Tariff Engineering. Value-Added Classification. Larry Friedman Barnes/Richardson

Transcription

1 Tariff Engineering Value-Added Classification Larry Friedman Barnes/Richardson

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7 Try the other white meat? OK with wife? OK with kid? No other penalties or problems? Works for me

8 Apply that to tariff rates and you have tariff engineering.

9 Merritt v. Welsh, U.S. S.Ct Importer sued the collector at the Port of New York Merchandise was sugar Grading scale was Dutch standard in color Up to 7: $0.0175/lb + 25% Above 7: $0.02 or more/lb + 25%

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11 Background Collector believed the sugar was colored intentionally with molasses Performed chemical analysis Found sugar to be of higher grade than color indicated Applied higher rate of duty

12 Issue 1: What s the Test? [I]n making its election, Congress did not leave any room for doubt as to its meaning. It used apt terms to express it; terms free from all ambiguity and obscurity. If the test adopted fails to effect the desired object, the inconvenience, or loss to the treasury, need only be temporary: it can be changed at any moment. And it is better to submit to a temporary inconvenience than to set the laws all afloat by laying down a canon of construction which leaves the plain words, and seeks to spell out, or guess at, the supposed intent of the legislature, contrary or supplementary to that which is clearly embodied in the words it has used.

13 Issue 2: Is this Fraud? It may be that our tariff of duties is evaded by giving to sugars, in the process of manufacture, a low grade of color. If this be so, it is no more than every manufacturer does; namely, so to manufacture his goods as to avoid the burden of high duties, provided he can do it without injuring their marketability, or injuring it less than the duties involved. So long as no deception is practised, so long as the goods are truly invoiced and freely and honestly exposed to the officers of customs for their examination, no fraud is committed, no penalty is incurred.

14 U.S. v. Citroen, U.S. S.Ct drilled pearls Divided into five lots When sold in Paris, they were strung into a necklace 434 Articles commonly known as jewelry... Pearls set or strung % 436 Pearls in their natural state, not strung or set %

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16 Decision Classification is ascertained by an examination of the imported article itself, in the condition in which it is imported. This, of course, does not mean that a prescribed rate of duty can be escaped by resort to disguise or artifice. When it is found that the article imported is in fact the article described in a particular paragraph of the tariff act, an effort to make it appear otherwise is simply fraud on the revenue and cannot be permitted to succeed.

17 Holding 436 Pearls in their natural state, not strung or set includes drilled pearls Not strung implies that pearls may be ready for stringing Pearls are often drilled immediately after being removed from the shell 434 requires that the pearls be set or strung

18 House Slippers, 2002 HQ Slipper with upper of textile material with outer sole composed of unit-molded rubber plastics over which was thin layer of textile fabric Material could wear off in short period of time Customs ruling classified as other footwear , 12.5% Domestic shoe industry lost business Petitioned for reclassification, slippers with rubber/plastic soles, , 37.5%

19 Commercial Reality While there is little case law concerning finding tariff engineering to be a fraud or artifice, there are many Customs rulings on this issue. The general position taken by Customs in these rulings is that if Customs finds the article, at the time of importation, is a commercial reality, then the tariff engineering will not be considered a fraud or artifice. In the cases in which Customs has found that the tariff engineering was a fraud or artifice, Customs concluded that the article was not a commercial reality because the article was not sold or otherwise entered into the stream of commerce in the condition as imported.

20 Ruling Customs ruled for the importer No apparent deceit as to nature of the slippers Slippers imported and sold with textile material in tact Even if textile material wore off quickly, consumer wore it with textile embedded into outer sole Introduced into stream of commerce as entered Commercial reality

21 What is Disguise or Artifice? For an importer to benefit from tariff engineering, the article must be a commercial reality, have a commercial identity or commercial use in its imported condition Or it must be a finished product traded or used in its condition as imported The product, as entered, must be part of a genuine step in the manufacturing process If the added feature of the product that allows the importer to obtain a lower duty is removed shortly after importation, the tariff engineering is an artifice

22 Ford Transit Connect Vans?

23 Background Heading 8703 motor vehicles principally designed for the transport of persons 2.5% Heading 8704 motor vehicles for the transport of goods 25% (the Chicken Tax ) Vans imported with four doors, rear bench seat with seatbelts, and rear side windows, importer classified as passenger vans. Also available as a wagon model.

