NCBFAA - CCS (Certified Customs Specialist) Course Part 2 (Modules 6-10)

Introduction to Part 2

Part 2 of the CCS course includes the following 5 modules:

6: Licensing and Responsibilities of Customs Brokers 7: The Harmonized Tariff Schedule of the United States (HTSUS) 8: Valuation 9: Marking of Imported Goods 10: Prohibited Goods and Quota

Part 2: Module 6: Licensing and Responsibilities of Customs Brokers

In this module, the role of customs brokers in the entry process will be examined. The information will also provide the requirements that customs brokers must meet in their business practice, outline the requirements to obtain a license or permit, and speak about the regulatory requirements that are outlined by CBP for representation of importers by customs brokers.

List of Lessons: • Lesson 1: History of Customs Brokers • Lesson 2: Customs Business • Lesson 3: Licensing Process (19 CFR 111.11) • Lesson 4: Permits and Responsible Supervision and Control • Lesson 5: Broker Obligations • Lesson 6: Broker/Client Relationship • Lesson 7: Power of Attorney (19 CFR 141)

Lesson 1: History of Customs Brokers

Goods imported into the U.S. and its territories must comply with formalities required under statute. Specific documents and information are required for the formal entry of merchandise. In addition, other precise legal responsibilities must be met.

As early as 1799, laws were passed that compelled the actual consignee to enter the goods but it also left it open for a “known agent or factor” to make entry on the consignee’s behalf. By the

mid-1850’s, it was common practice at many ports for the importer/consignee to endorse the bill of lading over to a customshouse broker, who then filed the entry documents. Brokers or agents for the importer/consignee were not regulated and illegal transactions were rampant. In spite of frequent government reminders that the importer remained legally responsible for the actions of its agents, the importer’s agents continued to operate in an unlawful manner.

As the trade industry grew and the importance of the services of these import agents became more and more obvious, the Department of Treasury recognized the necessity for tighter controls on the right to make entry. In 1857, the U.S. government began restricting entry of merchandise to “the owner or consignee, who alone is authorized, under our revenue system, to take the prescribed oath, give the requisite bond, and pay the duties”. Although Customs laws and regulations continued to restrict the right to make entry, the unregulated business of customs brokers continued to grow. Experienced brokers knew their way around the legal requirements and with a properly executed Power of Attorney, could act as the importer’s agent and file entries in the importer’s name. The importer, of course, remained legally responsible.

Another effort was made in 1894. The Treasury sought to control activity through a licensing process and began requiring the collector or chief officer of the port to issue a license to “any reputable and competent person desiring to transact business as a customs-house broker.”

Over the years the character language has been modified in the search for the correct balance of operational honesty and morality. Other licensing requirements exist and will be discussed later, but, in the beginning the primary concern was the honesty and morality of the import agent. The current statutory language permits the licensing of a person who “is of good moral character and qualified to render valuable service to others in the conduct of customs business.”

Lesson 2: Customs Business

A licensed customs broker has a wide range of duties and responsibilities. Primarily, a broker may conduct customs business on behalf of others. It is essential to understand what is meant by the term “customs business.” The specific language of 19 CFR 1641(a)(2) defines “customs business” as:

" those activities involving transactions with the Customs Service concerning

• The entry and admissibility of merchandise,

• Its classification and valuation,

• The payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation, or

• The refund, rebate, or drawback thereof.

It also includes:

• The preparation of documents or forms in any format and

• The electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with the Customs Service in furtherance of such activities, whether or not signed or filed by the preparer, or

• Activities relating to such preparation, but

• Does not include the mere electronic transmission of data received for transmission to Customs."

To perform any of the above listed roles, a broker must either be acting on his own behalf or be licensed by U.S. Customs & Border Protection (CBP). Any person who intentionally conducts customs business on behalf of another, without holding a valid customs broker license shall be liable to the United States for a maximum monetary penalty not to exceed $10,000 for each prohibited transaction as well as any other statutory violations.

A valid customs broker license is not required in the following situations:

(1) An employee of an importer/exporter acting on behalf of the employer.

(2) An employee acting on behalf of a broker. The broker has supplied the port director with notification that employee is authorized to transact customs business on their behalf and/or executed a power of attorney for the employee to sign documents pertaining to customs business. In both these instances the broker must exercise sufficient supervision over the employee to ensure that all transactions are performed promptly and in accordance with regulations. In all circumstances, the broker is fully responsible for any errors and omissions committed by the employee.

(3) Acting in connection with the entry or clearance of vessels under navigation laws.

(4) A carrier making entry for transportation in bond.

(5) Entering noncommercial goods on behalf of someone else under a power of attorney (19 CFR 141.33)

(6) Admission into a foreign trade zone by the zone operator with a valid power of attorney.

(7) Importer Security Filing (ISF), also known as “10+2”, which is the electronic filing of ten key data to CBP for ocean freight shipments. ISF should be filed at least 24 hours prior to lading at on a vessel destined to the USA and must be secured by a bond.

Lesson 3: Licensing Process (19 CFR 111.11)

A license is a form of permission granted by authority permitting an individual or business to engage in an activity that would otherwise be unlawful. The basic requirements for a broker’s license require an individual, at the time the application is submitted:

• Be a citizen of the United States; • Not an officer or employee of the U.S. Government; • Be at least 21 years of age; • Be of good moral character; and • Remit $200 examination fee and establish they have a satisfactory knowledge of

customs laws, regulations, procedures and related matters by making a 75 percent or higher grade on the written examination which is given in April and October every year

Licenses are also granted to partnerships, corporations, and associations. In order to qualify for a license, a partnership must have at least one member of the partnership who is a licensed broker. A corporation or association must be empowered under Articles of Incorporation or Articles of Association to transact Customs business as a broker; and have at least one corporate officer who is a licensed Customs broker.

Applications must be submitted within three years of passing the written examination to the port director in the port where the applicant intends to do business. The application must include a complete CBP Form 3124, $200 non-refundable application fee, and fingerprints on form FD 258 or electronically. The port director will post a notice for two weeks in the customhouse and on-line to invite comments or information regarding the issuance of the license.

After the application has been properly submitted, the applicant must undergo a background investigation which includes fingerprint analysis and review of arrest records. The investigation also includes exploring the business integrity, character and reputation of each applicant. These investigations include interviewing friends, neighbors, and co-workers. Criminal background and credit checks are also conducted.

An application may be denied for many reasons, but the most frequent grounds for denying a license are: • Failure to meet CFR 111.11 requirements • Willful misstatements of pertinent facts • Failure to establish business integrity and the good character of the applicant • A reputation imputing to the applicant criminal, dishonest or unethical conduct

If an application is denied, the applicant has the right to apply for a review by the Assistant Commissioner with subsequent appeals leading all the way to the Court of International Trade.

Once issued, a license or permit may be revoked or suspended. There are many reasons outlined under 19 CFR 111.53, including:

• In the case of partnerships, corporations or associations, employing a felon without written permission from the Assistant Commissioner, or defrauding, deceiving, misleading or threatening a client

• In the case of a permit, failing to employ within the district at least one licensed member or officer for a period of 120, or 180 days in the case of an additional district

• Making a false or misleading declaration, or omitting information from the license or permit application

• Violation of customs laws, rules or regulations enforced by CBP • Felony or misdemeanor convictions after applying for a license including but not limited

to the violation of trade or customs laws, fraud, larceny, theft, robbery, counterfeiting, forgery or extortion

• No longer meeting the requirements of 19 CFR 111.11 and 19

These matters are surrounded and supported by a series of disciplinary procedures including complaints, investigations, preliminary proceedings, hearings and appeals.

Every third year, in accordance with 19 CFR 111.30, each entity holding a broker’s license must file a written status report with the port that originally issued the license, and pay a processing fee of $100. This report, commonly known as the triennial report, was originally due on February 1, 1985. Subsequent reports are due by February 1 of each third year after 1985. Lesson 4: Permits and Responsible Supervision and Control

Successful applicants now take on the status of a licensed broker. The broker may be issued a permit to conduct customs business in the district through which the license application was made; subject to fee payments, and the Port Director’s satisfaction that the applicant will indeed do business in their district. A licensed broker may secure a permit to conduct business in another district port or a national permit is available, but the applicant must satisfy all the accompanying regulatory requirements. The most significant factor is the broker’s exercise of responsible supervision and control.

Responsible supervision and control is terminology every importing professional should commit to memory. This is the standard by which importing professionals will be measured.

Reasonable supervision and control is defined in the Regulations as:

“…that degree of supervision and control necessary to ensure the proper transaction of the customs business of a broker, including actions necessary to ensure that an employee of a

broker provides substantially the same quality of service in handling customs transactions that the broker is required to provide.”

Every individual broker operating as a sole proprietor and every licensed member of a partnership that is a broker and every licensed officer of an association or corporation that is a broker must exercise responsible supervision and control over the customs business conducted in the district. The permitted broker is directly responsible for the acts or omissions of his employees within the scope of Customs business. While the determination of what comprises responsible supervision and control varies, it could include:

• Training of employees based on the volume and type of business they conduct • Issuance of written guidelines and instructions to their employees • Entry reject rate • Recordkeeping procedures • Frequency of audits and visits to offices that the broker supervises

As separate permit is generally required in each district in which a broker conducts Customs business. Some common exceptions are:

• Entries filed via Remote Location Filing (RLF) • Drawback claims can be manually filed in districts that have drawback offices, or may be

filed electronically • A broker may place an employee to consult on customs business in a client’s office in

another district and no permit is required unless entries are being filed in that port • Post-entry representation on behalf of a client where that broker did not file entry

If a broker does not hold a national permit or a district permit for an area where he wishes to conduct customs business, that broker may execute a sub-Power of Attorney to a licensed broker who holds a permit for that district, provided that the power of attorney from the importer to the first broker authorizes such action . The local broker may elect to conduct customs business as an agent of the broker holding the primary POA.

Lesson 5: Broker Obligations

Licensed brokers provide a valuable service to the international trade community. The broker’s licensing examination is intended to determine an individual’s knowledge of Customs and related laws, regulations and procedures, all other appropriate matters necessary to render brokerage services. By being licensed, brokers accept explicit regulatory obligations.

First, a broker must maintain orderly records of all his financial transactions, correspondence and other records relating to his customs business. These transaction records must be kept confidential, stored for a period of at least five years from date of entry or longer, based on Regulations for the Customs transactions involved, i.e. when Drawback claims are filed, and must be made available to CBP upon valid request. These recordkeeping requirements are detailed in CBP Informed Compliance Publication (ICP) “What Every Member of the Trade Community Should Know About Recordkeeping” available on the CBP website, as well as in 19 CFR 111.21 and 23.

Second, brokers must submit up to date and detailed company and employee information, including employee names, social security numbers, home addresses, places and dates of birth. CBP must also be notified by the broker when there are changes in ownership or the termination of a qualifying officer of the broker’s corporation. Likewise, all changes to the name, address, as well as the location of business records, and organization of a broker’s business must be reported to CBP, including the termination of their brokerage business. This requirement is found in 19 CFR 111.28(b).

Third, a broker is mandated by regulation to operate in a professional manner toward his client and to CBP. These broad commitments are strengthened by various specific regulations concerning conflicts of interest, false information or documentation, abuse of one’s brokerage license and knowingly conducting business with parties who are “notoriously disreputable” or whose broker license was suspended, revoked, or cancelled “with prejudice”.

Finally, each broker must exercise due diligence in making financial settlements, in answering correspondence, and in preparing or assisting in the preparation and filing of records relating to any customs business matter handled by him as a broker. Payment of duty, tax, or obligations owing to Customs must be made by the responsible broker on behalf of the client on or before the date that payment is due. Payments received by a broker from a client after the due date must be transmitted to Customs within 5 working days from receipt by the broker.

On occasion, monies may be received by the broker from CBP payable to the client. The broker must provide a written statement to a client accounting for such funds. Additionally, a detailed accounting of all client monies not actually paid to CBP must be made within 60 calendar days

of receipt except no written statement is required if there is actual payment of the funds by a broker.

Furthermore, all brokers must provide their clients with the following written notification:

“If you are the importer of record, payment to the broker will not relieve you of liability for customs charges (duties, taxes, or other debts owed Customs) in the event the charges are not paid by the broker. Therefore, if you pay by check, customs charges may be paid with a separate check payable to the “U.S. Customs and Border Protection” which will be delivered to Customs by the broker.”

This notification must be given on or attached to every power of attorney provided by the broker to a client and to each active client every 12 months, in writing. In this way, CBP is working to ensure that importers become aware that their legal obligations are not discharged by using the services of a broker.

