Importers are responsible for exercising reasonable care in valuing the imported merchandise and in providing the information and documentation necessary for Customs to properly assess the duty and to determine whether any other applicable legal requirements are met.

The preferred method of appraisement is Transaction Value, which is defined as the price paid or payable in an arm's length sales transaction for export to the U.S., plus certain statutory additions:

     - Packing costs incurred by the buyer;

     - Selling commissions incurred by the buyer;

     - The value of any assists, apportioned as appropriate;

     - Royalties or licensing fees the buyer is required to pay, directly or indirectly, as a condition of the sale;

     - The proceeds of any subsequent resale, disposal or use of the imported merchandise that accrue, directly or indirectly, to the seller.

In determining the proper value of the subject merchandise, many importers fail to capture all the required costs and are not properly declaring the correct value for any import.  Of particular concern are assists.  Assists are any of the following items that the buyer of imported merchandise provides, directly or indirectly, free of charge or at a reduced cost, for use in the production or sale of merchandise for export to the United States, and may include:

     - Materials, components, parts and similar items incorporated into the merchandised;

     - Tools, dies, molds and similar items used in producing the merchandise;

     - Merchandise consumed in producing the imported merchandise;

     - Engineering, development, artwork, design work, plans and sketches that are undertaken outside the U.S.

Although an importer may be able to identify an assist, the issue becomes more complex in determining the value of the assist and how the costs are apportioned.  There are several other elements that must be considered in determining whether an importer can use transaction value as the method of appraising the value of the merchandise.

      - Are there restrictions on the disposition or use of the merchandise;

      - A value cannot be determined;

      - There are proceeds from a subsequent resale, disposal or use of the merchandise that accrue to the seller, but an appropriate adjustment to transaction value cannot be made;

      - The parties to the transaction are related and use of transaction value is not acceptable.

While transaction value remains the most commonly used basis for Customs valuation, other methods may be required to be exhausted when transaction value cannot be used, such as where the price is affected by a related party relationship between the importer and the exporter.  In such instances, there is a matrix of methods that must be used in order to derive the value that must be declared to U.S. Customs.  These are:  transaction value of identical merchandise; transaction value of similar merchandise; deductive value; and computed value. 

The First Sale Rule has been the center of interest to many importers because it allows importers to value the merchandise using the price paid or payable by a middleman to a manufacturer (or other supplier) rather than using the price paid or payable by the importer to the middleman.  The First Sale Rule offers a potential significant savings to an importer.  In January 2008, Customs published a notice in the Federal Register announcing its intention to reinterpret the value law to potentially prohibit use of the First Sale law.  However, through an amendment to the Food, Conservation and Energy Act of 2008 (commonly referred to as the "Farm Bill"), Customs was directed to gather information on the use of First Sale, report its findings to Congress and allow the use of the rule until 2010.  The U.S. International Trade Commission released its report to Congress on December 23, 2009.  The report can be accessed at http://www.usits.gov/publications/332/pub4121.pdf.

Simon Gluck & Kane LLP provides guidance to clients with respect to the valuation of their imported goods, including ways that the declared value may be reduced legally, to achieve legitimate duty savings, such as the utilization of the First Sale for Export doctrine. 

Understanding the structure of the tariff schedule and how products are classified is important to all importers.  All goods imported into the United States are subject to duty or duty free entry in accordance with the appropriate classification under the Harmonized Tariff Schedule of the United States ("HTSUS").

Importers may qualify for special, lower duty rates if the merchandise satisfies the requirements of a duty-free program, e.g., NAFTA, GSP, CAFTA, etc., or duty preference program, e.g., American Goods Returned, American Goods Assembled Abroad, etc.

The tariff schedule is divided into sections and chapters that separate merchandise into broad product categories.  In determining the classification of any product, the importer must be familiar with the legal and explanatory notes that define the scope of each chapter, section, heading or subheading, prior Customs rulings and any decisions issued by the Court of International Trade.  Determining the correct classification can often be a difficult task.

Importers must exercise reasonable care in classifying its products.  Importers are encouraged to consult a licensed customs broker or attorney for competent advice with regard to classification.  Reasonable reliance on such experts may be cited as a mitigating factor or as a defense against penalties for imposed for the misclassification of goods. 

For more than 30 years, Simon Gluck & Kane LLP has assisted its clients with the proper classification of imported merchandise.  Our services range from conducting full-line reviews of imported merchandise, to a more individual analysis in which the classification of only one item is concerned.  We work with our clients to ensure they receive the lowest legal duty rate on their imported merchandise.  We always advise our clients to do it right - classify correctly - in order to avoid fines and penalties for failing to do so.