24 Ford Transit Facts As Imported Swing-out front doors Second row sliding doors Second row windows Swing-out rear doors (some with windows) Second row bench seat No headrests No tumble lock No comfort wires Inexpensive fabric Second row seatbelts Child locks, carpeted rear footwells, dome lights, full cloth headliner

25 Conversion After CBP clearance, but still in port Remove rear seat Remove rear safety restraints and seatbelts Cover rear footwell Add cargo mat Add scuff plates to second-row door sills Optional: remove side door windows

26 Discussion What do you think? Artifice or disguise?

27 Ford Preliminary Decision CIT Slip Op (Oct. 5, 2016) The dutiable classification of articles imported must be ascertained by an examination of the imported article itself, in the condition in which it is imported. Articles cannot escape a prescribed rate of duty by resort to disguise or artifice. Does the article, as imported, fall within the description of a passenger vehicle?

28 Ford Preliminary Decision Test for car or truck is Marubeni Am. Corp. v. U.S. Look to how the vehicle is designed for evidence of principally designed use Court says it has numerous detailed and undisputed facts about the Transit But, the court does not have facts on the cost of the reduced rear seats Parties are to submit additional information.

29 Summary Goods are classified in their condition as imported Importers may configure goods to achieve a lower rate of duty Importers may not engage in artifice or disguise

30 Avoiding Artifice or Disguise Truthful and complete descriptions to CBP The product should have a commercial identity or use as imported Avoid temporary products Production should be for a commercial purpose other than duty avoidance

31 Larry Friedman Questions

32 Tariff Engineering: How to do it Properly Jennifer R. Diaz, Esq. Diaz Trade Law Customs & International Trade Board Certified in International Law Office: (305)

33 Disclaimer This presentation is for informational purposes only and does not purport to provide legal advice as all cases and facts are different. The information in this presentation is provided as is and no representations are made whatsoever. You should not rely on the information included in this presentation as an alternative to legal advice from your attorney. For questions related to a specific matter, you should consult your attorney. To the extent permitted by law, this presentation is Copyright 2017 by Diaz Trade Law, P.A.

34 Agenda What About After Importation? Case Studies CBP Rulings $$ Refunds! 1520d FTZ

35 QUIZ TIME! You can only review HTS s prior to importation? True or False

36 HTSUS REVIEW Confirm you re using the correct HTSUS necessary for proper assessment of duties.

37 QUIZ TIME! The HTS is universal throughout the world up until the digit? A. 2 nd B. 4 th C. 6 th D. 8 th

38 GENERAL RULES OF INTERPRETATION (GRI S) The classification of merchandise under the HTSUS is governed by the principles set forth in the HTSUS. The GRI s are intended to be consulted and applied each time merchandise is classified under the HTSUS. There are a total of six (6) GRI s dealing with relatively sophisticated concepts such as interpretation by heading levels, and concepts such as unfinished goods, unassembled goods, and goods composed of mixtures or combinations of materials or substances. In addition, Section Notes and Chapter Notes should always be reviewed.

39 QUIZ TIME! It is a brokers responsibility to use reasonable care in ascertaining the correct HTS? True or False

40 MERCHANDISE DESCRIPTION AND TARIFF CLASSIFICATION Have you obtained a Customs ruling regarding the description of the merchandise of its tariff classification? Have you consulted a Customs expert (lawyer, customs broker, or customs consultant) for advice? If you are claiming a conditionally free or special tariff classification such as NAFTA, how have you verified that the merchandise properly qualifies for such status?

41 Case Study Frozen preserved Crabmeat (King Crab)

42 HTS QUIZ TIME! What s the main difference between the HTS s?

43 Case Study % Duty! Prepared meals % Duty! Crabmeat (not in airtight containers) DUTY FREE Crabmeat (in airtight containers)

44 CBP Ruling

45 QUIZ TIME! CBP has published over _ Binding Rulings? A. 50,000 B. 75,000 C. 100,000 D. 170,000

46 CBP Binding Ruling Process (19 CFR Part 177) Request Binding Rulings for: Classification Valuation Country of Origin Free Trade Agreement Verification Total Rulings: OVER 171,152!