Lesson 6: Broker/Client Relationship

The key to a successful broker-client relationship is good communication. The broker should have a thorough knowledge of the needs of his client's business and the client should be made aware of the range of services the broker can provide. The traditional role of the customs broker has been to affect the release and entry of his client's goods in a timely and cost-effective manner, to secure that the import has been processed in full compliance with ALL applicable Regulations, and to pay any applicable duties, taxes, and fees on the client’s behalf. However, the role of the customs broker is changing. The implementation of various trade agreements has resulted in fewer duties and taxes being applicable, and CBP has necessarily moved its emphasis from revenue collection to security and compliance issues. As well, the implementation of monthly duty payment (PMS – Periodic Monthly Statement) has further enabled the payment of duty directly to CBP by importers. Because of the emphasis on security and compliance issues, importers and exporters must be prepared for CBP audits. Customs brokers can assist their clients by helping them to prepare for audits, and ensuring that all records relating to import and export transactions, not just those under the broker’s care, are in order. To satisfy CBP requirements in accounting for imported goods, a significant amount of information must be made available to the customs broker. Among other things, this includes information found on commercial invoices; certificates of origin; manifests and cargo control documents; FDA, FCC, Lacey, F&W and other government agency forms; Anti-Dumping and Countervailing Duty Statements; and bills of lading. This information is translated into coded customs entry documents and submitted to CBP. The customs broker must have a thorough knowledge and understanding of the products and nature of the importer's business.

In addition, most customs brokers are qualified to perform other highly technical functions such as processing of duty refunds, requesting a re-determination of the tariff classification or the value for duty, applying for duty relief and providing consulting services. Many customs brokers also have the expertise to work within the transportation community. The extent to which the customs broker becomes involved with such tasks as securing steamship releases, surrendering original bills of lading, accepting and delivering customs releases, preparing and issuing delivery orders, and advancing freight, handling, or delivery charges, depends on the regional and local practices of transportation companies and their cargo agents.

Lesson 7: Power of Attorney (19 CFR 141)

A critical compliance requirement of the broker-client relationship is an executed and valid power of attorney (POA). The person granting the authority is known as the principal or grantor, while the person being authorized to act is the agent or grantee. Brokers must obtain POA from their client before transacting customs business in that client’s’ name.

There are two instances when a POA is not required:

1. When the broker is acting as importer of record in the transaction

2. If the person signing customs documents on behalf of a resident corporation is known to the port director to be the president, vice president, treasurer, or secretary of that corporation

When POA is required of a resident corporation, it must be executed and signed by a duly authorized Corporate Officer (President, VP, Treasurer, Secretary, CEO, CFO). If the principal is a non-resident corporation, the POA must contain a clause authorizing the agent to accept service of process on behalf of the principal. Nonresident corporations are also required to support the POA with documentation establishing the authority of the grantor to execute the power of attorney for the corporation. This supplemental document is often called “Corporate Certification” and should be signed by a Managing Director. A POA issued by a partnership is limited to a period not to exceed two years from the date of execution and must be signed by one of the partners. Brokers must keep POA's on file until revoked. Revoked POA's and any applicable letters of revocation must be retained for five years after the date of revocation or for five years after the date the client ceases to be an active client, whichever period is later. A broker may transact customs business for a client on the basis of the receipt of a faxed power of attorney. The broker may retain the faxed power in his records.

The POA should list the full legal name of the principal and of the broker as well as any authorized trade or fictitious names. A simple name change or the acquisition of a new trade or fictitious name by either the principal or the broker will not affect the validity of existing POA. However, any POA's executed in the future should list the new name. A broker must obtain new POA's from existing clients when a business restructuring results in the termination of the legal existence of either the principal or the broker.

Unless a power of attorney specifically authorizes the agent to act thereunder at all Customs ports, the name of each port where the agent is authorized to act thereunder shall be stated in the power of attorney.

For both commercial and security risk purposes, CBP strongly urges that brokers consider the following means to thoroughly validate powers of attorney:

• To the greatest extent possible, have POA's completed in person so the personal identification (driver’s license, passport, etc.) can be reviewed.

• Check applicable Web sites to verify the POA grantor’s business and registration with state authorities. One example is to check the applicable Secretary of State’s site.

• If the principal uses a trade or fictitious name in doing business, confirm that the name appears on the POA.

• Verify that the importer’s name, importer number and Employer Identification Number (also known as the Federal Tax Identification Number) on the POA match what is in the Automated Commercial System (ACS) or Automated Commercial Environment (ACE).

• Check www.bis.doc.gov/complianceandenforcement/index.htm and other sites to confirm that the POA grantor is not a Denied or Restricted party on any published U.S. Government list.

Other types of POAs which brokers are required to secure and keep on file are:

Employee Powers of Attorney: Brokers are also required to keep employee Powers of Attorney permitting the broker’s employees to sign documents pertaining to Customs business under the broker’s license.

ISF Powers of Attorney: An ISF importer may designate an authorized agent to file the Importer Security Filing on the ISF importer’s behalf. The agent must have a valid Power of Attorney from the ISF importer. This can be covered under the importer Power of Attorney.

Sub-Powers of Attorney: Brokers may issue Power of Attorney to another broker if the importer Power of Attorney contains authority to “designate other brokers” or “authorize other Customs Brokers” to act as grantor’s (importer’s) agent.

You have now finished Module 6.

Part 2: Module 7: The Harmonized Tariff Schedule of the United States (HTSUS)

As discussed in module one, a tariff was originally applied to imported goods in order to produce revenue for the government. Today tariffs continue to generate revenue but are also utilized as political vehicles to further policy goals while other tariffs are employed to protect domestic industry. Historically, tariffs were frequently based on the personal and subjective evaluation of the collector, the individual responsible for the collection of the tariff. As a result, the tariff rate would fluctuate to meet the economic and political needs of the day. Governments and traders alike understood that as the international trade community grew and lines of communication between foreign governments expanded, the need for an ascertainable method to determine tariff rates to further the steady growth and international trade were required. Consequently, the great minds of the time gathered together to create a system of categorizing goods which would coordinate with each individual nation’s tariff rate for that good.

List of Lessons

• Lesson 1: Development of the Harmonized Commodity Description and Coding System • Lesson 2: Organization of the Harmonized System • Lesson 3: The Harmonized Tariff Schedule of the United States (HTSUS) • Lesson 4: Format and Contents of the HTSUS • Lesson 5: General Notes (GN) • Lesson 6: General Rules of Interpretation • Lesson 7: Additional U.S. Rules of Interpretation • Lesson 8: General Statistical Notes • Lesson 9: Duty Preference Provisions (Chapter 98 and Chapter 99) • Lesson 10: Punctuation • Lesson 11: Legal Notes • Lesson 12: Subheadings • Lesson 13: Classification of Goods • Lesson 14: Classification of Parts • Lesson 15: Summary of Classification Process

Lesson 1: Development of the Harmonized Commodity Description and Coding System

The Harmonized Commodity Description and Coding System, popularly known as Harmonized System or HS, is a multipurpose goods nomenclature used as the basis for Customs tariffs and for the compilation of trade statistics all over the world. The HS was developed by the World Customs Organization (WCO) and was implemented on 1 January 1988 by an international Convention (HS Convention), which came into force on 1 January 1988. The HS is maintained by the WCO through the Harmonized System Committee (HSC), which is composed of representatives of Contracting Parties to the HS Convention.

The HS serves as a universal language and code for transportable goods in international trade. Over 98% of world trade uses the HS for Customs tariffs and trade statistics. Governments, international organizations and the private sector use the HS for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, quota controls, economic research and analysis.

The tariff document itself is called the Harmonized Tariff Schedule or HTS. Amazingly, many experienced members of the import community do not realize the HTS applies to the classification of both imports and exports. In the United States, “Schedule B" Numbers are used to classify exported products in the United States and are based on the international HTS system. HTS numbers and Schedule B numbers will be the same up to the first 6 digits as the importing country's classification code, after which, they will likely be very close or the same.

The Schedule B is administered by the U.S. Census Bureau, while the HTS is administered by the International Trade Commission. There are approximately 150 Schedule B numbers that must be used in lieu of the corresponding provisions in the HTS. A list of these numbers may be found in the HTS at the end of the General Notes section and just prior to HTS Chapter 1 under “Notice to Exporters.” This Notice also contains information on the correct reporting of certain Chapter 98 numbers for export purposes.

Lesson 2: Organization of the Harmonized System

The HS comprises about 5,000 commodity groups, each identified by a six-digit code, arranged in a legal and logical structure and supported by well-defined rules in order to achieve uniform classification. This system is used by more than 200 countries. The HS covers all goods even if not enumerated. The process of classifying goods not specifically enumerated is discussed in a later lesson in this module. The HS is divided into 99 chapters and generally begins with commodities in their most original, natural state then advances, with continuing degrees of complexity, to manufactured goods. This progression holds within the HS itself from Chapter to Chapter and within each Chapter.

The international level of the HS extends to the first six digits of the tariff. As a result, goods placed in international commerce should be classified under the same first six digits in their respective tariffs thus furthering the goal of establishing a level of uniformity among the various trading countries. Should there be a conflict at the six digit level, there is a process to adjudicate this conflict at the WCO. There is often confusion between the WCO and the World Trade Organization (WTO), which is the only global international organization dealing with the rules of trade between nations and ratified in their law-making bodies.

To ensure national interests regarding tariff and statistical needs, the United States and most other developed countries expanded the international system by adding further digits. In the United States, a ten (10) digit number is used.

Lesson 3: The Harmonized Tariff Schedule of the United States (HTSUS)

The Harmonized Tariff Schedule of the United States (HTSUS) is an organized listing of goods and their corresponding duty rates which is used by Customs as the basis for classifying imported products and therefore establishing the duty to be charged and providing the U.S. Census with statistical information about imports and exports.

The HTSUS is published by the United States International Trade Commission (ITC). On January 1, 1989, section 1204 of the Omnibus Trade and Competitiveness Act of 1988 was enacted by Congress and the HTSUS became effective. It is of significant importance to note only Customs can provide legally binding advice or rulings on classification of imports. Previously issued binding rulings can be found online and utilized for reference in the classification process. CBP does provide a Customs Ruling Online Search system or “CROSS” for use in searching previous rulings. Some duty rates provided in the HTSUS may be calculated as a percentage of the value of the goods, such as “3% of the dollar amount.” This is called an "ad valorem" rate of duty. Other duty rates may be based on a set amount “per unit of measure,” such as “3 cents per liter” These rates are called "specific". Goods may also be assessed as a compound rate, which is a combination of both an ad valorem rate and a specific rate, such as “10 cents per liter plus 5% ad valorem.” The legal text of the HTSUS consists of:

1. The General Rules of Interpretation 2. Additional U.S. Rules of Interpretation 3. The General Notes - which contain information relating to matters such as the territory

covered by the schedule, terminology used in the schedule, and special tariff programs 4. All product categories set forth in 22 sections (I - XXII) containing 99 chapters, each

designated by 4-digit, 6-digit, and 8-digit code numbers plus applicable duty rates 5. Appendices for certain chemicals, pharmaceuticals, and intermediate chemicals for dyes

In addition to the above-mentioned items, statistical annotations, statistical notes, annexes, suffixes, units of quantity, table of contents, footnotes, alphabetical index, and other matters inserted in the HTSUS for ease of reference, but not part of the legal text. Lesson 4: Format and Content of the HTSUS The main body of the HTSUS consists of 5 columns. These columns are entitled: 1. Heading/Subheading 2. Statistical Suffix 3. Article Description 4. Unit of Quantity 5. Rates of Duty The Heading/Subheading column contains the 4-digit, 6-digit and 8-digit numbers assigned to the goods that are described in the third column entitled “article description”. The 4-digit number is defined as a “heading,” and the first two numbers indicate the chapter. The 6-digit and 8-digit numbers are defined as “subheadings.” The 4-digit and 6-digit numbers are part of the international Harmonized System whereas the 8-digit number is part of the HTSUS. The second column is entitled “Stat. Suffix”, short for “Statistical Suffix.” These last two digits, when added to the first 8, indicate the complete 10 digit tariff classification. The last two digits are for statistical purposes only and are not part of the legal text of the HTSUS. The third column describes the goods. At the 6-digit level, the terminology is from the International HS and some words may not be familiar. The fourth column indicates the unit of measure that must be reported on the document that is eventually submitted to Customs. Examples of some units of measure in this column are “doz” (dozen), “kg” (kilogram) and “no” (number). The list of units of measure is found in General Note 3(g). In some instances, there is more than one unit of measure indicated. All units must be reported. In many instances, the second quantity is used to administer a regulation for that particular classification, such as quotas. An “X” indicates that no unit of measure is to be reported. The final three columns are grouped together and entitled “Rates of Duty”. The column designated as “1” is divided into two sub-columns: “General” and “Special.” The General sub-column indicates the rates of duty for countries enjoying normal trade relations (NTR) with the United States. Most goods imported into the United States are assessed the rate of duty found in the General sub-column.

Under the Special sub-column are the rates of duty for certain preferential tariff programs, designated by alphabetic symbols and discussed in HTSUS General Note 3(c). The preferential duty rates offered under these programs are generally designed to encourage economic stability and development in certain developing countries, and to promote trade and economic integration. They can also indicate free trade agreements. The rates of duty in column 2 apply to products of certain countries and areas designated in HTSUS General Note 3(b). The rates of duty under column 2 are generally substantially higher than the General or Special rates of duty in column 1. The two countries that currently are subject to the rates of duty in column 2 are North Korea and Cuba. In the HTSUS, duty rates are generally structured so that they vary according to the degree of manufacture of imported goods. For example, steel ingots have a lower duty rate than finished steel products, since it is probable that these ingots will be further manufactured in the United States. Lesson 5: General Notes (GN)

The legal text of the HTS includes all provisions enacted by Congress or proclaimed by the President. This includes the General Notes. The General Notes, found near the beginning of the HTSUS, provide information and clarification regarding the terms and application of the HTSUS.

