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A guest post by Bob Hartwig, formerly a Stratos Product Development Project Manager.
Import duties and fees getting killing your budget? Don’t let the daunting complexity of import get you down!
Today’s laws regarding importing merchandise into the USA have shifted the legal responsibility to the importer. The importer must declare the classification, value and rate of duty applicable to the merchandise they are trying to bring into the country. But navigating the rules and regulations for importing merchandise into the USA is daunting. The goal, of course, is to meet the rules and regulations and to pay a fair share of duties and fees. But, if you do not know what you are doing, your goods may be stalled in U.S. Customs, and you may pay far more duty and fees than you need to. So, how does one ensure efficient and fair Customs processing?
A common mistake is to assume all merchandise is treated the same when classifying. For instance, it can lead to excessive duties and fees if the merchandise are prototype parts or assemblies. One will find merchandise classification in the Code of Federal Regulations Title 19 (19 CFR) US Customs and Border Protection by searching by description. Googling “HTS Search” will point one to the Harmonized Tariff Schedule query page. This process for determining the classification is daunting and is best performed by a logistics professional. If you’re feeling ambitious, you might also check this description of HS versus HTS codes.
For importing prototype parts and assemblies, the first step is generating a detailed description of the merchandise. The description is up to you – what is the merchandise? Plastic parts, stamped metal, molded rubber, etc. Be verbose. Describe what it is and how it will be used as if you were telling someone unfamiliar with your project, because that is exactly who will be evaluating the import document. Next you must assign a value to the merchandise. A reasonable valuation starts with the value of the merchandise from the quote from the supplier. In addition to duty, insurance, shipping and tax, other fees may be charged. A Merchandise Processing Fee (MPF) for merchandise exceeding $2,500 in value may be assessed at 0.3464 percent (19 CFR 24.23 (c)). The MPF is a processing fee to monitor customs and trade compliance. The MPF is assessed and paid at the time of entry, and the fee is based on the value of the merchandise being imported (not including duty, shipping, insurance and tax charges). The minimum MPF is $25 and the maximum MPF is $485. Merchandise that originate in a NAFTA territory and that qualify to be marked as Canadian merchandise are exempt from the MPF. Lastly, you must assign a Harmonized Tariff Code.
I told you this was daunting.
Real Life Situation
The total value for the merchandise on the commercial invoice was $51,675. The price of the merchandise (polycarbonate parts) was $2,300. The cost of the tooling was $49,375 (soft tooling). The merchandise was entered under HTUS 3920.61.00 at a duty rate of 5.8%. Total duty and fees were $2,976.14. Ouch! More than the parts!
19 U.S.C. 1401a(b)(1) states:
Assists are defined (19 U.S.C. 1401a(h)) as:
For more enlightenment about Assists, see the US Customs Valuation Encyclopedia, pages 15- 59.
Assists are dutiable at the same rate of duty of the imported merchandise.
There are two ways to declare Assist values:
Getting a background
The Product Development and Testing Act of 2000 (PDTA) was enacted on November 9, 2000, as part of the Tariff Suspension and Trade Act of 2000 (Act) (Pub. L. 106-476). The purpose of the PDTA is to promote product development and testing in the United States by allowing the importation on a duty-free basis of merchandise commonly referred to as “prototypes”. Until the enactment of the PDTA, prototypes had generally been subject to customs duty when imported, unless they were eligible for duty-free treatment under a special trade program, such as the North American Free Trade Agreement (NAFTA), or unless they were entered under a temporary importation bond (TIB).
Prototype parts and assemblies are eligible for duty free entry under HTSUS 9817.85.01, provided certain qualifications are met (19 CFR Part 10 (A) Section 10.91)).
Merchandise classified as prototypes under HTUS 9817.85.01 are originals or models of articles that are:
To claim HTS 9817.85.01, entry documents must meet the following three criteria:
Using HTS 9817.85.01 removes the MPF fee, but you still must declare the value of the Assist. You would not pay duty and MPF on the merchandise, unless you do not provide an adequate and convincing description of the intended use and disposition of the prototype.
It is very important that your company keep detailed records on all your Customs transactions on file for a period of five years to meet your recordkeeping requirements. These are the Regulations for Recordkeeping per 19 CFR. US Customs can conduct a 5-year entry review of your entries and request any of these documents to support the entries filed on your behalf, or they can visit your facility and conduct an audit of your files. They will normally give you a notice of when they are coming and which entries, in particular, they will be looking at.
If your brokers are filing compliant entries on your behalf, and you are reviewing your entries for accuracy (and bringing forth any errors to be disputed with US Customs, including entry amendments that result in no change in duty, but only a change in information), and you are keeping complete records of all your imports and exports, you should pass either an entry review or an on-site audit without any problems.
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