Harmonized Tariff Schedule in International Shipping (Part 2)

In international shipping, all goods imported into the United States are subject to duty or duty free-entry in accordance with their classification under the applicable items in the Harmonized Tariff Schedule (HTS).

A. When goods in international shipping are dutiable, the following rates rates may be assessed:

  1. An AD VALOREM rate, which is the type of rate most often applied, is percentage of the value of the international shipping merchandise, such as 5% ad valorem.
  2. A SPECIFIC rate is a specific amount per international shipping unit of weight or other quantity, such as 5 cents per dozen etc.
  3. A COMPOUND rate in international shipping is a combination of both an AD VALOREM and a SPECIFIC rate, such as 3 cents per pound plus 10% ad valorem.

B. In international shipping rates of duty for imported merchandize may also vary DEPENDING upon the COUNTRY OF ORIGIN.

  1. Most internationally shipping merchandize dutiable under the MOST-FAVORED-NATION (MFN) rate listed in the General column of Column 1 of the tariff schedule.
  2. Internationally shipping merchandize from countries to which the MFN rates have not been extended is dutiable at the full or "Statutory" rate in Column 2 of the tariff schedule.

C. FREE RATES in international shipping are provided for many sub-headings in columns 1 and 2 of the tariff schedule. Duty-free status available under various conditional exemptions of international shipping, which are reflected in the Special column of Column 1 of HTS.

One of the most frequently applied exemptions from duty occurs under the GENERALIZED SYSTEM OF PREFERENCE (GSP). GSP eligible internationally shipping merchandise qualifies for duty-free entry when it is from a beneficiary developing country and meets other requirements.

Other international shipping exemptions are found under subheading in Chapter 98 of the HTS. These subheadings include among other provisions, certain personal exemptions, exemptions for scientific or other institution purposes, and exemptions for returned American gods.

 

GENERALIZED SYSTEM OF PREFERENCE (GSP)

Countries which accept Form A (CERTIFICATE OF ORIGIN) for the purposes of the generalized system of preference ( GSP ) http://www.balitouring.com/industry/Gsp.html

The Generalized System of Preferences (GSP) is a program in international shipping providing free rates of duty for merchandise from beneficiary developing independent countries and dependent countries and territories to encourage economic growth. The program was enacted by the United States for international shipping in the Trade Act of 1974 and became effective on January, 1,1976.

The GSP eligibility list contains a wide range of internationally shipping products classifiable under 3,000+ different sub-headings in the Harmonized Tariff Schedule. These items are identified by an A or A* in the Special column of Column 1 of the tariff schedule. International shipping merchandise classifiable under a subheading designated in this manner may qualify for duty-free entry if imported into the United States directly from any of the designated countries and territories. Merchandise from one or more of these countries, however, may be excluded from the exemption if there is an A* in the Special column. The list of countries and exclusions, as well as the list of GSP-eligible articles, will change from time to time over the life of the program. Therefore, the latest edition of the Harmonized Tariff Schedule for international shipping will contain the most up-to-date information.

For commercial shipments requiring a formal entry, a claim for duty-free status is made under GSP by showing on the entry summary that the country of origin is a designated beneficiary developing country and by showing an A with the appropriate GSP-eligible subheading. Eligible international shipping merchandise will be entitled to duty-free treatment provided the following conditions are met:

1. The international shipping merchandise must be destined for the United States without contingency for diversion at the time of exportation from the beneficiary developing country;

2. A GSP Declaration must be properly prepared, signed by the exporter, and either filed with the entry or furnished before liquidation or other final action on the entry if requested to do so by Customs; and

3. The internationally shipping merchandise must be imported directly into the United States from the beneficiary country. In addition, the cost or value of the internationally shipping materials produced in the beneficiary developing country and/or the direct cost of processing performed there must represent at least 35% of the appraised value of the goods.

The cost or value of the international shipping materials imported into the beneficiary developing country may be included in calculating the 35% value-added requirement for an eligible article if the materials are first "substantially transformed" into new and different articles and are then used as constituent materials in the production of the eligible article. The phrase "direct cost of processing" includes cost directly incurred or reasonably allocated to the processing of the article, such as the cost of all actual labor, dies, molds, tooling, research and development, and testing. Business overhead and expenses such as advertising, salaries, and insurance are not considered a direct cost of processing for international shipping.