The General Notes include:

• A list of free trade programs, such as the Automotive Products Trade Act, and their corresponding symbols, to be quoted on the entry at GN3(c)

• Definitions, including the commingling of goods at GN3(f) • Abbreviations for units of measure used throughout the HTSUS at GN3(g) • Additional definitions, including “entered” and “wholly of” at GN3(h) • A list of countries entitled to the Generalized System of Preferences (GSP) located at

GN4 The General Notes also include details of the various tariff treatments. These should be consulted when determining if goods meet the requirements of a particular tariff agreement. Lesson 6: General Rules of Interpretation

The General Rules for the Interpretation of the Harmonized System, commonly referred to as the GRIs, are six international rules used in the classification of goods. It is absolutely essential to understand and apply the GRIs properly. The first four GRIs are applied in order whereas the remaining GRIs are applied as the circumstances dictate.

General Rule of Interpretation No. 1

The table of contents, alphabetical index, and titles of sections, chapters and subchapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes and, provided such headings or notes do not otherwise require, according to the following provisions, that is, the rest of the GRIs.

If the good can be classified under GRI 1, it must be classified under that rule. If it cannot, then go to the Rules that follow, that is GRIs 2 to 6, unless headings or notes require otherwise.

EXAMPLE 1: Under GRI 1, if a provision specifically and completely describes a product, then the product would be classified in that provision (e.g., fresh grapes are classified under heading 0806 which provides for “grapes, fresh or dried”). In this situation, the product is classified by the terms of a heading. EXAMPLE 2: Note 3 to Section XVI to the Harmonized System directs classification of composite machines described therein on the basis of the “principal function” of the machines. Under GRI 1, such machines are to be classified as so directed in that note. In this situation, the products are classified by the terms of a section note. EXAMPLE 3: Some textile sets are specifically mentioned in particular headings and all items of the set must be imported together. For instance, women’s track suits under 6211.43 must contain both the jacket top and pants. Both must be constructed of the same type of material and made to be worn together in order to be classified in this heading. General Rule of Interpretation No. 2 (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. EXAMPLE: A ceramic statuette of a bird that will be painted after importation would still generally have the essential character of a ceramic statuette of heading 6913 (i.e., one would still recognize and identify the product as a ceramic statuette) and would therefore be classified pursuant to GRI 2 (a) as the finished product in heading 6913. The second part of GRI 2 (a) provides that complete or finished articles presented unassembled or disassembled (which may occur for reasons related to the packing, handling or transportation of the articles) are to be classified in the same heading as the assembled article. It also provides that incomplete or unfinished articles presented unassembled or disassembled

are to be classified in the same heading as the complete or finished article provided that as presented they have the essential character of the complete or finished article (as provided for in the first part of GRI 2 (a)). EXAMPLE: A shipment of an unassembled bicycle (i.e., containing all parts and components necessary to build a bicycle) would be classified in heading 8712 as an assembled, finished bicycle as if it were entered (or imported) as the assembled, finished bicycle. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of GRI 3.

GRI 2 (b) governs the classification (1) of mixtures and combinations of materials or substances and (2) of goods consisting of two or more materials or substances. The rule extends headings referring:

• To a material or substance to include mixtures or combinations of that material or

substance with other materials or substances; and • To goods of a given material or substance to include goods consisting wholly or partly of

that material or substance (but only as long as another heading does not refer to the goods in their mixed or composite state). If the addition of another material or substance deprives the imported good of the character of the kind mentioned in the heading under consideration, however, then one must resort to GRI 3 for classification of the merchandise. Or, in other words, mixtures and combinations of materials or substances, and goods consisting of more than one material or substance, if upon initial consideration are potentially classifiable under two or more headings, they must be classified according to the principles of GRI 3.

EXAMPLE: Under GRI 2 (b), a stainless steel travel mug with a plastic handle would be classifiable in heading 7323 as a table, kitchen or other household article of steel despite the plastic handle (as it retains the character of a table, kitchen or other household article of steel as mentioned in heading 7323). If a travel mug, however, contained relatively equal amounts of stainless steel and plastic (e.g., the outside or outer surface of the mug is made of plastic and the inside or inner surface (i.e., the lining) of the mug is made of stainless steel), then the travel mug would be potentially classifiable under two headings: heading 3924 as tableware, kitchenware or other household article of plastic and heading 7323 as a table, kitchen or other household article of steel. In the case of a travel mug made equally of stainless steel and plastic, you must continue to read the GRIs to assist you in determining the correct classification.

General Rule of Interpretation No. 3 When, by application of rule 2(b) or for any other reason, goods are, prima facie (“as it appears to be”) classifiable under two or more headings, classification shall be done as follows, taken in order: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. The first sentence to GRI 3 (a) provides that goods should be classified in the heading that provides the most specific description. In general, under this criterion:

1. A description by name is more specific than a description by class 2. A description that more clearly identifies a product is more specific than one which

is less complete EXAMPLE: An example of a description by name in one heading that is more specific than a description by class in another heading is as follow: “shavers and hair clippers with self-contained electric motor” of heading 8510 is more specific than “electro-mechanical tools for working in the hand with self-contained electric motor” of heading 8467 or “electro-mechanical domestic appliances with self-contained electric motor” of heading 8509. (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. GRI 3 (b) deals with mixed goods, composite goods, and goods put up in sets for retail sale as described above in the second sentence to GRI 3 (a) (i.e., each of the goods is potentially classifiable in more than one heading because each good consists of two or more different ingredients, materials, components or articles and no heading provides for the goods as a whole). By application of this criterion, such goods are classified according to the ingredient, material, component or article that gives the mixtures, composite goods, or sets their “essential character.”

GOODS PUT UP IN SETS FOR RETAIL SALE: For the purposes of GRI 3 (b), the term “goods put up in sets for retail sale” means that the goods under consideration must

a) Consist of at least two different articles (i.e., the articles must be of a different type or nature, e.g., two table spoons are not such a “set”) which are, prima facie, classifiable in different headings;

b) Consist of products or articles put up together to meet a particular need or carry out a specific activity; and

c) Are put up in a manner suitable for sale directly to users without repacking.

MIXTURE EXAMPLE: An example of a “mixture” coming within the purview of GRI 3 (b) would be a mixture of barley of heading 1003 and oats of heading 1004 in equal amounts. In such an instance, there is a product consisting of two or more ingredients with each ingredient having a provision in which it could potentially be classified and no provision exists in the HTSUS that provides for the mixture as a whole.

COMPOSITE GOOD EXAMPLE: An example of a “composite good” coming within the purview of GRI 3 (b) would be a combined flashlight of heading 8513 and radio of heading 8527 (i.e., both are contained in the same housing). In such an instance, there is a product consisting of two or more different units or components that are located in the same housing with each component having a provision in which it could potentially be classified and no provision exists in the Harmonized System that provides for the composite good as a whole.

SET EXAMPLE: An example of a “set” coming within the purview of GRI 3 (b) would be a hairdressing kit consisting of a pair of electric hair clippers of heading 8510, a comb of heading 9615, a pair of scissors of heading 8213, and a brush of heading 9603. In such an instance, there is a product that consists of more than one item or article with each article having a provision in which it could potentially be classified and no provision exists in the Harmonized System that provides for the set as a whole. In the above-mentioned hairdressing kit, the articles are put up together to meet the particular need or carry out the specific activity of grooming hair.

Just because articles are packaged together for retail sale does not necessarily constitute a “set” by Customs definition. For example, a Christmas stocking for dogs, containing bones, dog treats, and a reindeer headpiece designed with an elastic strip for attachment to a dog’s head is not considered a set because although packaged together in a sealed stocking, the items are not dedicated to specific function or a particular need. The function of the dog food is feeding dogs is unrelated to the novelty function of the reindeer antlers. Therefore, these items must be classified separately even if imported as one item.

WHAT IS THE ESSENTIAL CHARACTER OF A PRODUCT?: The term “essential character,” as used in the GRIs, is not defined in the Harmonized System. As concerns that term, however, it is stated in the Explanatory Notes to the Harmonized System that the factor that determines the essential character of a good will vary between different kinds of goods (i.e., essential character

must be determined on a case-by-case basis). The essential character of a good, may, for example, be determined by the nature of the material or component; its bulk, quality, weight or value; or by the role of a constituent material in relation to the use of the goods. Other factors may be considered in determining the essential character of a product. (c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. GRI 3 (c) states that goods should be classified under the heading that occurs last in numerical order from among those that equally merit consideration if the goods cannot be classified by reference to GRIs 3 (a) or 3 (b). In the above-mentioned example of the mixed good consisting of barley and oats in equal amounts, if neither the barley nor the oats is found to impart the essential character to the product, then by application of GRI 3 (c) the product would be classified in heading 1004 as if consisting solely of the oats. This is because the heading number for the oats found in the mixture occurs last in numerical order as between it and the barley (i.e., 1003 for the barley and 1004 for the oats). This is also the rule that would enable you to classify properly the travel mug, mentioned under GRI 2, made of equal amounts of stainless steel and plastic. General Rule of Interpretation No. 4 Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin. This rule should be applied very infrequently as GRIs 1 to 3 will cover the classification of almost all goods. The process by which Rule 4 is invoked to classify anything must be sustainable under close scrutiny by experts. When attempting to apply this rule, however, any determination regarding “kinship” should depend on such factors as description, character, purpose or intended use, designation, production process and the nature of the goods. General Rule of Interpretation No. 5 In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein: (a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and entered with the articles for which they are intended,

shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character; (b) Subject to the provisions of rule 5(a) above, packing materials and packing containers entered with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use. GRI 5 (a) deals with the treatment of long-term use cases, boxes, and similar containers presented with the articles for which they are intended. Under this rule, long-term use containers imported with articles for which they are intended to be used are to be classified with the articles if they are of a kind of container normally sold with such articles (e.g., camera cases with cameras and musical instrument cases with musical instruments). This rule, however, does not apply to containers that give the imported article its essential character (e.g., a silver tray or dish containing tea or a high- quality ornamental ceramic bowl containing candies or sweets). In this case, the container would be classified separately from its contents.

GRI 5 (b) states that packaging containers and materials not normally intended to be reused are classified with the articles in which they are presented or imported (e.g., cardboard boxes or containers containing food products). This rule, however, does not apply to packaging materials or packing containers clearly suitable for repetitive use (e.g., certain metal drums or containers of iron or steel for compressed or liquefied gas, or beer kegs). Such containers are to be classified separately from the materials that they hold. General Rule of Interpretation No. 6 For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule, the relative section, chapter and subchapter notes also apply, unless the context otherwise requires.

GRI 6 stipulates that, for legal purposes, GRIs 1 through 5, apply mutatis mutandis (or with the necessary changes), at subheading levels within the same heading. Or, in other words, GRIs 1 to 5 are to be reapplied to determine the classification of goods at the subheading level. Goods are to be classified at equal subheading levels (that is, at the same digit level) within the same heading under the subheading that most specifically describes or identifies them (or as otherwise required or directed under GRIs 1 to 5). Only subheadings at the same level within the same heading are comparable (i.e., no consideration should be given to the terms of any subheading within another subheading when considering the proper classification of merchandise at the higher level subheading).

EXAMPLE: Framed glass mirror

• First determine the correct heading: 7009 Glass mirrors, whether or not framed, including rear-view mirrors

• To get the correct classification, you must now compare at the 6 digit level: o 7009.10 Rear-view mirrors o 7009.91 Unframed o 7009.92 Framed

Lesson 7: Additional U.S. Rules of Interpretation

The tariff classification of merchandise under the HTSUS is governed by the principles set forth in the GRIs and, in the absence of special language or context which requires otherwise, by the “Additional U.S. Rules of Interpretation.” These additional rules state:

“1. In the absence of special language or context which otherwise requires:

(a) tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use;

(b) a tariff classification controlled by the actual use to which the imported goods are put in

the United States is satisfied only if such use is intended at the time of importation, the goods are so used and proof thereof is furnished within 3 years after the date the goods are entered;

(c) a provision for parts of an article covers products solely or principally used as a part of

such articles but a provision for "parts" or "parts and accessories" shall not prevail over a specific provision for such part or accessory; and

(d) the principles of section XI regarding mixtures of two or more textile materials shall apply to the classification of goods in any provision in which a textile material is named.”

Additional U.S. Rule of Interpretation 1(a) is a principal use provision. Examples of wording used in HTSUS to describe these goods might be: “for use in”, “of a kind used for”, and “suitable for use solely or principally with”. How the imported goods will be used is not relevant. The goods are classified according to their sole or principal use at time of importation. Additional U.S. Rule of Interpretation 1(b) concerns the actual use of the goods. This rule requires that the imported goods be used in the manner described in the HTSUS.

