Lawyers Specializing in Trade Law: Duty Free, Free Trade, NAFTA

Tariff Classification

Assigning the most appropriate tariff schedule description to an imported article is one of the most basic of the tasks that goes into the customs clearance process. Whether the entry is being made into the United States or a foreign country, tariff classification will be made in accordance with the Harmonized Tariff System (HTS). The HTS is under constant review at the international level in Brussels and major revisions are promulgated on a roughly 5-year cycle. From amongst the thousand of possible "tariff homes" for the imported article, the importer is responsible to select the most appropriate tariff provision. The tariff classification that is assigned has repercussions beyond the duty rate assigned to that provision, however, as the changes in tariff classification measured under a "tariff shift" test will determine eligibility for many free trade agreements, and many of the trade remedy laws and other measures, such as the Lacey Act, are applied to and enforced on a tariff classification basis. ITC can prepare a tariff classification database to be applied to your imports and can also review the tariff classifications already assigned to your imports to ascertain their compliance status or identify planning opportunities arising from re-classifications. Where it makes sense to do so, ITC can prepare and file a ruling request with CBP or, in a somewhat related fashion, draft a classification request under the Export Administration Regulations (EAR) with BIS for export compliance purposes.

Customs Valuation

The importer is required to declare the proper dutiable value of imported merchandise. Because the majority of duties are assessed on an ad valorem basis, an underdeclared value will result in a duty loss to the government and expose the importer to a civil penalty and other sanctions. Importers will often make unwitting mistakes such as failing to account for dutiable assists or other off-invoice payments. Most of these violations are unintentional, arising from a lack of understanding. ITC professionals can simplify, explain and apply the proper principles in this complex area. We can recommend the best way to resolve past mistakes, take the required corrective action and design a system of controls to prevent any recurrence. Importantly, we can synchronize this customs advice with the demands of transfer pricing and international tax.

Origin

The country of origin, along with tariff classification and valuation, is one of the three core functions for the assessment of duty. The origin of a product will determine eligibility for NAFTA and the other free trade agreements (FTAs) as well as for such trade preference programs as the Generalized System of Preferences (GSP) or other regional programs. Origin will determine whether an imported product should be the subject of antidumping or countervailing duty and will also be a factor in eligibility for preferences in government procurement. Origin is also the key to the application of labeling laws on imported articles or their packaging. ITC can make the calls needed when applying substantial transformation or tariff shift rules in determining origin.

Recordkeeping

The customs law mandates that all records associated with an entry be kept for five years. In the case of duty drawback, the records must be kept for 3 years from the date of any refunded duties, effectively extending the period to ten years or more in many instances. Penalties for failure to maintain adequate records are severe. ITC professionals can build a recordkeeping system that meets all of your compliance responsibilities and fits within your business model.

Foreign Trade Zones

Many importers have discovered the latent power that comes with the foreign trade zone (FTZ) status of a given facility. These include

The ability to defer the payment of duty and taxes on goods until they are entered into the customs territory.
The elimination of duty and taxes on those goods that are re-exported.
The lowering of the duty on imported parts used to manufacture articles within an FTZ.
The ability to bring into conformity those goods that would otherwise be inadmissible.
The elimination of state and local ad valorem property taxes on inventory.
The ability to lower merchandise processing fees (MPFs) by shrinking the number of entries.

The FTZ application and activation processes are lengthy and complicated. ITC professionals have years of experience to help you decide whether and how an FTZ makes sense for you. As an alternative, a customs bonded warehouse, a duty drawback program or a temporary importation bond (TIB) program may make more sense. For those companies who have decided to apply for FTZ status, ITC can organize and manage the entire process from application through activation by CBP and full functionality.

NAFTA and Strategic Planning Programs

Customs duties are a significant cost of doing business for many companies. For some of these importers, many will vigorously pursue cost savings initiatives to lower their costs. Among the many varieties of planning options available are the following

Tariff engineering, which may be loosely defined as the design and construction of imported articles or the placement of production steps calculated to gain the tariff classification assigned the lowest duty rate.
NAFTA and other free trade agreements (FTAs), which allow importer to move goods between the US and selected partner countries enjoying FTA status on a largely duty-free basis.
Tariff preference programs such as the Generalized System of Preferences (GSP) and its regional variants which convey duty-free status to eligible articles.
Valuation planning, such as the unbundling of nondutiable elements from the invoice price, the use of interest on trade payables, the use of "middleman" strategies such as first sale for export (FSFE) and buying agent structures, the use of royalty and license fees without triggering duty payments. Note that it is essential to be able to synchronize valuation planning with international tax and transfer pricing planning and compliance.
Duty Drawback is the oldest customs planning program on the statute books and it may provide a welcome opportunity for a refund of duties on previously imported products or materials used to make finished goods that are exported.