47 BINDING ADMINISTRATIVE RULINGS (19 CFR PART 177). The Ruling will be binding at all ports of entry, unless modified or revoked by CBP s Office of Regulations and Rulings. The information that should be included with a Binding Ruling Request includes: A complete and detailed description of the merchandise. Cost breakdowns of component materials or parts and their respective quantities shown in percentages. A description of the principal use of the goods. Citation to supportive Rulings from CROSS (Customs Rulings On-line Search System)

48 Case Study Stuffed Mattress Cover HTSUS s Under Review 6304 Other furnishing articles, excluding those of heading 9404: 9404 Mattress supports; articles of bedding and similar furnishing (for example, mattresses, quilts, eiderdowns, cushions, pouffes and pillows) fitted with springs or stuffed or internally fitted with any material or of cellular rubber or plastics, whether or not covered:

49 Case Study Stuffed Mattress Cover

50 CBP Ruling Review Headquarters Ruling Letter (HQ) H015427, dated January 5, 2010 Heading 9404, HTSUS, is limited to Articles of bedding and similar furnishings which are stuffed or internally fitted with any material. Articles of bedding properly classified in heading 9404, HTSUS, are stuffed. Linens and other bedding furnishings classified in chapter 63 are not.

51 Explanatory Notes Review EN clarifies that goods classified in 9404 may be stuffed with cotton, wool, horsehair, down or synthetic fibers. Each of these materials are basic, homogenous, stuffing materials.

52 QUIZ TIME! Non originating components will automatically disqualify the use of NAFTA? True or False

53 NAFTA

54 NAFTA Review Component Parts (non NAFTA originating) 6006, 6004, 5801, 69 Cut/Sewn in MX General Note 12(b) Tariff Shift?

55 NAFTA REVIEW General Note 12(t), Rule 7, which regards the relevant subheadings of Chapter 94 states the following: A change to subheading from any other chapter, except from headings 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408 or 5512 through 5516.

56 NAFTA REVIEW General Note 12(t), Rule 4, which regards the relevant subheadings of Chapter 63 states the following: A change to headings 6304 through 6310 from any other chapter, except from headings 5106 through 5113, 5204 through 5212, 5307 through 5308 or 5310 through 5311, chapters 54 through 55, or headings 5801 through 5802 or 6001 through 6006, provided that the good is both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the NAFTA parties.

57 QUIZ TIME! You can file a PEA or PSC to make a post-importation preference claim on ALL Free Trade Agreements? True or False

58 CSMS #

59 19 USC 1520d (no Protest) The 19 U.S.C. 1520(d), post importation preference claim, allows for a preference claim to be made within one year of the date of importation if a claim was not made at entry summary. It is the ONLY mechanism to make a post-importation preference claim on CERTAIN Free Trade Agreements

60 QUIZ TIME! You can file a PSC up until the date of liquidation via ACE? True or False

61 PEA or PSC or Protest (19 USC 1514) PSC = Allows corrections to ACE May be filed 270 calendar days from date of entry Cannot be filed within 20 calendar days of the scheduled liquidation date PEA = Method to request correction to entry, prior to liquidation AGOA Civil Aircraft Agreement Jordan FTA Australia FTA GSP Morocco FTA Bahrain FTA Insular Possessions Pharmaceutical CBERA Israel FTA Products Agreement CBTPA Uruguay Round Concession on Intermediate Chemicals for Dyes Singapore FTA

62 Case Study Potential 45% China Tax? Solution Foreign Trade Zone

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64 QUIZ TIME! If an importer imports merchandise NOT intended for U.S. consumption, a great way to avoid CBP duty is to use a FTZ or bonded warehouse? True or False

65 Foreign Trade Zones Considered outside CBP territory Formal CBP entry procedures and payments of duties are not required on the foreign merchandise unless and until it enters CBP territory for domestic consumption

66 USEFUL LINKS What is Trump s 45% tariff on Chinese imports, and how can I avoid it? 45-tariff-chinese-imports-avoid/ Importing into the U.S.: A Guide for Commercial Importers CBP's Legal Decisions/Publications Customs Rulings Online Harmonized Tariff Schedule - Online Reference Tool Protecting your intellectual property rights!

67 BLOG customsandinternationaltradelaw.com

68 Now That We Have Our Paws Dirty Any Questions?

69 Tariff Engineering: How to do it Properly Jennifer R. Diaz, Esq. Diaz Trade Law Customs & International Trade Board Certified in International Law Office: (305)