An example is 8407.34.14: 8407.34 Reciprocating piston engines of a kind used for the propulsion of vehicles of chapter 87 Of a cylinder capacity exceeding 1,000 cc: 8407.34.14 To be installed in vehicles of subheading 8701.20, or heading 8702, 8703 or 8704. This example shows both rule 1(a) and (b). 8407.34 is a principal use provision, 1(a), and 8407.34.14 is an actual use provision, 1(b). Additional U.S. Rule of Interpretation 1(c) states that simply because an imported good is part of an article does not necessarily mean that it will be classified in the “parts” provision of the article. If there is a specific heading describing that part, that heading will take precedence over a heading for parts of an article. Additional U.S. Rule of Interpretation 1(d) states that the rules for textile mixtures apply throughout the tariff, not just in the textile section XI. A mixture of two or more textile materials are to be classified as if consisting wholly of that one textile material which predominates by weight over each other single textile material. Lesson 8: General Statistical Notes

The General Statistical Notes are legally binding and must be consulted to ensure applicable merchandise is classified properly. These are the section headings:

1. Statistical Requirements for Imported Goods 2. Statistical Annotations 3. Statistical Reporting Number 4. Abbreviations 5. Reporting of Exports The Statistical Requirements for Imported Goods outlines the requirements for persons making customs entry or withdrawal of goods imported into the customs territory of the United States. It details the requirement, as provided in the HTS and in regulations issued pursuant to law, that the person making an entry summary or withdrawal of imported goods shall complete the entry summary or withdrawal forms to provide information for statistical purposes. It then itemizes that required information, statistical annotations, reporting number and abbreviations include suffixes to the 8-digit tariff, units of quantity and appropriate abbreviations, the 10- digit reporting number and how to report two tariff numbers, prefixes and special program indicators.

The Reporting of Exports section indicates that in most cases (with the exception of chapter 98 and 99 numbers) the HTS Number may be used in place of the Schedule B export tariff number for the purposes of reporting exports to CBP. Lesson 9: Duty Preference Provisions (Chapter 98 and Chapter 99)

Section XXII of the HTSUS consists of Chapters 98 and 99. Chapter 98 contains special classification provisions permitting, in special circumstances, the duty-free entry or partial duty-free entry of goods that would otherwise be subject to duty. Chapter 99 contains provisions that reflect legislation and executive and administrative actions, which amend provisions found in Chapters 1 to 98.

Chapter 99 can amend duty rates or impose other import restrictions. These provisions can be temporary in nature, may be as a result of a trade agreement, or may indicate that the item is subject to a quantitative restriction such as a tariff rate quota. Lesson 10: Punctuation

The manner in which punctuation is utilized throughout the HTSUS affects the meaning and scope of the classification being considered. While punctuation may seem trivial, a considerable amount of classification errors can be attributed to the lack of attention paid to the presence of an influential punctuation mark.

The semi-colon (;) indicates a full stop and the portions of the classification divided by means of a semi-colon are separate and distinct from each other. The colon (:) is used to indicate that additional information follows which pertains to the goods specified. The comma (,) is used to separate a list or series of goods. The words "and," and "or" are often interpreted incorrectly when reading the tariff.

• "and" indicates that to be eligible under a classification more than one condition must be satisfied, while

• "or" indicates that alternatives exist. Careful reading, and a close regard to punctuation, are both necessary to interpret and understand tariff classification.

Lesson 11: Legal Notes Some sections and chapters of the Tariff are preceded by notes, known as the Legal Notes. The Legal Notes are essential to the correct classification of goods. They have international legal status in all participating countries. In general, the purpose of section and chapter notes is as follows: • To define the limits of a section, chapter, heading, or subheading; • To list goods included in a particular section, chapter, heading, or subheading; and, • To list goods excluded from a particular section, chapter, heading or subheading. The following phrases or terms used in the legal notes are essential to determine the proper classification of goods under the harmonized system:

• "Throughout the tariff schedule" means that the definition, or other information provided where a particular term is first used, can be applied anywhere in the tariff, and not only in the section or chapter in which the note appears. Refer to note 3 of chapter 5 and note 3 of chapter 41 of the HTSUS.

• Throughout the tariff schedule, elephant, hippopotamus, walrus, narwhal and wild boar tusks, rhinoceros horns and the teeth of all animals are regarded as "ivory.“

• Throughout the tariff schedule the expression "composition leather" means only substances of the kind referred to in heading 4115.

• "Unless the context otherwise requires" or "except where the context otherwise requires" is best explained by the following example from note 13 of section XI:

• Unless the context otherwise requires, textile garments of different headings are to be classified in their own headings even if put up in sets for retail sale.

• "Prima facie" means "on the face of it", or "as it appears to be". Refer to note 6b of

chapter 61 of the HTSUS for an example of this phrase. • (b) Articles which are prima facie, classifiable both in heading 6111 and in other

headings of this chapter are to be classified in heading 6111.

• "Mutatis mutandis" means “the necessary changes having been made,” and that respective differences must be considered. Refer to subheading note 1 to chapter 81 of the HTSUS for an example of this phrase:

• Note 1 to chapter 74, defining “bars and rods”, “profiles”, “wire”, and “plates, sheets, strip and foil” applies, Mutatis mutandis, to this chapter.

• "Inter alia" means among other things, and that the classification is not restricted to what is listed. Refer to note 1 to chapter 12 of the HTSUS.

• Heading 1207 applies, inter alia, to palm nuts and kernels, cotton seeds, castor oil seeds, sesame seeds, mustard seeds, safflower seeds, poppy seeds and shea nuts (karite nuts). It does not apply to products of heading 0801 or 0802 or to olives (chapter 7 or chapter 20).

• "Wholly of" means that the goods except for negligible or insignificant quantities of

some other material or materials, are composed completely of the named material.

• "In part of" or "containing" mean that the goods contain a significant quantity of the named material.

The Legal Notes must be consulted in order to correctly interpret and understand the heading. Judgment based solely on the wording of the classification is not sufficient to determine correct classification. In addition to the Legal Notes, there are Explanatory Notes. Unlike the Legal Notes, Explanatory Notes are not legally binding. Explanatory Notes are published by the World Customs Organization in Brussels, and contain in-depth explanations of the scope and content of the headings and subheadings of the Harmonized System. They are kept up to date by the regular issuance of amendments and supplements. Explanatory Notes should be consulted for guidance in classification and interpreting the HTS. Lesson 12: Subheadings Subheadings serve to further describe the heading with narrower categories and more detailed descriptions. All information in any subheading relates only to the goods in their respective heading and may only be interpreted within the framework of that heading. Each subheading under a heading bears equal weight. However, each describes a different item, and only one of them will describe accurately the goods being classified. Once the correct 6-digit subheading has been established, the next step is to determine the correct 8- digit subheading. Remember that comparisons may be made only between items at the same level. That is, 6-digit subheadings maybe compared only with other 6-digit subheadings. The 8- digit subheadings are breakouts from the 6-digit subheading. To properly classify an imported good, a statistical suffix must be added to arrive at the complete tariff classification at the 10-digit level.

Lesson 13: Classification of Goods

A complete HTSUS classification consists of a 10-digit number, for example, 9406.00.40.00. Under the Customs Modernization Act, it is the responsibility of the importer of record to use “reasonable care” when entering, classifying, and establishing the correct value for duty of imported goods. It is necessary to work through each step to arrive at the proper classification.

The Tariff is divided into sections, arranged in order of their degree of manufacture. For example, raw materials appear first, followed by unworked products, semi-manufactured products, and finished products. The sections are subdivided into chapters, and in some cases, subchapters. These subchapters also are arranged according to their degree of manufacture. Within chapters, goods are classified numerically in a hierarchical system under which headings may be compared only with other headings, subheadings with other subheadings of the same level, and so on. The first four digits are referred to as the “heading.” The first two digits indicate the chapter number and the next two digits indicate the heading’s location within the chapter. For example, heading 9406 refers to chapter 94 and the sixth heading. The heading appears at the first hierarchical level and is not indented. The fifth and sixth digits of the HTSUS classification, plus the four-digit heading make up the 6-digit subheading. Subheadings provide more detail on imported goods and are deemed necessary at the international level. Together, the first six digits represent the international classification number that is uniform for all countries participating in the international convention on the HS. The seventh and eighth digits, plus the previous six, make up the 8-digit subheading. The 8 digit subheading is called the U.S. Subheading and it is at this level that duty rates are assigned. Once the statistical suffix is added, the result is a complete 10 digit HTSUS classification number that provides the most detailed description of the imported merchandise. It is important to remember that the statistical suffix does not affect the rate of duty. The sole purpose is statistical reporting. (Link for an example classification chart: http://www.ncbfaa.org/Scripts/4Disapi.dll/userfiles/uploads/Classification_Chart.pdf) Chapter 06 Live Trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage.

Heading There are several headings in chapter 06. Only heading 0603 is reproduced below. 0603 Cut flowers and flower buds of a kind suitable for bouquet or for ornamental purposes, fresh, dried dyed, bleached, impregnated, or otherwise prepared

5-digit Subheading

Under heading 0603 the following 5-digit subheading appears. Note that it is indented in the HTSUS to illustrate visually that it falls under heading 0603:

• Fresh • Other (than fresh) 6-digit Subheading

Under the 5-digit subheading, 0603.1, there are six 6-digit subheadings. These are reproduced below:

0603.11 Roses 0603.12 Carnations 0603.13 Orchids 0603.14 Chrysanthemums 0603.15 Lilies (Lillium spp.) 0603.19 Other 8-digit Subheading

There are four items that have no 8-digit subheading. The 8-digit subheadings are reproduced below:

0603.12 Carnations 0603.12.30 Miniature (spray) carnations 0603.12.70 Other (than miniature carnations) 0603.19.01 Other (than roses, carnations, orchids, chrysanthemums, and lilies) Statistical Suffix

Statistical suffixes must be included to complete a tariff classification. Also there are items with their statistical suffix that fall below an 8-digit subheading. The first group is reproduced below:

0603.12.3000 Miniature (spray) carnations 0603.12.7000 Other

The next group are those that fall under an 8-digit subheading. Those below are shown with their appropriate 8-digit subheading: 0603.11.00 Roses 0603.11.00.10 Sweetheart 0603.11.00.30 Spray 0603.11.00.60 Other (than sweetheart or spray) 0603.11.00 Orchids 0603.11.00.50 Dendrobium 0603.11.00.60 Other (than dendrobium) 0603.14.00 Chrysanthemums 0603.14.00.10 Pom Pom 0603.14.00.20 Other (than pom pom) 0603.19.01 Other (than roses, carnations, orchids, chrysanthemums, and lilies) 0603.19.01.05 Anthuriums 0603.19.01.10 Alstroemeria 0603.19.01.20 Gypsophila 0603.19.01.30 Lilies 0603.19.01.40 Snapdragons 0603.19.01.60 Other (than anthuriums, alstroemeria, gypsophila, lilies, and snapdragons) Lesson 14: Classification of Parts The classification of parts under the HS can be difficult and must be done in accordance with the GRIs. Customs definition of “parts”:

• Cannot be used on its own • Must be combined with other articles to be used • Is an integral, constituent, or component part without which the article to which it is

joined could not function • Lends to the safe and efficient operation of the article • Is identifiable by shape or other characteristics as being an article solely or principally

used as a part

Parts are classified according to one of the following categories:

• Parts specifically named in a heading or of a class or kind named in a heading • Parts of general use, for which there is a precise definition • Parts designed for use principally or solely on a machine of the same heading • Multi-purpose interchangeable parts

Parts Named in a Heading

Any parts specifically named in a heading, or whose classification is determined by a legal note, are to be classified under that heading, even if specifically designed for and only suitable for a particular machine. This is in accordance with GRI 1.

Parts of General Use

The definition of "parts of general use" is found in Section XV, Note 2. This is a legal and binding definition and consequently, all parts provided for under the headings listed are always classified thereunder. The use, value, or intrinsic nature of a part are irrelevant factors in determining its classification.

Parts Suitable for use Solely or Principally with Machines of the Same Heading

Refer to the 6-digit subheading 8503.00. Parts that are used with the machines named in this subheading are listed.

Multi-Purpose Interchangeable Parts

These are parts and accessories that do not fall into any of the preceding categories. They may be classified according to chapter notes or classified in the residual parts and accessories heading of the relevant chapter.

Lesson 15: Summary of Classification Process The general steps for classifying goods under the HTSUS can be summarized as follows:

1. Gather information about the goods being classified. 2. If possible, obtain a sample of the product you are classifying. 3. Obtain descriptive literature. 4. Review previous opinions and rulings rendered on the goods. 5. Determine their degree of manufacture. 6. Know how the goods will be used. 7. Choose the most appropriate section, chapter, and possibly even subchapter to consider

from the table of contents at the beginning of the tariff.

8. Turn to the appropriate chapter and locate the heading(s) in the tariff that best describe the goods being classified.

9. Refer to the legal notes at the beginning of the section and chapter and read the notes concerning the heading(s) selected. Pay particular attention to any exclusions.

10. Refer to Explanatory Notes, published by the WCO, concerning the heading(s) selected.

11. Refer to the GRIs in sequential order. Follow breakouts through the subheadings and tariff item to complete the 10-digit classification, bearing in mind that the goods can be classified in one and only one heading and under one and only one subheading and so on.

12. Once the 10-digit classification has been determined, find the appropriate tariff treatment and duty rate.

You have now finished Module 7.

