Customs entries on imported merchandise involve calculating duties and taxes based on commodity classification (HTS), country of origin, and transaction value, along with special notes. In  previous posts we have discussed the importance of making sure that correct HTS codes are used. In most cases the commercial invoice or CI value is used for duty calculation. In situations where the transaction is not so clear Customs has established an “appraisement hierarchy” to determine entry value. The details can be found in US Customs and Border Protection regulations 19 CFR part 152.  From the archives here is a quick summary:

Appraisement Hierarchy

1) Transaction Value- actual invoice value

2) Transaction Value of identical merchandise- same country, same class and kind

3) Transaction Value of similar merchandise- same country, commercially interchangeable

4) Deductive Value – start with US retail selling price and deduct commissions, transportation, insurance, duty/tax, and value of further processing

5) Computed Value- sum of the following. Importer can request computed instead of deductive.

• Cost of Materials
• Cost of Labor
• Cost of Packaging
• Profit
• Overhead
• G&A

6) Value if other values cannot be determined- if the value of imported merchandise cannot be determined it will be appraised on the basis of a value derived from the methods set forth in parts 152.103 thru 152.106.

Transaction Value cannot be used and the hierarchy comes into play when:

• There is a restriction on sale (except geographic)
• Merchandise is sold on consignment
• There is a barter transaction
• There is “goodwill” value involved
• Parties are related, unless relationship did not influence price

Unacceptable bases of appraisement:

• The selling price in the US of merchandise produced in the US
• A system that provides for the appraisement of imported merchandise at the higher of two alternative values
• The price of merchandise in the domestic market of the country of exportation
• A cost of production other than a value determined under 152.06
• The price of merchandise for export to a country other than the US
• Minimum values for appraisement
• Arbitrary or fictitious values

Contact mitch@52.91.45.227 for assistance.

You may be an exporter even if you don’t ship tangible items. As we start 2016 deemed export rules are worth re-visiting.

Engineering firms, software companies, researchers, manufacturers, and universities need to be aware of the “deemed export” rules. They may be engaged in export transactions without even knowing it. Here is some info from the BIS website.

For help with exports contact mitch@52.91.45.227

Deemed Export FAQs

• What is the “deemed export” rule?

  An export of technology or source code (except encryption source code) is “deemed” to take place when it is released to a foreign national within the United States. See §734.2(b)(2)(ii) of the Export Administration Regulations (EAR). For brevity, these questions and answers refer only to “technology” but apply equally to source code.

• What is a “release” of technology?

  Technology is “released” for export when it is available to foreign nationals for visual inspection (such as reading technical specifications, plans, blueprints, etc.); when technology is exchanged orally; or when technology is made available by practice or application under the guidance of persons with knowledge of the technology. See §734.2(b)(3) of the Export Administration Regulations (EAR).

• What is “technology”?

  Per Part 772 of the Export Administration Regulations (EAR), “technology” is specific information necessary for the “development,” “production,” or “use” of a product. The General Technology Note states that the “export of technology” is controlled according to the provisions of each Category.” It further states that “technology required for the development, production, or use of a controlled product remains controlled even when applicable to a product controlled at a lower level.” Please note that the terms “required,” “development,” “production,” “use,” and “technology” are all defined in Part 772 of the EAR. Controlled technology is that which is listed on the Commerce Control List.

• When do I need to apply for an export license for technology under the “deemed export” rule?

  Assuming that a license is required because the technology does not qualify for treatment under EAR99 and no license exception is available, U.S. entities must apply for an export license under the “deemed export” rule when both of the following conditions are met: (1) they intend to transfer controlled technologies to foreign nationals in the United States; and (2) transfer of the same technology to the foreign national’s home country would require an export license.

The Harmonized Tariff Schedule (HTS) and Schedule B codes have been updated for 2016. It is a good business practice to check your import and export codes at least annually to stay in compliance. Contact mitch@52.91.45.227  for assistance.

Here are the final two General Rules of Interpretation from the Harmonized Tariff of the United States. Rule 5 explains how carrying cases and containers are treated for classification purposes. In our next post we will discuss additional rules of interpretation beyond the 6 GRI’s. Contact mitch@52.91.45.227 for help with regulations.

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.

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.

Harmonized Tariff Schedule of the United States (2015)(Rev.2)

Continuing our series on General Rules of Interpretation, here are rules 3 and 4 from the HTUS, Harmonized Tariff of the United States. Rule 3 pertains to goods which are classifiable under two or more headings. Rule 4 is used when goods cannot be classified under rules 1-3. Contact mitch@52.91.45.227 for help with regulations.

3. When, by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(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.

(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.

(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.

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.

In previous posts we have discussed how to classify commodities using the Harmonized Tariff System. In order to use the tariff it is important to understand the General Rules of Interpretation which are found at the beginning of the publication. There are 6 General Rules plus some additional rules. Here are the first two rules as shown in the HTUS (Harmonized Tariff Schedule of the United States). Look for the rest of the rules in future posts. Contact mitch@52.91.45.227 for help with regulatory questions.

GENERAL RULES OF INTERPRETATION

Classification of goods in the tariff schedule shall be governed by the following principles:

1. The table of contents, alphabetical index, and titles of sections, chapters and sub-chapters 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:

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. It shall

also include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this

rule), entered unassembled or disassembled.

(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 rule 3.

In previous posts I have written about the importance of proper commodity classification and how to determine ECCN. The next step in export compliance is checking for license requirements based on country of ultimate destination. Here is some info from the BIS website. Don’t automatically assume NLR No License Required is accurate for your exports.

Contact mitch@52.91.45.227 for help with export compliance.

Country Guidance

The country of ultimate destination is a key factor in determining license requirements administered by the Bureau of Industry and Security (BIS) pursuant to the Export Administration Regulations (EAR). BIS maintains the Commerce Country Chart to use in conjunction with other portions of the EAR to determine whether a license is required.  Please review Part 732 of the EAR for additional information on how to use the EAR, including the Commerce Country Chart.