The Importer Self-Assessment (ISA) program is a voluntary approach to trade compliance that gives importers an opportunity to monitor their own Customs compliance in exchange for certain benefits.  This program creates partnerships between CBP and participating importers with the unified goal of maintaining a high level of trade compliance.  In order to participate in the ISA program, an importer must: 

·      Be a Customs-Trade Partnership Against Terrorism (C-TPAT) member;

·      Complete an ISA Memorandum of Understanding; and

·      Complete an ISA questionnaire. 

To encourage participation in ISA, substantial benefits are granted to its members without requiring them to undertake any significant new burdens in addition to the required compliance with laws and regulations governing international trade.  ISA participants must establish, document and implement an internal control system that demonstrates the importer’s commitment to accuracy in its customs transactions.  Once CBP is satisfied with the importer’s commitment, ISA participation eliminates the need for intense oversight by CBP.

To ensure ongoing accountability, the ISA participant must conduct periodic self-assessments of its customs transactions.  The ISA importer must maintain certain records and annual assessment results for a five-year period in order to establish a sufficient audit trail for CBP.  If errors are discovered, the importer is obligated to inform CBP through appropriate disclosures.  Finally, an annual written notification must be submitted to CBP, confirming the importer’s continued eligibility to participate in the ISA program. 

One important benefit granted to participating members is temporary exemption from penalties while their ISA application is pending.  Once in the program, the ISA importer is no longer subjected to Focused Assessment audits, or other invasive and time-consuming compliance audits in areas such as Drawback and Foreign Trade Zone activities.  Although CBP are still able to conduct an onsite examination for a specific reason, the scope of this investigation will be limited.  Another benefit is the treatment of penalties for violations that do not involve customs fraud.  ISA members who discover that they have made errors in the course of the import activities through negligence, or gross negligence are not penalized for such errors, provided that they are brought to the attention of CBP through prior disclosures or CBP post-entry procedures.

In the event that CBP becomes aware of any action taken by the ISA importer which could rise to the level of fraud, CBP will provide written notice of the errors to the ISA participant.  The importer will then have 30 days from the date of the notification to review the alleged errors and, if necessary, file a disclosure.  Civil penalties or liquidated damages may be assessed against an importer due to fraud; however, participation in ISA is considered a mitigating factor. 

In addition to the benefits mentioned above, CBP will also provide liaison personnel for consultation and/or guidance as requested.  CBP promises ISA participants that the officials who provide guidance will work with the company, and not against it, to make certain its compliance systems are effective.  Other benefits to the importer include entitlement to receive entry summary trade data, including analysis support, and additional incentives tailored to the importer’s specific needs.  Aside form the benefits offered by CBP, the establishment and maintenance of the internal controls required of ISA importers will allow the importer to enjoy greater business certainty with respect to its Customs-related transactions.

The United States is party to many bilateral and multilateral trade agreements.  Countries that have bilateral agreements with the United States include: Australia, Bahrain, Chile, Israel, Jordan, Morocco, Oman, Peru and Singapore.  Active multilateral trade agreements that the United States has signed include the North American Free Trade Agreement (NAFTA) and the Central America Dominican Republic Free Trade Agreement (CAFTA-DR).  Each agreement has requirements that are described in the General Notes to the HTSUS.  The United States is also a party to the General Agreement on Tariffs and Trade (GATT, overseen by the WTO) along with 152 other countries.  Currently, trade agreements with Panama, South Korea and Columbia are awaiting congressional approval.  The United States is also negotiating trade agreements with Malaysia, Thailand, the United Arab Emirates and the Southern African Customs Union (SACU, which includes Botswana, Lesotho, Namibia, South Africa and Swaziland).

Free trade agreements typically contain origin requirements that imported articles must meet before they can enter the United States free of duty and quota restrictions.  Specific requirements must be met in order for importers to claim preferential treatment under an FTA.  Importers that wish to make use of preferential treatment under a FTA must use reasonable care in determining the applicability of the agreement to the transaction in question.

The origin of imported merchandise affects its admissibility, rate of duty, eligibility for special programs, quota restrictions, antidumping or countervailing duties, procurement by government agencies, and marking requirements.  CBP requires that each imported article produced abroad be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article permits.  The English name of the country of origin should clearly indicate where the article was manufactured or produced to the ultimate purchaser in the United States.  If the article (or the container) is not properly marked upon arrival at the CBP port of entry, a marking duty equal to 10 percent of the customs value of the article will be assessed unless the article is exported, destroyed or properly marked under CBP’s supervision prior to the liquidation of the entry.

CBP country of origin marking requirements are separate and distinct from any special marking or labeling requirements that may be required by other government agencies.  This primer does not seek to address the various marking requirements of other government agencies, but importers should be aware that they may be subject to more than one set of marking requirements upon entry.