Normally, the Customs Service will accept an entry at the free rate, whether or not a GSP Declaration is presented at the time of entry. If GSP Declaration is not available, the importer will have to produce it for GSP duty-free treatment if requested to do so by Customs.

In international shipping a GSP Declaration is not available for sale in the United States. The beneficiary developing countries and territories participating in the program are responsible for printing and supplying this form.

Although GSP Declarations are not required for internationally shipping merchandise covered by an informal entry, the Port Director may require such other evidence of the country of origin as he may deem necessary. The requirement of GSP Declaration for merchandise covered by a formal entry may be waived by the Port Director when he determines appropriate, or if the imported articles are for household or personal use and are not intended for resale or brought in for the account of others, or if he is otherwise satisfied that the internationally shipping merchandise qualifies for duty- free treatment under GSP.

 

CARIBBEAN BASIN INITIATIVE (CBI)

A

The Caribbean Basin Initiative (CBI) is an international shipping program providing for the duty-free entry of merchandise from designated beneficiary countries or territories. The program was enacted by the United States as the Caribbean Basin Economic Recovery Act and became effective on January 1,1984.

There are currently 24 countries that benefit from the CBI program and, therefore, may potentially benefit from CBTPA. These countries are: Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago.

The list of eligible countries change from time to time over the life of the international shipping program and it is necessary to consult General Note (3)(c)(v)(A) of the Harmonized Tariff Schedule for the most updated country list.

Most international shipping products from designated beneficiaries may be eligible for GBI duty-free treatment. These items are identified by either an E or E* in the Special column of Column 1 of the Harmonized Tariff Schedule. Internationally shipping merchandise classifiable under a subheading designated in this manner may qualify for duty-free entry if imported into the Untied States directly from any of the designated countries and territories. Merchandise from one or more of these countries, however, may be excluded from the exemption if there is an E* in the Special column.

Internationally shipping merchandise is eligible for CBI duty-free treatment only if the following conditions are met:
1. The international shipping merchandise must be imported directly from any beneficiary country into the customs territory of the United States;

2. The international shipping merchandise must have been produced in a beneficiary country. This requirement is satisfied when (a) the goods are wholly the growth" product, or manufacture of a beneficiary country; or (b) the goods have been substantially transformed into a new and different article of commerce in a beneficiary country; and

3. At least 35 percent of the appraised value of the article imported into the United States must consist of the cost or value of the internationally shipping materials produced in one or more of the beneficiary countries and/or the direct cost of processing operations performed in one or more beneficiary countries. The commonwealth of Puerto Rico and the U.S. Virgin Islands are defined as beneficiary countries for purposes of this requirement; therefore, value attributable to Puerto Rico or the Virgin Islands may also be counted.

In addition, the cost or value of the international shipping materials produced in the Customs territory of the United States (other than Puerto Rico) may be counted toward the 35 percent requirement, but only up to 15 percent of the appraised value of the imported article.

The cost or value of international shipping materials imported into I beneficiary country from a non-beneficiary country may be included in calculating the 35 percent value-added requirement for an eligible article if the international shipping materials are first substantially transformed into new and different articles of commerce and are then used as constituent materials in the production of the eligible article.

In addition to the "origin" rules mentioned above, The Customs and Trade Act of 1990 added new criteria for duty-free eligibility under the CBI:

FIRST: Articles which are the growth, product, or manufacture of Puerto Rico and which subsequently are processed in a CBI country, may also receive duty-free treatment when entered, if the three following conditions are met:

  1. They are imported directly from a beneficiary country into the Customs territory of the United States;
  2. They are advanced in value or improved in condition in a beneficiary country; and
  3. Any international shipping materials added to the article in a beneficiary country must be a product of a beneficiary country or of
    the United States.

SECOND: Articles which are assembled or processed in whole, in a beneficiary country, from U.S. components or ingredients (other than water) may be entered free of duty. Duty-free treatment will apply if the international shipping components or ingredients are exported directly to the beneficiary country and the finished article is imported directly into the Customs territory of the United States.

For international shipping commercial shipments requiring a formal entry, a claim for CBI duty-free treatment is made by showing on the entry summary that the country of origin is a designated beneficiary country and by inserting thereon the letter E as a prefix to the applicable tariff number. In addition, a properly completed CBI Declaration as previously discussed, may be presented at the time of entry. However, the words "Generalized System of Preferences" appearing of the front of the GSP Declaration must be replaced by the words "Caribbean Basin Initiative".