Part 2: Module 8: Valuation After a brief history of the valuation methods, this module will cover the methods of determining the entered value of goods imported into the U.S. It will give details on allowable deductions, required additions, and other available adjustments to the entered value declaration from the commercial value of the goods. This module will also discuss how an importer can determine a value where the transaction does not necessarily have a value. List of Lessons:

• Lesson 1: History of Valuation • Lesson 2: Methods of Appraisement • Lesson 3: Transaction Value Method • Lesson 4: Additions to the Price Paid or Payable • Lesson 5: Deductions from the Price Paid or Payable • Lesson 6: Discounts • Lesson 7: Limitations of the Transaction Value Method • Lesson 8: Transaction Value of Identical Goods • Lesson 9: Transaction Value of Similar Goods • Lesson 10: Deductive Method of Valuation • Lesson 11: Computed Method of Valuation • Lesson 12: Value if Other Values Cannot Be Determined or Used

Lesson 1: History of Valuation

At the conclusion of the Tokyo Round of the multilateral trade negotiations in 1979, conducted under the auspices of the General Agreement on Tariffs and Trade (GATT), the United States agreed to adopt the GATT Valuation Code. The GATT Valuation Code established that the value for duty is the transaction value, or price actually paid or payable, of the imported goods when they are sold for export to the country of importation. Certain adjustments to the transaction value can be made.

19 CFR 141.86 states the legal requirements of what information must be on the Commercial Invoice in an import transaction to the U.S. These requirements include the following in regards to value:

• Purchase price including any discount or value of each item if shipped under circumstances different than a direct sale between two unrelated parties

• All charges upon the merchandise including freight, insurance, commission, packing, rebates, and bounties

• All goods or services furnished for the production of the merchandise (i.e., assists such as dies, molds, tools, engineering work) which are not included in the invoice price. Goods or services furnished in the U.S. are excluded.

Under Section 484 of the Tariff Act, as amended, the importer of record is responsible for using reasonable care to determine the value of imported goods using certain rules. The importer must provide any other information necessary to properly determine the value of merchandise being imported and applicable duties, collect accurate statistics, and determine whether other applicable legal requirements have been met.

Regardless of the initial value of the merchandise stated on the Commercial Invoice, Customs has the statutory authority under Section 484 of the Tariff Act to determine the final value, or appraisement of imported goods. Following is the applicable statute:

“The Customs Service shall, under rules and regulations prescribed by the Secretary:

(a) fix the final appraisement of merchandise by ascertaining or estimating the value thereof, under section 1401a of this title, by all reasonable ways and means in his power, any statement of cost or costs of production in any invoice, affidavit, declaration, other document to the contrary notwithstanding;

(b) fix the final classification and rate of duty applicable to such merchandise;

(c) fix the final amount of duty to be paid on such merchandise and determine any increased or additional duties, taxes, and fees due or any excess of duties, taxes, and fees deposited;

(d) liquidate the entry and reconciliation, if any, of such merchandise; and

(e) give or transmit, pursuant to an electronic data interchange system, notice of such liquidation to the importer, his consignee, or agent in such form and manner as the Secretary shall by regulation prescribe.”

In 1994, under WTO, Article VII of the GATT Valuation Code was implemented with the intent to provide a fair, uniform, and neutral system of valuation that conforms to commercial realities and prohibits the application of arbitrary or fictitious customs values.

The GATT Valuation Code is a self-assessing method of Appraising value for duty.

Lesson 2: Methods of Appraisement

There are six methods that may be used to determine the value for duty of imported goods.

19 CFR 152.101(b) establishes that the appraisement of merchandise will be determined by one of these six Methods, taken in sequential order:

i. Transaction value

ii. Transaction value of identical goods

iii. Transaction value of similar goods

iv. Deductive value

v. Computed value

vi. Value if other values cannot be determined or used

The transaction method of valuation is the method most commonly used. If the transaction value cannot be used, one of the five alternative methods must be considered in the order listed. The exception to this rule is that, upon written request to the port director at the time the entry summary is filed, the importer may choose to reverse the order of (iv) and (v) and elect to use the computed method over the deductive method. Lesson 3: Transaction Value Method

The preferred and most common method used to determine the entered value for duty purposes is transaction value method. The transaction value of imported merchandise is the price actually paid or payable for the merchandise when sold for exportation to the United States, including required additions or deductions. Appropriate additions and deductions to use in calculating value will be discussed later in this chapter.

There are two basic requirements that must be met before the transaction value method may be used. The first is that there must be a sale for export to the United States. The other is that the price paid or payable must be determined, or agreed to. Requirement 1: Sale for Export

Goods may change hands many times before reaching the final consumer. For valuation purposes, Customs will look at the sale that actually resulted in or caused the export of the goods to the United States. This is often, but not necessarily, the last sale before import occurs.

Requirement 2: Price Paid or Payable

The total payment (exclusive of any costs, charges, or expenses incurred for international transportation, insurance, and related services incidental to the international shipment of the merchandise from the country of exportation to the place of importation in the United States), made or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. The word “payable” refers to a situation in which the price has been agreed upon but actual payment has not been made at time of importation. Payment may be made by letters of credit or other negotiable instruments and may be made directly or indirectly.

Sales between non-related parties and related parties may use the transaction value method. However, it may be used between related parties only when the relationship has not influenced the price paid or payable. A test value may be used to determine whether the relationship has influenced the price paid or payable. A test value can be one of the following, provided that the values relate to merchandise exported to the United States at or about the same time as the imported merchandise in question. A test value can be:

• The transaction value of identical merchandise, or of similar merchandise, in sales to unrelated buyers in the United States; or

• The deductive value or computed value of identical merchandise or of similar merchandise. These two methods will be reviewed in lessons 10 and 11 of this module.

Test values are used for comparison only. Lesson 4: Additions to the Price Paid or Payable

The following, if not already included in the price paid or payable, must be added to arrive at the transaction value:

• The packing costs incurred by the buyer with respect to the imported merchandise • Any selling commission incurred by the buyer with respect to the imported merchandise

• The value, apportioned as appropriate, of any assist, (defined in Topic 1 of this lesson) • Any royalty or license fee related to the imported merchandise that the buyer is

required to pay, directly or indirectly, as a condition of the sale of the imported merchandise for exportation to the United States

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

Topic 1: Assists An assist is any of the following, supplied directly or indirectly, and free of charge or at reduced cost, by the buyer of imported merchandise for use in connection with the production or sale of merchandise for export to the United States:

• Materials, components, parts, and similar items incorporated in the imported merchandise

• Tools, dies, molds, and similar items used in the production of the imported merchandise

• Merchandise consumed in the production of the imported merchandise • Engineering development, artwork, design work, and plans and sketches undertaken

outside the United States and necessary for the production of imported merchandise

The value of an assist shall include transportation costs to the place of production. Determining the value of a tangible assist can accomplished following these rules:

1) The cost of acquiring or leasing the assist if acquired by the importer from an unrelated seller

2) The cost of producing the assist if produced by the importer or a person related to the importer

3) For Engineering development, artwork, design work and plans the value as an assists is: a. Cost of obtaining copies, if the information is available in the public domain b. Value of the Non-U.S. portion, if the production of the assist occurred in

several countries Once a value of an assist has been determined, it is necessary to apportion that value to the imported merchandise in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles. The value of the assist can either be declared in full on one Customs entry, or may be prorated over several applicable entries, based on the number of affected units produced or anticipated production. Engineering development, artwork, design work, and plans and sketches are not considered assists when:

i. Performed by an individual domiciled within the United States;

ii. Performed by that individual while acting as an employee or agent of the buyer of the imported merchandise; and

iii. Incidental to other engineering, development, artwork, design work, or plans or sketches that are undertaken within the United States.

The proper classification of goods and services as either an assist, or not an assist, is absolutely necessary in arriving at the correct entered value.

Topic 2: Royalty and License Fees

Any royalty or license fee related to the imported merchandise that the buyer is required to pay, directly to indirectly, as a condition of the sale of the imported merchandise for exportation to the United States must be added to the entered value of the merchandise. Whether a royalty is dutiable depends upon whether the buyer had to pay it as a condition of sale, to whom, and under what circumstances the royalty was paid. Dutiability is decided on a case by case basis and should usually be addressed via binding ruling.

Topic 3: Commissions

There are two types of commissions: buying commissions and selling commissions. Buying commissions are fees paid to a bona fide buying agent for services performed on behalf of the buyer in connection with the purchase of imported goods. A buying commission is not dutiable.

A selling commission is any commission paid to the seller's agent, who is related to or controlled by, or works for or on behalf of, the manufacturer or the seller. Selling commissions incurred by the buyer with respect to the imported merchandise are dutiable.

Topic 4: Proceeds

The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue directly or indirectly to the seller are dutiable. However, dividends or other payments from the buyer to the seller that do not relate directly to the imported merchandise will not be added to the price actually paid or payable.

Topic 5: Packing Costs

Packing costs include the costs of all containers (exclusive of instruments of international traffic) and coverings of whatever nature and of packing, whether for labor or materials, used in placing merchandise in condition, packed ready for shipment to the United States. Packing costs are dutiable and should be included in the price paid or payable.

Lesson 5: Deductions from the Price Paid or Payable The following, if included in the price paid or payable, may be deducted to arrive at transaction value:

• Any reasonable cost or charge incurred for construction, erection, assembly, or maintenance of, or technical assistance provided with respect to merchandise after importation to the United States;

• Customs duties and other Federal taxes currently payable on imported merchandise by reason of its importation, and any Federal excise tax on, or measured by the value of, the merchandise for which vendors in the United States ordinarily are liable; and

• Freight, insurance, and other costs incident to international shipment if they are included in the price actually paid or payable or referred to in the terms of sale and are adequately supported by a service provider’s invoice.

These deductions must be identified separately from the price actually paid or payable and from any cost or other item on the commercial documents.

In March 2000, U.S. Customs issued Treasury Decision 00-20 outlining proper deduction methods for prepaid ocean freight and insurance in order to determine entered value of imported merchandise. Customs states that if the actual costs are not available or cannot be verified, costs for international transportation and insurance cannot be excluded from the CIF invoice value. These costs can only be deducted if they are the “actual” figures for freight and insurance. “If the importer of record does not know the actual costs for freight, insurance and other costs incident to international shipment, it must declare the entire value without a deduction for freight, insurance and other costs incident to international shipment.” [T.D.00-20]

Customs considers actual costs to constitute those amounts ultimately paid to the international carrier, freight forwarder, insurance company, or other appropriate provider of such services. Acceptable examples of proof of actual costs are:

• An invoice listing freight / insurance costs paid to a service provider • A separate contract listing freight / insurance costs • A rated bill of lading/air waybill • Proof of payment of freight / insurance charges such as letter of credit, bank statement,

or copy of check

Lesson 6: Discounts

Certain cash or volume discounts given to a U.S. purchaser by a foreign vendor are allowable deductions from transaction value. One such allowable deduction is a cash discount for prompt payment of the invoice, usually expressed as a percentage within a time limit, for example, 2% net 15. In this example, there is a 2% discount available to the purchaser if the invoice is paid in 15 days. Most discounts are allowed in transaction value. Discounts should not be confused with credits given for other transactions.

Lesson 7: Limitations of the Transaction Value Method

Transaction value method can be used only if:

• There are no restrictions on the disposition or use of the imported merchandise by the buyer, other than

• Those imposed or required by law; • Those that limit the geographical area in which merchandise may be resold; or • Those that do not substantially affect the value of the merchandise; • The sale of, or the price actually paid or payable for, the imported merchandise is not

subject to any condition or consideration for which a value cannot be determined; • No part of the proceeds of any subsequent resale, disposal, or use of the imported

merchandise by the buyer will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made; and

• The buyer and seller are not related, or the buyer and seller are related but the transaction value is acceptable.

Should the transaction be excluded from valuation under the transaction value method, move on to the next method. Lesson 8: Transaction Value of Identical Goods Where the value for duty cannot be determined under the transaction value method, the transaction value of identical goods may be used. Under this method of valuation, the value for duty is based on the value of other "identical" goods that are: • With respect to the merchandise being valued, are identical • Produced in the same country as the merchandise being appraised • Produced by the same entity as the merchandise being appraised If merchandise meeting all three criteria cannot be found, then identical merchandise must satisfy the first two criteria and just manufactured by a different producer. For the purpose of determining the value for duty of goods being appraised, the transaction value of identical goods is adjusted to account for differences attributable to transportation

costs, trade levels and quantities. Where there is more than one transaction value of identical goods, then the lowest transaction value of identical goods should be used as the basis for appraisal. Identical merchandise does not include merchandise which incorporates engineering development, artwork, design work and plans or sketches provided free of charge, or at a reduced cost, by the buyer for the production or sale. Lesson 9: Transaction Value of Similar Goods

The transaction value of similar goods method of valuation is essentially the same as the identical goods method except that the value is based on goods that closely resemble the goods being appraised, that is, on similar goods. The goods must be capable of performing the same functions, be commercially interchangeable, be produced in the same country as the goods now being appraised and be produced by the same person/manufacturer as the goods being appraised.

However, in the case of similar goods, the quality, reputation, and existence of a trademark are factors that must be considered when determining if the goods are indeed “similar”. The same conditions, allowances and adjustments that are indicated for determining the transaction value of identical goods are used to determine the transaction value of similar goods. Lesson 10: Deductive Method of Valuation

If the transaction value of imported merchandise, of identical merchandise, or of similar merchandise cannot be determined, then deductive value may be considered.

