|Areas of Practice
Customs Law refers to the body of federal statutes, federal regulations, case law, customs decisions, and customs ruling letters, which work together to set the legal requirements for the importation of goods into the United States.
Classification of Goods
Upon entry into the commerce of the United States, all goods must be classified according to the statute known as the Harmonized Tariff Schedules of the United States, (the HTSUSA). Classification is a key concept in the administration of the customs laws, and will determine the duty rate and eligibility for special duty provisions. Read More...
Valuation of Goods
All goods imported into the United States must be appraised. The preferred method of appraising merchandise is called the transaction value method which is codified at 19 U.S.C. 1401a.
Transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus amounts for five enumerated statutory additions for packing costs, assists, selling commissions, rebates or indirect payments to sellers, and royalties.
In order for imported merchandise to be appraised under the transaction value method, it must be the subject of a bona fide sale between a buyer and seller, and it must be a sale for exportation to the United States. Transactions between related parties must be disclosed to Customs and may not qualify for transaction value. In that case, an alternate valuation method is employed.
Country of Origin
Merchandise entering the United States must be properly marked upon entry with the correct country of origin in accordance with 19 U.S.C. 1304 and any other applicable special marking requirements pertaining to the specific commodity, as in the case of textiles and watches.
Country of origin is often not the same as the country of export, but rather must be determined according to rules set forth in Customs Regulations and by international treaty. The country of origin of merchandise can affect the rate of duty, the eligibility for special programs, admissibility, quota, procurement by government agencies and marking requirements.
Rules of Origin
There are "non-preferential" and "preferential" rules of origin for goods imported into the customs territory of the United States. "Non-preferential" rules are those that generally apply to merchandise where there is no bilateral or multilateral trade agreement. These are used to determine the country of origin of a product for purposes of most-favored-nation or normal-trade-relations duty treatment.
The non-preferential rules scheme employs a "wholly obtained" criterion for goods that are wholly the growth, product, or manufacture of a particular country. The rules use a "substantial transformation" test for goods that consist in whole or in part of materials from more than one country.
"Preferential" rules are those that apply to merchandise to determine eligibility for special treatment under various trade agreements (such as NAFTA or CAFTA) or special legislation. Some of the preferential rules use a "tariff-shift," meaning a "change in tariff classification" method, which is based on the Harmonized Commodity Description and Coding System.
International Trade Law
International trade law is described as the combination of domestic or national law and public international law that applies to transactions for goods or services that cross national boundaries. Certain multilateral treaties play important roles in this field, such as the Convention for the International Sales of Goods and others dealing with dispute resolution and enforcement of dispute adjudications.
Customs' Regulatory Audit Field and Branch Offices are responsible for auditing major importers and other entities involved in international trade for compliance with laws and regulations governing the importation and exportation of merchandise. A risk-based approach is used by Customs to assess import compliance with trade laws and regulations.
The audit reviews employ a systematic approach to data collection and an analysis of data to determine the likelihood of noncompliance, which includes assessing risks by reviewing corporate controls over trade compliance.
Penalty actions and claims for duties and interest can be instituted by Customs as a result of these audits, and importers should do their own internal reviews on a periodic basis to identify problem areas in advance so as to avoid non-compliance and receiving penalties.
Focused Assessment Program Audits
A Focused Assessment Program Audit is a targeted review of an importer's transactions, one more limited in scope than a full customs audit program. The key elements of the Focused Assessment are: a review of the importer's Internal Controls (systems and processes) to identify any areas of risk for Customs; an evaluation of those Internal Controls to identify system strengths and weaknesses and to help predict future compliance; a zeroing in on potential material risk; and a targeting of transactions to be tested by Customs' auditors.
Customs Ruling Letters
CBP will issue a ruling letter to an importer upon a written request for a definitive interpretation of the applicable laws to a prospective transaction. Ruling letters can be part of an importer's overall compliance efforts and demonstrate the importer's reasonable care in making entry. A ruling letter represents the official position of Customs with respect to the particular transaction or issue described in the letter, and is binding on all Customs Service personnel until modified or revoked.
Customs Seizures and Forfeitures
CBP is authorized by a number of federal statutes to seize and forfeit merchandise that is entered into in the United States. The primary commercial seizure statute is 19 U.S.C. 1595a(c) which Customs uses to enforce a host of civil laws including the customs laws and the laws and regulations of other agencies against importations which are "contrary to law." The seizing authority of that statute authorizes both mandatory and discretionary seizures.
Customs Detentions of Merchandise
Customs has always had the authority to detain merchandise pending a decision to seize for a violation of law or to release the merchandise. In 1993, Congress passed the Customs Modernization Act as part of the North American Free Trade Agreement Implementation Act. A provision of that law limited the time available to Customs to make a decision to detain, exclude or seize an entry.
