harmonized Tariff Schedule - Online Reference Tool –
• http://hts.usitc.gov/
• Protecting your intellectual property rights! –
• http://www.cbp.gov/trade/priority-issues/ipr
http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/http://www.tradeready.ca/2017/topics/supply-chain-management/trumps-45-tariff-chinese-imports-avoid/https://www.cpsc.gov//PageFiles/113831/iius.pdfhttp://www.cbp.gov/trade/rulingshttp://rulings.cbp.gov/http://hts.usitc.gov/http://www.cbp.gov/trade/priority-issues/iprhttp://www.cbp.gov/trade/priority-issues/iprhttp://www.cbp.gov/trade/priority-issues/ipr
-
BLOG customsandinternationaltradelaw.com
-
Now That We Have Our Paws Dirty… Any Questions?
-
Tariff Engineering: How to do it Properly
Jennifer R. Diaz, Esq.
Diaz Trade Law
Customs & International Trade
Board Certified in International Law
Office: (305) 456-3830