The deductive method of valuation is based on the U.S. importer's most common selling price of the goods to U.S. customers. From this "resale" figure, or price per unit, certain amounts are then deducted. However, deducted value cannot be used for any sale to a person who supplies any assist for use in connection with the production or sale for export of the merchandise. The first step that must be taken before making use of the deductive method of valuation is to determine the price per unit of the goods being appraised. The price per unit is defined as "the price at which the greatest number of units is sold". The sales used to determine the price per unit must be made to persons at the first level of trade after importation who:

• Are not related to the persons from whom they buy such goods; and • Have not supplied, directly or indirectly, free of charge or at a reduced cost, any assists.

Allowable deductions from the price for this valuation method are: 1. Any commission usually paid or agreed to be paid, or the addition usually made for

profit and general expenses, in connection with sales in the United States of imported merchandise that is of the same class or kind, regardless of the country of exportation, as the merchandise concerned;

2. The actual costs and associated costs of transportation and insurance incurred with respect to international shipments of the merchandise concerned from the country of exportation to the United States;

3. The usual costs and associated costs of transportation and insurance incurred with respect to shipments of the merchandise concerned from the place of importation to the place of delivery in the United States if those costs are not included as a general expense;

4. The customs duties and other Federal taxes currently payable on the merchandise concerned by reason of its importation, and any Federal excise tax on, or measured by the value of, the merchandise for which vendors in the United States ordinarily are liable; and

5. In some cases, the value added by the processing of the merchandise after importation to the extent that the value is based on sufficient information relating to the cost of that processing.

One situation where deductive method may be used is for goods sold on consignment. It is important to note that the deductive method of valuation and the computed method of valuation may, at the importer's request and permission of the port director, be reversed in their order of application. Lesson 11: Computed Method of Valuation

The computed method of valuation is the sum of:

1. The cost or value of the materials and the fabrication and other processing of any kind

employed in the production of the imported merchandise; 2. An amount for profit and general expenses equal to that usually reflected in sales of

merchandise of the same class or kind as the imported merchandise that are made by the producers in the country of exportation for export to the United States;

3. The value of any assist which is directly related to the production of the imported merchandise, if its value is not already included; assists in the form of engineering, development, artwork, design work, sketches and plans, will be included only to the extent that their value has been changes to the producer, and

4. Packing costs.

Since the computed method of valuation depends on knowledge of the costs of producing the actual imported goods, it is generally limited to those importers who are related to the vendor and where the vendor is the manufacturer of the goods in question. Lesson 12: Value if Other Values Cannot Be Determined or Used

If the value of imported merchandise cannot be determined using any one of the six methods previously described, the imported merchandise will be appraised on the basis of a value derived from these methods and reasonably adjusted to the extent necessary to arrive at a value. Only information available in the United States may be used.

For example, for identical or similar merchandise valuation methods, the requirement that identical merchandise, or similar merchandise, should be exported at or about the same time of exportation as the merchandise being appraised may be interpreted less stringently. The below methods are unacceptable bases of appraisement:

a) The selling price in the United States of merchandise produced in the United States b) A system that provides for the appraisement of imported merchandise at the higher of

two alternative values c) The price of merchandise in the domestic market of the country of exportation d) A cost of production, other than a value determined under § 152.106 for merchandise

that is identical merchandise, or similar merchandise, to the merchandise being appraised

e) The price of merchandise for export to a country other than the United States f) Minimum values for appraisement g) Arbitrary or fictitious values

You have now finished Module 8.

Part 2: Module 9: Marking of Imported Goods In this module, the marking rules of origin are examined in detail including the statutory authority to require it, the exceptions to the marking requirement, the special handling of containers used in international transportation, the “J” list, special marking requirements for some items in trade, as well as a comprehensive look at how the NAFTA Act impacts the origin and marking determinations for goods.

List of Lessons: • Lesson 1: Marking Rules • Lesson 2: Fundamentals of Marking Requirements • Lesson 3: Exceptions to Marking Requirements • Lesson 4: Containers • Lesson 5: Special Marking Requirements • Lesson 6: NAFTA Marking Rules

Lesson 1: Marking Rules

Section 304 of the Tariff Act of 1930 provides that, unless excepted, every article of foreign origin imported into the United States “shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article.” "Conspicuous" within the context of the marking requirements means “capable of being easily seen with normal handling of the article or container.” “Indelibly” means “not easily erased or washed away.” Determining whether or not an article is marked properly depends upon the nature of the article itself.

Each imported article must be marked with country of origin. However, there are some exceptions to the marking requirements if the goods are from Canada or Mexico. NAFTA goods may be marked with the country of origin in English, Spanish or French, except that Canada, Mexico and the United States may, as part of their general consumer information measures, require that an imported good be marked with its country of origin in the same manner as prescribed for domestic goods. Unless specifically exempted, Canada, Mexico and the United States may require that goods imported from another NAFTA country be marked in a conspicuous place legibly, indelibly, and sufficiently permanently to indicate to the ultimate purchaser the country of origin of the article. Such marking requirements must comply with the NAFTA's general provisions on methods of marking. Lesson 2: Fundamentals of Marking Requirements

The fundamental marking obligations are further detailed in the provisions of 19 CFR 134 which includes the following concepts and definitions:

• “Foreign origin” refers to a country of origin other than the United States, as defined in

paragraph (e) of this section, or its possessions and territories. • “Ultimate purchaser” is generally the last person in the United States who will receive

the article in the form in which it is imported. For example, if an imported article will be used in the United States in a manufacturing process that results in an article having a name, character or usage different from that of the imported article, the manufacturer

is the ultimate purchaser, whereas for an article that is to be sold to the consumer in its imported form, the retail purchaser is the ultimate purchaser.

Goods should be marked as indelibly and permanently as the nature of the product will permit. Marking that will not remain on the article during handling or for any other reason except deliberate removal is not a proper marking. The importer is responsible for ensuring merchandise imported is marked properly. Labels may be used in some instances, but this is not a recommended form. Often labels become loose due to weather, unsatisfactory adhesive, or other conditions. If this happens, the importer may be subject to the expense of remarking the merchandise. When tags are used, they must be attached in a conspicuous place and in a manner that assures that, unless deliberately removed, they will remain on the article until it reaches the ultimate purchaser. Under the MOD Act, an importer may face sanctions for unmarked or incorrectly marked articles. A marking duty of 10% of the final appraised value shall be assessed unless the goods are exported or destroyed prior to the liquidation of the entry. Any intentional removal, covering, or alteration of a country of origin marking may result in criminal penalties of up to $5,000 and/or imprisonment for 1 year. Furthermore, Section 42 of the Trademark Act of 1946 provides that no imported article of foreign origin which bears a name or mark calculated to induce the public to believe that it was manufactured in the United States, or in any foreign country or locality other than the country or locality in which it was actually manufactured, shall be admitted to entry at any customhouse in the United States. In fact, such goods are subject to seizure and forfeiture. If importer merchandise is marked with the words “United States”, “American”, the letter combination “U.S.A.”, any variation of such words or letters, or the name of any city or location in the United States appear on an imported article, there shall also appear legibly and permanently in close proximity to such words, letters or name (and in comparable size), the country of origin of the article proceeded by “Made in”, “Product of”, or other words of similar meaning. This requirement is to protect consumers from being led to believe an article is a product of the United States when, in reality, the merchandise is of foreign origin. Importers are allowed, where administratively practicable, to mark goods that are not marked at the time of importation. These goods must be marked prior to release from Customs control or custody. This variation to the marking rule is available unless an importer has repeatedly violated the country of origin marking requirements after receiving written notification that the goods are required to be marked prior to importation. When articles or containers are found to not be legally marked, Customs shall notify the importer on a Customs Form (CF) 4647. This notice informs the importer to mark the goods or to redeliver them for marking, exportation or destruction. The importer may mark the goods at his premises or at one he designates at his expense. The importer must keep the goods intact until the marking, exportation or destruction is completed and verified. There are occasions

which require the marking to be done under Customs supervision. Consequently, the importer may be liable for the expense of having a Customs officer supervise the marking. When the marking is performed outside the presence of a Customs officer, the verification of the marking, exportation, or destruction of not legally marked goods may be done by sample or by affidavit. The port director may accept a sample in lieu of viewing the entire shipment. Customs may also accept certification that the marking was completed with the submission of the completed and signed CF 4647. Customs may also accept a certificate of marking (filed in duplicate) from the importer. It is important to note that the importer must be advised not to distribute the imported merchandise into commerce until Customs has completed the final section of the CF 4647 and the importer has received the signed CF 4647. Unless specifically exempted, all imported goods, including foreign articles reshipped from a U.S. possession and imported articles repacked or manipulated (i.e., cleaned, sorted, or otherwise changed in condition but not manufactured), are subject to country of origin marking regulations. If an article is intended to be repacked in new containers for sale to an ultimate purchaser after its release from U.S. Customs and Border Protection custody, the importer must certify that if he does the repacking, he shall not obscure or conceal the country of origin marking, or that the new container will be properly marked. If the article is intended to be sold or transferred to a subsequent purchaser or repacker, the importer must certify that he/she will notify the subsequent purchaser or repacker (in writing) of the marking requirements. Lesson 3: Exceptions to Marking Requirements

Exceptions to the marking requirements are found in the J-List. The “J” list was created in accordance with the provisions of section 304(a)(3)(J) of the Tariff Act of 1930. The following is a partial list of goods that are exempt from the marking requirements. The complete list can be found in the Code of Federal Regulations, 19 CFR 134.33.

• Art, works of • Beads, unstrung • Briquettes, coal or coke • Cigars and cigarettes • Feathers • Hides, raw • Monuments • Paper, newsprint • Plants, shrubs, and other nursery stock • Ribbon • Screws • Sponges • Sugar, maple • Trees, Christmas

• Wire, except barbed It is important to notice that marking the items in the sample list of J-List items would either destroy the item or be impracticable. The outermost containers in which these goods normally reach the ultimate purchaser must still be properly marked with the country of origin as required under law. Aside from the J-List, there are other regulatory exceptions to the marking requirements such as,

a) Articles incapable of being marked; (examples: fruit, unfinished leather) b) Articles that cannot be marked prior to shipment to the United States without injury; c) Articles that cannot be marked prior to shipment to the United States except at an

expense economically prohibitive of its importation; d) Articles for which the marking of the containers will reasonably indicate

the origin of the articles; e) Articles which are crude substances; f) Articles imported for use by the importer and not intended for sale in their imported or

any other form; g) Articles to be processed in the United States by the importer or for his account

otherwise than for the purpose of concealing the origin of such articles and in such manner that any mark contemplated by this part would necessarily be obliterated, destroyed, or permanently concealed;

h) Articles for which the ultimate purchaser must necessarily know, or in the case of a good of a NAFTA country, must reasonably know, the country of origin by reason of the circumstances of their importation or by reason of the character of the articles even though they are not marked to indicate their origin;

i) Articles which were produced more than 20 years prior to their importation into the United States;

j) Articles entered or withdrawn from bonded warehouse or FTZ for immediate exportation or for transportation and exportation;

k) Products of American fisheries which are free of duty; l) Products of possessions of the United States; m) Products of the United States exported and returned; n) Articles exempt from duty under §§10.151 through 10.153 (including articles valued at

less than $200 and bonafide gifts of $100 or less that do not require a customs entry), 145.31 or 145.32 of this chapter;

o) Articles which cannot be marked after importation except at an expense that would be economically prohibitive …

p) Goods of a NAFTA country which are original works of art; and q) Goods of a NAFTA country, such as ceramic bricks; diodes, transistors and similar

semiconductor devices; photosensitive semiconductor devices, electronic integrated circuits and microassemblies, which are provided for in subheading 6904.10 or heading

8541 or 8542 of the Harmonized Tariff Schedule of the United States (HTSUS) (19 USC 1202).

r) Certain coffee, tea and spice products; s) Silk scarves and silk fabric.

Lesson 4: Containers

Containers or holders for imported merchandise which are subject to treatment as imported articles under the HTSUS, shall be marked to indicate clearly the country of their own origin in addition to any marking which may be required to show the country of origin of their contents; however, no marking is required for any good of a NAFTA country which is a usual container.

It is important to understand the distinction between a “usual” container and an “unusual” container. The regulations define a “usual” container as one in which the good will ordinarily reach its ultimate purchaser. Examples of usual containers include those fitted to contain a specific good or set of goods such as a camera case or an eyeglass case, or packing, storage and transportation materials. Usual containers, imported filled, must be marked with the name of the country of origin of the contents of the usual container, unless the contents are marked with the country of origin and the usual container can be readily opened for inspection of its contents.

Usual containers, imported empty, must comply with the standard country of origin marking requirements. However, they may be exempted from this requirement if they reach the person or firm that will put them in a carton or other container marked with the country of origin. Another exception is when a usual container is imported from a NAFTA country. Those containers are not required to be marked with the country of origin, whether the container is filled or empty.

An “unusual” container is one not ordinarily sold at retail with its contents, or which has further use or value after its contents are consumed, such as heavy duty steel drums, tanks, and other similar shipping, storage, transportation containers or holders capable of reuse. These containers, when filled, must be marked to show the country of origin of the container, in addition to any marking requirements for their contents. Also, like usual containers, unusual containers, imported empty, must be marked with their country of origin.

As mentioned above, if an article is exempted from the marking requirements, the outermost container or holder in which the article ordinarily reaches the ultimate purchaser must be marked to indicate the country of origin of the article, regardless of whether the article is marked or not.