After presentation of goods for entry, Customs has five days, excluding weekends and holidays, in which to either release or detain those goods. 19 U.S.C. Sec. 1499(c)(1). If the goods are not released within those five days, they are deemed detained. Customs must make a final determination with respect to the admissibility of detained merchandise within thirty days after the merchandise is presented for examination. Customs' failure to make a final determination within thirty days is treated as a decision to exclude the merchandise, referred to as a deemed exclusion.
Customs Penalty Actions
Customs is authorized to impose monetary penalties for violations of the customs laws and of other agencies' laws that Customs enforces. The primary statute authorizing the imposition of penalties for trade imports is known as the "commercial fraud" statute, 19 U.S.C. 1592. Under that statute monetary penalties for material violations committed upon entry of merchandise are based on a scheme of rating violations based on outright fraud, gross negligence and ordinary negligence. Customs is authorized to mitigate those penalties down or up based on an evaluation of the circumstances involved including mitigating and aggravating factors.
Liquidated Damages Cases
Customs' claims for liquidated damages are contractual in nature and arise from breaches of the terms of customs bonds. Customs bonds are required in many situations, such as upon entry of merchandise, in order to ensure that the revenue is protected or to assure compliance with other laws that Customs may be enforcing.
Certain decisions of a port director may be protested under the provisions of the Tariff Act. The matters subject to protest are enumerated in the Customs Regulations in 19 CFR 174.11, and include the appraisal value of merchandise; the classification, rate and amount of duties chargeable; other charges or exactions including the accrual of interest; the exclusion of merchandise from entry; the liquidation or reliquidation of an entry or any modifications thereof; the refusal to pay a claim for drawback and the refusal to reliquidate an entry.
Customs may offer enhanced mitigation if the party involved in a violation provides a "prior disclosure" which meets all the requirements of the law set forth in Customs Regulations 19 CFR 162.74.
To be eligible for such mitigation, the party must disclose the circumstances of the violation before or without knowledge of the commencement of an investigation of the violation, specifying the material false statements made, explaining how and when they occurred and setting forth the true and accurate information that should have been provided in the entry. Also, the party must tender actual loss of duties, taxes and fees in order to qualify for prior disclosure treatment. Prior disclosures may be made orally, but are generally made in writing. Great care should be exercised in employing the provision and advice of counsel is highly recommended.
Petitions for Mitigation
Customs has the discretion to grant mitigation of penalty claims upon written request of the interested party. This request takes the form of a petition to Customs which sets forth the reasons in mitigation as to why the penalty should be canceled or reduced. In determining mitigation, Customs will take the entire case record into account, as well s the party's previous record with Customs. Supplemental petitions after denial of the original petition are also allowed in most cases.
When merchandise is found not to be properly marked in accordance with customs' rules for country of origin marking, as provided in the Customs Regulations in 19 CFR Part 134, the port director is required to notify the importer to arrange to properly mark the articles or containers involved or to return all released articles to Customs custody for marking, exportation, or destruction. Customs will give notice on Customs Form 4647, which is called a "Notice to mark or redeliver."
Articles which are not properly marked as required by Part 134 of the Customs Regulations are subject to additional duties of 10% of the final appraised value unless exported or destroyed under Customs supervision prior to liquidation of the entry.
The 10% additional duty is assessable for failure either to mark the article or container with the English name of the country of origin, or to include words or symbols required to prevent deception or mistake.
Litigation in Court of International Trade & Federal Courts
Importers may pursue claims directly in the Court of International Trade (CIT) or in the federal district courts in certain situations, or may first attempt mitigation or relief administratively through Customs, and then appeal an adverse decision to the courts.
Generally, the federal District Courts have exclusive original jurisdiction over any seizure under any law of the United States. The CIT has jurisdiction primarily under the residual grant of authority in 28 U.S.C. 1581(i), which covers civil actions such as those concerning disputes over the revenue, tariffs, duties, fees, embargoes and quantitative restrictions.
CBP Form 28 Request for Information
A formal "Request for Information" under 19 CFR 151.11 can be issued to an importer by CBP to provide samples of merchandise and additional information concerning the importer, its transactions in general, or a particular entry transaction. Typically, the form requests information related to classification, valuation, relationship between the importer and the seller, and any additional information that the Customs Import Specialist Team deems necessary.
An importer is typically given 30 days to respond to a CF 28, though additional time may be allowed. An importer needs to give proper attention to the handling of a CF 28, as frequently this form precedes actions by Customs to advance the duty rate, increase the valuation of imports, or even start a penalty action against an importer. If not properly and promptly complied with, CBP may make a demand under the importer's bond for the return of merchandise to CBP custody.