Compliance

Importers and exporters in the United States have both the best and the worst of all possible worlds in terms of compliance. First, the transparency of the U.S. administrative system makes for a relatively easy time in determining the applicable regulatory regime that affects one's imports and exports. The bad news is that the U.S. has so many more laws and so much more extensive an enforcement regime than any other government on the planet. For import transactions, most issues fall under the province of Customs and Border Protection and, ever since the Mod Act (1994), CBP has insisted that importers show "reasonable care" in making their entries. CBP has defined reasonable care to include having an expert in the compliance field, such as an attorney or other qualified expert from outside the company, review either the totality of an importer's internal control program or a discrete open question. For exports, responsibilities are shared among the Departments of Commerce (BIS), for "dual use" goods, State (DDTC), for munitions, and Treasury (OFAC), for sanctions. As a result of these heightened activity levels, most companies know that compliance is good business. ITC professionals can take charge of any compliance activity, all conducted under the protective auspices of the attorney/client privilege, from the simplest one-off compliance questions, through the development of an import or expert compliance program, to the most complex prior disclosures of import violations or voluntary disclosures of export and sanctions violations. We can collaborate with in-house staff so that the processes and procedures that are developed and promulgated in a carefully drafted manual are both responsive to your legal obligations and attentive to your business priorities. For those companies who know what action they want to take, we can be a trusted business advisor who can help you meet your resource constraints and put into play the plans that you have already devised. Most experienced observers will agree that the taking of corrective actions requires a great deal of sophisticated and nuanced counsel, more of an art than a science, really. If necessary, we can advise on the best means of taking corrective actions including a prior disclosure or a voluntary disclosure.

Compliance Audits

As just noted, the federal government demands that importers and exporters conduct all of their operations with the utmost diligence and in full compliance with a dizzying array of responsibilities. From long experience, we know that most violations are not intended and arise from a lack of awareness by the importer or exporter. We also know that many violations that are attributed to importers and exporters are actually committed by such business partners as brokers and freight forwarders. ITC knows that if a responsibility cannot be measured it cannot be managed and that, taking this notion one necessary step further, if the means of meeting a responsibility, call it a compliance program, cannot be reviewed and audited its effectiveness cannot be measured. For this reason, it is essential for prudent importers to conduct periodic compliance reviews, whether of a quick "health check" or a full-on audit in nature, to test the effectiveness of internal controls. Importantly, our reviews include the performance testing of such key partners as customs brokers and freight forwarders. Further, in the event of an agency audit, ITC can assist in the successful management of the audit process.

IPR Licensing and Protections

The U.S. trade laws intersect with many other disciplines, one of which is the field of intellectual property rights (IPRs). These IPRs have major implications for importers because many sophisticated international tax planning strategies revolve around the "migration" of valuable IPRs to entities in other jurisdictions. What follows is a licensing of those IPRs among related and third party entities with royalty or license fee payments to the licensor. US Customs and Border Protection and other nations' customs authorities will normally want to assess duty on those payments that are not bundled within the purchase price for the goods. With special relevance to imports into the US, CBP sees IPR enforcement as one of its key roles. A trademark or copyright that is recorded with CBP is accorded special and more effective protection against counterfeit or pirated goods. Similarly, patent protection is available under Section 337, 19 USC § 1337, administered by the U.S. International Trade Commission, whose orders are carried out by CBP. ITC professionals are experienced in IPR matters and can assist you in either designing a license structure where the royalty or license fee is nondutiable, in gaining the fullest measure of protection for your IPRs or in ensuring that you are able to limit the effect of enforcement and obtain release of your goods, if feasible.

Trade Remedy Actions

Congress has provided a range of remedies for the injurious effects of imports on U.S. industry. These are in the context of both unfair competition, such as the antidumping and countervailing duty laws, which seek to level the playing field by imposing additional duties, and competition which is not unfair but which has caused market disruption, such as the safeguards law, which provides for temporary relief to allow the domestic industry to adjust to the import competition. These programs are administered by the Department of Commerce and by the U.S. International Trade Commission, with very precise administrative processes governing their application. ITC professionals can advise your company on how to best cope with either the need to file for relief or in the best way to respond to petitions seeking the imposition of additional duty or other forms of relief.

Training and Staffing

ITC professionals can provide customized training programs, from a one-half day program up to three or more days, on all areas of customs and trade law. The curriculum can be tailored to your specific needs, to be as broad or as deep as required on any and all trade topics. As an adjunct professor of long standing at two of the nation's best graduate business schools, Mark Neville and his colleagues are uniquely qualified to train your staff to meet any and all challenges. ITC can also advise on the internal staffing requirements that you will need to attain or maintain the highest level of performance.

Border Security

In the post-9/11/01 world, border security has become an element in the supply chain that cannot be ignored. ITC professionals have experience in the C-TPAT program in the United States and our colleagues have experience with assisting companies in such foreign equivalents as the Authorized Economic Operator (AEO) program in the European Union and similar programs elsewhere.

Market Access

One of the most notable commercial trends is the spike in interest in the exploitation of new markets. Whether it is a successful foreign company that wants to enter the US market to replicate its success in its home market, or a US company wanting to do the same in new markets outside the US, the dynamics are very much the same. The real key is to "know what you don't know" and not to make false assumptions that either oversimplify challenges or ignore compliance responsibilities and generally leave yourself vulnerable. It is equally vital not to let an unwarranted fear hold you back from taking full advantage of either the "global factory" or the "global marketplace" phenomena, in which the production cycle of goods has them in constant movement across borders, to and from fields, factories, warehouses and customers' delivery docks. As with most things, the truth lies in the middle of the competing statements, "it's a breeze" and "it's impossible." Entering a new market is usually do-able, but it is going to take preparation, organization, patience and, above all else, good counsel. Through its US Council for International Business membership, ITC participates in the World Customs Organization (WCO) ongoing deliberations on tariff classification and customs valuation. This enables ITC to stay abreast of developments in these crucial areas in markets outside the United States. Our on-the-ground alliances in many key foreign markets allow ITC to provide valuable insight and develop the most effective market access strategy for our clients.