Lesson 5: Special Marking Requirements

There are certain articles and classes of articles that are subject to special marking requirements. For example, iron and steel pipes and pipe fittings, compressed gas cylinders and manhole rings, frames and covers must be marked by one of four methods: • Die stamped • Cast in mold lettering • Etching (acid or electrolytic) • Engraving These specifically prescribed methods of marking for these items demonstrate how Customs expects the marking of an item to coincide with the nature of the imported merchandise. Knives, clippers, shears, safety razors, surgical instruments, scientific and laboratory instruments, pliers, pincers, and vacuum containers must be marked legibly and conspicuously to indicate their origin by the same means or by using metal plates that bear the prescribed marking and that are attached securely to the article in a conspicuous place by welding, screws, or rivets. Again, by marking in the required manner, the consumer will have the ability to ascertain the country of origin.

There are particular items which require even more specialized marking requirements. These items include watches and clocks. Chapter 91, Additional U.S. Note 4, to the Harmonized Tariff Schedule of the United States (HTSUS), sets forth special marking requirements for watches and clocks. With the following exceptions, any movement or case provided for in this chapter, whether imported separately or attached to an article provided for in this chapter, shall not be permitted to be entered unless conspicuously and indelibly marked by cutting, die-sinking, engraving, stamping (including by means of indelible ink), or mold-marking (either indented or raised), as specified below.

Movements with opto-electronic display only and cases designed for use therewith, whether entered as separate articles or as components of assembled watches or clocks, are exempt from the marking requirements set forth in this note. The special marking requirements are as follows: a. Watch movements shall be marked on one or more of the bridges or top plates to show:

i. The name of the country of manufacture; ii. The name of the manufacturer or purchaser; and

iii. In words, the number of jewels, if any, serving a mechanical purpose as frictional bearings.

b. Clock movements shall be marked on the most visible part of the front or back plate to show:

i. The name of the country of manufacture; ii. The name of the manufacturer or purchaser; and

iii. The number of jewels, if any.

c. Watch cases shall be marked on the inside or outside of the back and must show: i. The name of the country of manufacture; and

ii. The name of the manufacturer or purchaser.

d. Clock cases provided for in this Chapter shall be marked on the most visible part of the outside of the back to show the name of the country of manufacture.

Cigarettes are another commodity with special marking requirements. The Imported Cigarette Compliance Act of 2000 imposes special marking requirements on the importation of cigarettes and other tobacco products.

Lesson 6: NAFTA Marking Rules

Annex 311 of the North American Free Trade Agreement (NAFTA) requires Canada, Mexico, and the United States to each establish marking rules to determine the country of origin for marking purposes.

Goods may be marked with their country of origin in English. Only NAFTA goods can be marked in English, Spanish or French. The United States, Canada, and Mexico may, as part of their general consumer information measures, require that imported goods be marked with their country of origin in the same manner as that prescribed for similar domestic goods. For marking purposes (except for textile and apparel products), the following special NAFTA rules apply for goods imported from Canada or Mexico. Determining country of origin for marking purposes is a separate process from the process used to determine if goods originate under the terms of NAFTA. (a) The country of origin of a good is the country in which:

1) The good is wholly obtained or produced; or 2) The good is produced exclusively from domestic materials; or 3) Each of the foreign materials incorporated into the good undergoes an

applicable change in tariff classification set out in 19 CFR 102.20 and satisfies any other applicable requirements of that section.

(b) Except for a good that is classified as a set, where the country of origin cannot be determined under paragraph (a):

1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the goods, or

2) If the material that imparts the essential character is fungible, has been comingled, origin may be determined on the basis of an inventory management method.

“Fungible goods” are goods that are interchangeable for commercial purposes, and have essentially identical properties. When a producer mixes originating and non-originating fungible goods, so that physical identification of originating goods is impossible, the producer may determine origin of those goods based on any of the standard inventory accounting methods (e.g., FIFO, LIFO) specified in the Uniform Regulations. These provisions apply equally to fungible materials that are used in the production of a good. For example, Company Y of Mexico supplies clips to airplane manufacturers throughout North America. Some of the clips Y supplies originate in Mexico and others are made in China. All of the clips are of identical construction and are intermingled at Y's warehouse so that they are indistinguishable. On January 1, Company Y buys 3000 clips of Mexican origin; on January 3 it buys 1000 clips of Chinese origin. If Company Y elects FIFO inventory procedures, the first 3000 clips it uses to fill an order are considered Mexican, regardless of their actual origin.

(c) Where the country of origin cannot be determined under paragraph (a) or (b), and the goods are described in the HS as a set or mixture, or classified as a set, mixture, or composite good, the country of origin of the good is the country or countries of origin of all the materials that merit equal consideration for determining the essential character of the good. (d) Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c), the country of origin shall be:

1) If the good was produced only as a result of minor processing, the country of origin of the good is the country of origin of each material that merits equal consideration for determining the essential character of the good; or

2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good are from the same country, the country of origin of those parts; or

3) If the country of origin of the good cannot be determined under (d)(1) or (2), the country of origin of the good is the last country in which the goods underwent production.

Tariff Preference Override

The Tariff Preference Override applies to goods that meet the rules of origin for tariff preference purposes but for which a single NAFTA country of origin cannot be determined under the Marking Rules. In this case, the country of origin for marking purposes is the last NAFTA country in which the goods underwent production, other than by minor processing. A NAFTA certificate of origin must be completed and signed.

Change in Tariff Classification

NAFTA Marking Rules are all based on Tariff change. Originating goods and goods which undergo specific Tariff classification changes prescribed by the Marking Rules are considered goods of the applicable NAFTA Country. The following materials are disregarded when determining whether goods undergo an applicable change in tariff classification or satisfy any other applicable requirements:

1. Packaging materials and containers in which the goods are packaged for retail sale and that are classified with the goods;

2. Accessories, spare parts or tools that are delivered, classified and shipped with the goods;

3. Packing materials and containers in which the goods are packed for shipment; and 4. Indirect materials.

Non-qualifying Operations

A foreign material incorporated into goods shall not be considered to have undergone an applicable change in tariff classification specified in 19 CFR 102.20 or 102.21 or to have met any other applicable requirements by reason of:

a) A change in the end use; b) Dismantling or disassembly; c) Simple packing, repacking, retail packaging without more than minor processing; d) Mere dilution with water or another substance that does not materially alter the

characteristics of the material; or e) Collecting parts that, as collected, are classifiable in the same tariff provision as an

assembled good pursuant to Rule 2(a) of the General Rules without additional operations other than minor processing.

Strict compliance with all provisions of the Act is necessary to received NAFTA benefits. You have now finished Module 9.

Part 2: Module 10: Prohibited Goods and Quota In this module, goods that are restricted from entry will be outlined. There may be substantial penalties involved in the attempt to introduce prohibited goods into the U.S. Quota restrictions and limitations will also be examined, including defining two types of quotas and the way in which they work. Textiles have special requirements at the time of importation and may include

the presentation of a VISA documents or information which will be explained. This module will also outline the trade preference level program that is contained in NAFTA, as well as other general license requirements that may affect a shipments’ admissibility. List of Lessons

• Lesson 1: Prohibited and Restricted Goods • Lesson 2: Quotas Administered by CBP • Lesson 3: Absolute Quota Items • Lesson 4: Tariff-Rate Quotas • Lesson 5: Textile Visa and Export License Requirements • Lesson 6: Electronic Visa Information System • Lesson 7: NAFTA Tariff Preference Levels • Lesson 8: Quotas and Licensing Administered By Other Agencies • Lesson 9: Entry of Softwood Lumber Products from Canada

Lesson 1: Prohibited and Restricted Goods

Importers and customs brokers should be aware of statutorily prohibited and restricted articles. Various articles, as described in section 305, Tariff Act of 1930, as amended, are prohibited from importation into the United States. In addition to civil penalties and fines, criminal prosecution can be imposed by the government in certain circumstances. Therefore, it is in the best interest of the importer and the broker to verify prior to shipment whether or not the goods are prohibited or restricted from entry into the United States.

The following goods are strictly prohibited from entering the United States, by any mode of transportation:

1. Obscene matter 2. Articles for causing unlawful abortion 3. Matter advocating treason or insurrection against the United States or forcible

resistance to any law of the United States 4. Matter containing any threat to take the life of or inflict bodily harm upon any person in

the United States 5. Lottery matter, except any lottery ticket, printed paper that may be used as a lottery

ticket, or advertisement of any lottery that is printed in Canada for use in connection with a lottery conducted in the United States

6. White phosphorus matches (19 CFR 12.34) 7. Dog and cat fur (Dog and Cat Protection Act of 2000)

Restricted articles usually require the importer to secure a license prior to importation. Restricted goods include, but are not limited to:

• 19 CFR 12.95 Switchblades

• 19 CFR 145.52 Literature concerning devices for unlawful abortion • 19 CFR 145.53 Firearms and munitions of war • 19 CFR 145.54 Commercial importations of alcoholic beverages • 19 CFR 145.55 Trademarks, trade names, and copyrights in violation of legislation • 19 CFR 145.56 Merchandise subject to regulations of the Office of Foreign Assets

Control of the Treasury Department (OFAC) prohibiting or restricting entry of unlicensed importations of articles directly or indirectly from certain designated countries

• Cultural artifacts and cultural property • Defense articles or Items with Military or Proliferation Applications • Drug paraphernalia (unless prescribed for authentic medical conditions) • Fish and wildlife, including hunting trophies • Haitian animal hide drums • Meat, poultry and eggs • Plants and plant products

The importer may attempt to show that the prohibited or restricted goods were sent without the knowledge or consent of the importer, owner, agent, or consignee to limit their liability. However, the entire contents of the package in which the goods were contained remain subject to seizure and forfeiture by CBP. Lesson 2: Quotas Administered by CBP

An import quota is a trade mechanism used to control the volume of imports of specific products over a specific period of time. Although most quotas are administered by CBP, some quotas are administered by other government agencies. Quotas are a trade policy tool used to protect a domestically-produced commodity or a product from competitive imports.

There are two types of quota: an absolute (or quantitative) quota and tariff-rate quota. Tariff-rate quotas and absolute quotas are established by Presidential proclamations, Executive orders, and legislative enactments. These documents are published in CBP Bulletins which are available on the CBP website and list all decisions, rulings, regulations, notices and abstracts. An absolute quota specifies the actual volume or quantity of a certain commodity that can be imported or withdrawn from a Foreign Trade Zone (FTZ) or bonded warehouse during the quota period, which usually is a year. When an absolute quota is filled, further entries during the remainder of the quota period are prohibited. Some absolute quotas limit the entry or withdrawal of merchandise from particular countries (i.e., geographic quotas). Other quotas are global in nature and limit the entry or withdrawal of merchandise not by sources, but by total quantity (i.e., quantitative quotas). Imports in excess of a specified quota may be held for entry in a subsequent quota period by placing it in a FTZ or bonded warehouse, or exporting the merchandise, or destroying the merchandise under CBP supervision.

Tariff-rate quotas (TRQs) allow specified quantities of certain goods to be imported during the quota period at a lower, or sometimes zero, rate of duty, and importations over the quantity threshold are subject to a higher rate of duty. Merchandise in excess of the specified quantity may be placed in a FTZ or bonded warehouse until the quota period opens again, or may be exported or destroyed under CBP supervision. Generally, when it is anticipated that the quota limit will be filled upon opening, the quota will open at 12 noon, Eastern Standard Time, or the equivalent time in all the other time zones. Following opening, if the quota was not filled, entry summaries for consumption for goods under quota may only be presented to CBP during official office hours. If the quantity of quota merchandise covered by the entries presented for the opening of the quota period exceeds the amount available, the merchandise is released on a prorated basis (i.e., the ratio between the quota limit and the total quantity presented for entry). Quotas not filled at the official opening of the quota period are thereafter administered on a "first come, first served" basis in the order that each entry/entry summary is presented throughout the nation. Lesson 3: Absolute Quota Items

The CBP website publishes a list, according to country, of status reports for goods subject to absolute quota. Customs also publishes annual quota summary lists for reference purposes. Currently, there are no commodities subject to absolute quotas and/or associated visa requirements.