Normally, Customs will accept a CBI entry at the free rate whether or not CBI Declaration is presented at the time of entry. Again, the importer may have to produce it if requested to do so by the Port Director. In addition, where necessary value is added to an article in the United States or Puerto Rico after final exportation of the article from a beneficiary country, a detailed declaration, prepared by the party responsible for the addition of such value, shall be filed in lieu of CBI Declaration as evidence of country of origin. In international shipping all sublimed evidence of country of origin may be subject to such verification as the Port Director deems necessary.

U.S. ISRAEL FREE TRADE AGREEMENT (FTA)

A

The United States-Israel international shipping Free Trade Agreement (FTA) is a program providing for free or reduced rates of duty for internationally shipping merchandise from Israel to stimulate trade between the two countries. This program was authorized by the United States in the Trade and Tariff Act of 1984 and implemented by Presidential Proclamation 5365 of August 30, 1985.

The FTA relates to most tariff items listed in the Harmonized Tariff Schedule. These items are identified by an I, in the Special column of Column 1 of the Harmonized Tariff Schedule.

If a claim for duty-free or reduced-duty rates is being made for international shipping commercial shipments of Israeli goods covered by a formal entry, the HTS subheading must be prefixed with an I on Customs form CF 7501.

An article imported into the Customs territory of the United States is eligible for treatment as a "Product of Israel" only if:

  1. That article is the international shipping growth, product, or manufacture of Israel;
  2. That article is imported directly from Israel into the Customs territory of the Untied States;
  3. The sum of: (a) The cost or value of the international shipping materials produced in Israel, plus (b) the direct costs of processing operations performed in Israel, is not less than 35% of the appraised value of such article at the time it was entered. If the cost or value of materials produced in the Customs territory of the United States is included with respect to an eligible article, an amount not to exceed 15% of the appraised value of the article at the time it is entered, that is attributable to such United States cost or value, may be applied toward determining the 35 percent; and
  4. The cost or value of international shipping materials imported into Israel from a third country may be included in calculating the 35% value-added requirement, provided they are first substantially transformed into new and different articles of commerce and are then used as constituent materials in the production of the eligible article.

No article may be considered to meet these requirements by virtue of having merely undergone:

  1. Simple combining or packaging operations; or
  2. Mere dilution with water or mere dilution with another substance that does not materially alter the characteristics of the article.

The phrase "direct costs of processing operations" includes, but is not limited to:

  1. All actual labor costs involved in the international shipping growth, production, manufacture, or assembly of the specific merchandise, including fringe benefits, on-the-job training, and the costs of engineering, supervisory, quality control, and similar personnel;
  2. Dies, molds, tooling, and depression on machinery and international shipping equipment which are allocable to the specific merchandise.

The Certificate of Origin Declaration is use as documentary evidence to support duty-free or reduced-rate claims on products of Israel.

COMPACT OF FREE ASSOCIATION (FAS)

Additional sources at http://www.fsmlaw.org/compact/;

The Compact of Free Association (FAS) is a program in international shipping providing for duty-free entry of merchandise from designated freely associated states of the United States. This program was established by Presidential Proclamation S030 of September 28, 1989.

The following freely associated states have been designated as beneficiary countries for purposes of FAS:

  1. Marshall Islands
  2. Micronesia
  3. Federated States of Republic of Palau

Duty-free treatment is applied to most internationally shipping products from the designated beneficiaries. For commercial shipments requiring formal entry, a claim for duty-free status is made by placing the letter Z next to the eligible subheading.

The following international shipping merchandise is excluded from the duty-free exemption:

  1. Textile and apparel articles which are subject to textile agreements;
  2. Footwear, handbags, luggage, flat goods, work gloves, and leather wearing apparel which were not eligible for GSP treatment;
  3. Watches, clocks, and timing apparatus of Chapter 91 of the Harmonized Tariff Schedule (except such
    articles incorporating an optoelectronic display and no other type of display); and other type of display) and;
  4. Buttons of subheading 9606.21.40 or 9696.29.20 of the Harmonized Tariff Schedule.