CBP Form 29 Notice of Action
If CBP determines that the entered rate or value of any merchandise is too low, or if the quantity of imported merchandise exceeds the entered quantity, (and the increase in duties on that entry exceeds $15.00), Customs is required to promptly notify the importer on Customs Form 29. That form is to specify the nature of the action taken by Customs and the reasons therefor.
Free Trade Agreements
Free Trade Agreements are agreements between and among different countries to engage in duty-free trade. The agreements are typically entered into via international treaty with each participating country following up with enacting legislation.
"Free" trade is frequently very costly, as most schemes involve complex requirements for qualifying products based on the country of origin of the inputs into the finished goods. There is usually a phase in period during which duties are reduced, eventually leading to duty free status.
North American Free Trade Agreement (NAFTA)
The NAFTA is a free trade agreement between the nations of Canada, Mexico and the United States that was entered into in 1993.
Dominican Republic -- Central America Free Trade Agreement (CAFTA)
The United States-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) is a Free Trade Agreements that the United States has entered into with its neighbors in the Western Hemisphere: Costa Rica; Dominican Republic; El Salvador; Guatemala; Honduras; and Nicaragua.
Trade Preference Programs
U.S. trade preference programs promote economic development in poorer nations by providing export opportunities. The Generalized System of Preferences, Caribbean Basin Initiative, Andean Trade Preference Act, and African Growth and Opportunity Act are examples of these types of programs which unilaterally reduce U.S. tariffs for many products from over 130 countries. However, most of these programs expire periodically, and Congress must opt to consider renewal as each expiration date approaches.
The requirements for proving that goods actually qualify under these programs can be quite daunting, and importers must take care to ensure they have properly evaluated their products' qualifications under the program involved.
Customs-Trade Partnership Against Terrorism (C-TPAT)
C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall international supply chain and U.S. border security. C-TPAT is a program heavily promoted by U.S. Customs and Border Protection (CBP) as it seeks to provide the highest level of cargo security through close cooperation with the ultimate owners of the international supply chain. This program is voluntary, but a high price may be paid for not participating in that most importers, carriers, consolidators, licensed customs brokers, and manufacturers have agreed to participate and want to deal with other C-TPAT participants.
Office of Foreign Assets Control
The Office of Foreign Assets Control ("OFAC") of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States.
OFAC acts under Presidential national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze assets under US jurisdiction.
Trade, Copyrite and patent Import Violations Law
CBP enforces intellectual property rights that have been previously recorded with Customs. If imported articles bear infringing marks, Customs will seize the merchandise and can impose penalties as well as forfeit the merchandise. See Articles for related information on intellectual property import violations.
U.S. Foreign Trade Zones
Foreign Trade Zones (FTZs) were created in the United States to provide special customs procedures to U.S. plants engaged in international trade-related activities. Duty-free treatment is accorded items that are processed in FTZs and then re-exported, and duty payment is deferred on items until they are brought out of the FTZ for sale in the U.S. market. This helps to offset customs advantages available to overseas producers who compete with domestic industry.
FTZs are considered to be outside of U.S. Customs Territory for the purpose of customs duty payment. Therefore, goods entering FTZs are not subject to customs tariffs until the goods leave the zone and are formally entered into U.S. Customs Territory. Merchandise that is shipped to foreign countries from FTZs is exempt from duty payments. This provision is especially useful to firms that import components in order to manufacture finished products for export.
Trademark, Copyright and Patent Import Violations
CBP enforces compliance with the Currency or Monetary Instrument Report (CMIR) requirement in the Bank Secrecy Act, in Title 31 of the US Code. These reports provide information that is used in a variety of investigations and proceedings on money laundering and other forms of transnational crime.
Violations of monetary reporting requirements may be penalized by forfeiture or by some lesser mitigated amount as determined by CBP.
Trade fraud (commercial fraud) is defined as any entry or importation effected by way of false acts, information, or omissions including false information, false descriptions or material omissions contained in entry documentation. Commercial fraud is subject to severe penalties that can be imposed by Customs, either on the basis of loss of revenue or on a percentage of the value of the shipment involved.
Customs Broker Compliance and License Revocation Proceedings
CBP licenses customs brokers and provides for overview of customs broker compliance with Customs Regulations through its Broker Management Office, headquartered in Washington DC with branch offices in the ports.
Customs brokers must pass a national exam, and pay required fees for permits to practice in the various ports. CBP rules impose certain requirements on brokers concerning the practice of brokerage, including those on recordkeeping, form and names of a broker's business, supervision and control of employees, the handling of importer monies, and the quality of work performed, including number of rejected entries.
Brokers are subject to imposition of broker penalties, and may face license suspension or revocation proceedings for violation of the Customs Regulations on brokers.