Lesson 4: Tariff-Rate Quotas

Tariff-rate quotas apply to the following commodities, and, where applicable, the chapter, subheading, or additional U.S. Note (AUSN) from the HTSUS is also noted:

• Animal feed (23 AUSN 2) • Articles containing over 10% by dry weight of sugar described in 17 AUSN 2 (17 AUSN 8) • Articles containing over 65% by dry weight of sugar described in 17 AUSN 2 (17 AUSN 7) • Beef (2 AUSN 3) • Blended syrups (17 AUSN 9) • Brooms (9603) • Canadian cheddar cheese (4 AUSN 18) • Card strips made from cotton (52 AUSN 9) • Chocolate (18 AUSN 2) • Chocolate and low fat chocolate crumb (18 AUSN 3) • Cocoa powder (18 AUSN 1)

• Cotton, Raw (52 AUSN 5) [Staple length under 28.575mm] • Cotton (52 AUSN 7) [Staple length over 28.575mm but under 34.925mm] • Cotton (52 AUSN 8) [Staple length 34.925mm or more] • Cotton Shirting Fabric (9902.52.08-9902.52.19) (99 AUSN 19) • Dairy products (4 AUSN 10) • Dried milk and dried cream (4 AUSN 9) • Dried milk, dried cream, and dried whey (in excess of 224,981 kilograms) (4 AUSN 12) • Ethyl alcohol (9901.00.50) • Fibers of cotton (52 AUSN 10) • Harsh or rough cotton (52 AUSN 6) • Ice cream (21 AUSN 5) • Infant formula (19 AUSN 2) • Milk and cream (includes condensed and evaporated)( HTS# 0404.20.20)(4 AUSN 5 and

11) • Mixed condiments and mixed seasonings (21 AUSN 4) • Mixes and doughs (19 AUSN 3) • Olives (Chapter 20) • Peanut butter and paste (20 AUSN 5) • Peanuts (12 AUSN 2) • Satsumas (mandarins) (2008.30.42) • Sugars (including sugar cane) (17 AUSN 5) • Tobacco (24 AUSN 5) • Tuna (1604.14.20) • Upland Cotton (9903.52) • Worsted Wool Fabric (9902) (99 AUSN 15-17)

Lesson 5: Textile Visa and Export License Requirements

A visa is an endorsement by a foreign government or its representative that authorizes the export of textile shipments to the United States. It describes the shipment, certifies the country of origin, and authorizes the shipment to be charged against any applicable quota. A textile visa is in the form of a stamp on an invoice or export control license. A textile visa is needed when importing goods from a country with which the United States has negotiated limitations on the quantity of textiles and textile products that are allowed into the United States during a stated period of time.

A visa system is utilized because it is the most effective way to prevent quota fraud. When a shipment arrives at a port in the United States, the CBP import specialist reviews the entry summary and visa documents for accuracy and completeness prior to release of the merchandise. The review ensures that the category number, quantity, signature, date, and visa number are correct and match the shipment involved. Only after this action is completed and the merchandise is charged to the quota (if required) is the shipment released to the importer.

If a visa has an incorrect category, quantity, or other incorrect or missing data, or a shipment requiring a visa arrives without one, the entry will be rejected and the shipment held until the importer reports the discrepancy to the foreign government and receives a new visa or a visa waiver from that government. By issuing a new visa or visa waiver the foreign government is acknowledging that it has been advised of the category under which CBP is classifying the merchandise and charging the quota, if any, and/or the quantity that is being charged. A visa does not guarantee entry of the merchandise into the United States. If the quota closes between the time the visa is issued in the foreign country and the shipment’s arrival in the United States, the shipment will not be released to the importer until the quota opens again. There are differences in visa requirements, depending on what was negotiated between the exporting country and the United States. The United States has entered into visa agreements with a number of countries, but also is enforcing quotas on merchandise for additional countries with which the United States has no visa agreement. Each agreement may cover quota and/or non-quota merchandise. A visa agreement will often be a separate agreement from other bilateral trade and quota agreements. On occasion, when bilateral trade agreements lapse and quotas are not in force, the visa agreement will remain in force, requiring that shipments continue to be accompanied by a visa. Goods that are the product of a World Trade Organization member country and exported from that country on or after January 1, 2005 do not require a visa, (See Lesson 6 of this Module), ELVIS, Guaranteed Access Level (GAL) certification or Exemption Certificate to enter the United States. Further, properly marked commercial sample shipments, valued at $800 or less, from certain countries do not require a visa or exempt certification and are not subject to quota. They may be entered under informal entry procedures, but do not qualify for entry under item 9811.00.60 and must be classified under the appropriate HTSUS number. Lesson 6: Electronic Visa Information System

The Electronic Visa Information System (ELVIS) is a program developed by CBP that uses electronic data transmissions for information, particularly visa stamps, normally found on commercial invoices. ELVIS also assists CBP's efforts to monitor textile quotas, thereby ensuring that proper restraint levels are charged. Countries participating in ELVIS can request a Visa Activity Report that will provide them with valuable textile quota information. Any country actively engaged in the production of textiles and textile products that require a visa for exportation to the United States and that has a visa arrangement in place with the Committee for the Implementation of Textile Agreements (CITA), U.S. Department of Commerce (DOC) is eligible to participate in ELVIS.

Foreign countries participating in ELVIS transmit information electronically to CBP. This, then, allows the transmission of certain data elements, some of which are: • Visa number in standard alpha-numeric format • Date of visa issuance • Category (including merged/part categories) • Quantity • Unit of measure • Manufacturer Identification Number (MID) When making entry, specific data elements transmitted to CBP by the importer must match ELVIS data from the foreign country before any applicable quota is reported and the shipment released. Once this information is processed through the Automated Commercial System (ACS), information regarding visa usage is made available to the participating country upon request. Benefits of ELVIS include:

• Security: ELVIS data moves electronically between government systems. Safeguards are in place to protect the integrity and confidentiality of the information.

• Reduced Visa Fraud: There is an immediate reduction in the chance that counterfeit paper visas will be used because the information provided by the importer must match the information transmitted by the foreign government. Paper documents are more susceptible to tampering.

• Improved Compliance: There is a decrease in data discrepancies since the importer's entry data must match the foreign government's export information.

• Improved Monitoring: Statistical reporting and tracking of visas is improved. ELVIS allows the participating governments to monitor visa utilization by electronically requesting the Visa Activity Report.

• Timeless Processing: ELVIS participants are authorized to transmit an electronic request to register a visa at any time, seven days a week, 24 hours a day

Lesson 7: NAFTA Tariff Preference Levels

Under NAFTA, Tariff Preference Levels (TPLs) are administered like tariff-rate quotas. Non-originating textile and apparel goods may qualify for preferential tariff treatment under the NAFTA TPL Program. A TPL sets a NAFTA duty rate for a specified quantity or amount of non-originating textiles or apparel goods that do not qualify for NAFTA.

There are three conditions or requirements for a good to qualify for a TPL:

• It has to meet the qualifications set out in HTSUS Section XI, additional U.S. notes 3-6; • It must be accompanied by a Certificate of Eligibility; and

• It must be within the annual quantity limits set out in HTSUS Section XI, additional U.S. note 3, 4 or 5 depending on the good.

The specific rules are broken out as follows:

• Note 3 covers apparel and certain textile articles • Note 4 covers certain fabric and made-up articles • Note 5 covers certain yarns

The TPLs allow entry at the NAFTA preferential rate of duty for a specific quantity as identified in Section XI of the HTSUS. Once that quantity for the TPL is reached, the product is dutiable at the Column 1 General rate of duty.

The Certificate of Eligibility (CE) issued by Canada or Mexico, for textile and apparel goods subject to the TPL, must be reviewed by CBP for accuracy. If an entry is found to have an unacceptable CE prior to entry summary acceptance and quota input, the entry will be returned to the filer. The filer can submit a new CE or enter the merchandise at the Column 1 General rate of duty. A new date and time of presentation is established when the entry summary package that includes the new certificate is submitted. If the CE is unacceptable, CBP will not return the original document, but will provide a certified copy for use in obtaining a new CE from Canada or Mexico.

The original document should be retained at the port by the commodity team, and the replacement CE should be reviewed by an import specialist when the entry summary is presented. Goods may be entered even if a new CE is not supplied; however, the entry summary will be rate advanced to the Column 1 - General rate of duty.

In Canada, the CE is issued by the Import and Export Controls Division, Textiles and Clothing Section of International Trade Canada (ITCan). In Mexico, only the Secretaria de Economia is authorized to issue CEs for TPL-qualifying goods exported from Mexico. It must be properly completed and signed by a Mexican government official and presented to CBP by the importer or the agent at the time the claim for preferential treatment is made. In no instance will a CE be accepted without a signature.

Topic 1: Presentation and Reporting of Quota for TPL Claims

Canadian and Mexican TPL goods are entered in accordance with the quota regulations. When filing an entry summary for TPL claims, the CPB Form 7501 must reflect the 10-digit HTSUS number and the 9999 TPL statistical reporting number. Value information should be associated with the appropriate Chapter 1-97 HTSUS classification number or split between the appropriate Chapter 1-97 HTSUS number and any applicable Chapter 98 HTSUS number.

Topic 2: Post-Entry TPL Claims

If an importer does not claim TPL upon initially filing the entry summary, a post-entry claim for TPL treatment may be filed using post-entry procedures for unliquidated entries. Entries that have not reached final liquidation are eligible for protest. A claim for NAFTA TPL on entries after the protest period will not be considered.

Lesson 8: Quotas and Licensing Administered By Other Agencies

Some quotas are administered by the U.S. Department of Agriculture (USDA). Import licensing is one of the tools USDA uses to administer the TRQ system for imports of dairy products. The “low-tier” duty rate is allowed as long as the importer has an import license issued by the USDA and the quota threshold is below a specified quantity. Goods imported at the over-quota rate of duty do not require an import license but are subject to the “high-tier” rate. The following goods are included in the dairy quota program:

• American-type cheese (4 AUSN 19) • Blue-molded cheese (4 AUSN 17) • Butter and fresh or sour cream (4 AUSN 6) • Butter substitutes (4 AUSN 14) • Cheddar cheese (except Canadian cheddar) (4 AUSN 18) • Cheeses and substitutes for cheese (4 AUSN 16) • Cheese and substitutes for cheese (4 AUSN 23) • Dried milk (4 AUSN 7) • Dried milk or dried cream (4 AUSN 8) • Dried milk, dried cream, or dried whey (up to 224,981 kilograms) (4 AUSN 12) • Edam and Gouda cheese (4 AUSN 20) • Italian-type cheese (4 AUSN 21) • Swiss or Emmentaler cheese (4 AUSN 22) • Swiss or Emmentaler cheese (4 AUSN 25) The Department of Commerce (DOC) and the Department of the Interior (DOI) administer import quotas on the importation of watches and watch movements. If goods are produced in U.S. insular possessions (e.g., U.S. Virgin Islands, American Samoa, and Guam), a quota applies. This quota allows these goods to enter the United States duty-free under the statistical notes to Chapter 91 of the HTSUS.

Lesson 9: Entry of Softwood Lumber Products from Canada

The USA has an international agreement with Canada pertaining to the export of softwood lumber or softwood lumber products. The Softwood Lumber Declaration Program is part of the Softwood Lumber Act of 2008 (SLA 2008). The SLA 2008 was included in the Food,

Conservation, and Energy Act of 2008, also known as the Farm Bill. The Farm Bill amended the Tariff Act of 1930 and affects importations of certain softwood lumber (coniferous evergreens) and products made with softwood lumber imported into the U.S. Coniferous means “cone bearing.” Sometimes they are referred to as non-deciduous, which means they do not lose their leaves in the fall. An example would be pine trees in subheading 4407.10.01. Articles subject to the Softwood Lumber Act fall under HTS 4407, 4409, 4418, and 4421.

The SLA 2008 became, effective September 18, 2008. The regulations for this special class of merchandise is found in 19 CFR 12.142. There are three requirements importers must provide at the line level with the entry summary:

1. The export price in U.S. Funds (as described in section 802(5) of the SLA 2008); 2. The estimated export charge in U.S. Funds, if any; and 3. An importer declaration regarding the export price and export change, if any, on the

Entry Summary (CF 7501) for each shipment of softwood lumber and softwood lumber products subject to the Act. A “Y” on the CF 7501 indicates it has the required declaration on file from the importer.

A Sample 7501 for Softwood lumber imports is shown below.

Importer Declaration Wording:

“The importer has made appropriate inquiry, including seeking appropriate documentation from the exporter and consulting the determinations published by the Under Secretary for International Trade of the Department of Commerce pursuant to section 805(b); and to the best of the importer's knowledge and belief - the export price provided pursuant to subsection (b)(1) is determined in accordance with the definition provided in section 802(5); he export price provided pursuant to subsection (b)(1) is consistent with the export price provided on the export permit, if any, granted by the country of export; and the exporter has paid, or committed to pay, all export charges due - in accordance with the volume, export price, and export charge rate or rates, if any, as calculated under an international agreement entered into by the country of export and the United States; and consistent with the export charge determinations published by the Under Secretary for International Trade pursuant to section 805(b).”

The Under Secretary for International Trade of the Department of Commerce is mandated to determine and publish, on a monthly basis, any export charges (expressed as a percentage of export price) to be collected from exporters of softwood lumber or softwood lumber products. Currently, the only applicable country is Canada. The list can be found on the website of the International Trade Administration. (Link: http://ia.ita.doc.gov/sla2008/sla-index.html)

No export charge is reported if the country of export is not party to an agreement. The export charge is the same charge required to be paid to Revenue Canada under SLA 2006.

The SLA 2006 requires the following elements for the entry of softwood lumber products from Canada (19 CFR 12.140):

1. The Region of Origin of the softwood lumber product (identified by a letter code) must

be entered into the “Country of Origin” field of the CBP 7501. 2. Export Permit Number issued by the Canadian government for the shipment. 3. The original paper Certificate of Origin issued by the Maritime Lumber Bureau (for

softwood lumber products whose Region of Origin is the Maritime Provinces). 4. Importers are required to maintain copies of these in accordance with the

recordkeeping provisions set forth by the Appendix to 19 CFR 163 “Interim (a)(1)(A) List.”

Softwood Lumber products that are produced in certain Canadian provinces, or produced by specified companies, are excluded from the SLA 2006 export measures. The specific exclusions appear in Annex 10 of the SLA 2006 Agreement. You have now finished Module 10.