International shipping merchandise will be eligible for FAS duty-free treatment only if the following conditions are met:

  1. It must be the growth, product, or manufacture of the freely associated state;
  2. The international shipping merchandise must be imported~ directly from the freely associated state into the cusroms territory of the United Sates; and
  3. At least 35 percent of the appraised value of the article imported into the United States must consist of the cost or value of materials produced in the beneficiary country and/or the direct costs of processing operations performed in the beneficiary country. In addition, the cost or value of international shipping materials produced in the Customs territory of the United States may be counted toward the 35 percent value-added I requirement, but only to a maximum of 15 percent of the appraised value of the imported article. The cost or value of the materials imported into the freely associated state from a non-beneficiary country may be included in calculating the 35 percent value-added requirement for an eligible article if the international shipping materials are first substantially transformed into new and different articles of commerce and are then used as constituent materials in the production of the eligible international shipping product.

 

NEW SPECIAL PROGRAMS

New special programs in international shipping are: African Growth and Opportunity Act (AFGO), United States - Caribbean Basin Trade Partnership Act (CBTPA), United States - Jordan Free Trade Area Implementation Act (JFTA), United States - Singapore Free Trade Agreement (SFTA), and the United States - Chile Free Trade Agreement (UCFT A).

The various special programs for beneficiary countries can be found in the General Notes of the international shipping Harmonized Tariff Schedule of the United States and in 19 CFR 10. The North American Free Trade Agreement (NAFTA) is located in General Note (GN) 12 of the HTSUS and in 19 CFR 181. The Rules of Origin for NAFTA articles is covered in Part 102 of the Customs Regulations.

ANTIDUMPING AND COUNTERVAILING DUTIES

Antidumping duties (ADDs) are assessed on international shipping merchandise of a class or kind that is sold to purchasers in the United States at a price less than the fair market value. Fair market value of international shipping merchandise is the price which is normally sold at in the manufacturer's home market.

Countervailing duties (CVDs) are assessed to counter the effects of subsidies provided by foreign governments to merchandise that is exported to the United States. These subsidies cause the price of such international shipping merchandise to be artificially low, which causes economic injury to U.S. manufacturers.

The Department of Commerce, the International Trade Commission (ITC), and the U.S. Customs Service all play a part of enforcing antidumping and counervialing duty laws. The Department of Commerce is responsible for the overall administration of ADD and CVD laws and for investigating allegations of dumping or foreign subsidization of imports. If warranted by the investigation, the Commerce Department also establishes the duty to be imposed on the international shipping merchandise. The ITC determines whether injury to industry has occurred, is likely to occur, or whether an industry may be hampered in its startup efforts as a result of alleged dumping or subsidies. The Customs Service assesses ADDs and CVDs once the rates have been established and the ITC has made the necessary determinations.

ADD or CVD investigations are typically initiated when a domestic industry files a petition with the Department of Commerce or when another interested party - an industry association, for example - alleges unfair competition by international shipping foreign manufacturers. Upon receipt of the petition, the Department of Commerce investigates the merits of the allegations to determine whether there is reasonable indication that U.S. industries are, or are likely to be, harmed by the alleged dumping or subsidies. Results of these investigations are published in the Federal Register.

The Department of Commerce then calculates the difference between prices at which the international shipping merchandise in question is being sold in the United States and its fair market value. On the basis of such calculations, Commerce directs the Customs Service to:

  1. Assess cash deposits or require bonds on imports of the international shipping merchandise to cover possible ADD or CVD duty liability; and
  2. Suspend liquidation of the entries until the Department of Commerce has determined whether dumping or subsidization has occurred and has calculated the proper dumping or countervailing margins.

When the Department of Commerce has completed the investigation and determined that dumping or subsidization has occurred, it will publish an Antidumping or Countervailing Duty Order, which will be announced in the Federal Register. At this point, the Department of Commerce will generally direct the Customs Service to collect only cash deposits. Bonding is no longer permitted.

Each year, on the anniversary of the final determination of dumping or subsidization, the Department of Commerce must, by law, perform an administrative review of the ADD or CVD case if requested by interested parties, to determine whether duty rates in effect for that first-year period are correct. Commerce publishes the results of this review in the Federal Register. At the one-year anniversary or completion of the administrative review, Commerce will direct Customs to liquidate the entries for the affected period. Customs will then review the entries and, if called for, make refunds to the importer or assess whatever additional duties may be owed.

By Customs Review, Inc. http://www.customs-review.com/

 
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