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57. Third, the applicable law permits the buyer and seller to arrange matters to reduce the dutiable value of the merchandise, based on their contractual arrangements.  An understanding of the applicable regulatory requirements will permit them to prepare their contracts in the most advantageous way to reduce the buyer's tariff costs.

58. In the vast majority of import transactions, the dutiable value is based on the “transaction value”, as set forth in the World Trade Organization agreement.  The transaction value is the price paid or payable for the merchandise when offered for sale for export to the United States.  Therefore, it represents the actual price between the buyer and seller of the merchandise, but may require the addition of certain types of costs besides those in the invoice price.

59. With a little bit of planning, the importer and exporter may be able to lower the total duty liability, and therefore the total cost, for their merchandise.  Exporters who are able to do so will have an advantage over those who are unaware of these rules or who are unable to take them into account.

60. As one example, the value for duty purposes must include the amount of any seller's agent commission that the buyer pays.  However, buyer's agent commissions are not included in the dutiable value.

61. Because agents are very commonly used for sales in certain industries, for example, textiles and footwear, the question of whether a buyer's or seller's agent is involved can have an important impact on the dutiable value of the merchandise. 

62. U.S. Customs presumes that an agent is controlled by the seller, and that the commissions paid to the agent are part of the dutiable value.  This places the burden on the importer to prove that the agent represents the buyer instead of the seller.

63. To prove its case, the importer must demonstrate two things.  First, it must provide a written agreement in which the agent agrees to be controlled by the buyer.  If there is no written agreement, U.S. Customs will reject the importer's argument.

64. Second, the importer must demonstrate that the agent's services are consistent with its role as a buyer's agent.  What does this involve? For example, that the agent compiles market information on behalf of the buyer, gathers samples, translates documents, places orders based on the buyer's instructions, procures the merchandise, assists in factory negotiation, inspects and packs the goods, and arranges for shipment and payment, all on behalf of the buyer, not the seller.

65. As another example, suppose there are three parties involved in the sale: the factory, which sells to the exporter, which then sells to the U.S. importer.  In that situation, the parties may be able to take advantage of what is called the middleman sales rule.

66. Under that rule, the value for Customs purposes may be determined based on the invoice price for the first sale, from the factory to the exporter.  Because that sale price is always lower than the exporter's resale price, it results in a lower dutiable value and a lower duty payment.

67. To take advantage of this rule, the importer is required to demonstrate to U.S. Customs that the merchandise was “clearly destined for export to the United States” at the time the trading company purchased it or contracted to purchase it.  This can be demonstrated by showing that the exporter already had an order from the U.S. buyer that t was filling with its order from the factory or that the goods were made to U.S. requirements.

68. The importer is also required to submit full documentation of the role of each party in each sale of the merchandise.  Thus, the exporter must agree as part of its contract to provide its invoices to the importer, to demonstrate what the price of the first sale was.

69. Now I'd like to move beyond U.S. Customs' role as a duty collection agency and explore its responsibilities in other areas.  In addition to collecting revenue through duties, U.S. Customs also enforces other laws that relate to whether merchandise may be allowed into the U.S. in the first place.  Many times, these laws are the primary responsibility of other U.S. government agencies, and U.S. Customs operates under the direction of those agencies.

70. For example, there is a law called the Lacey Act, which was enacted for environmental preservation reasons.  This law is the primary responsibility of the United States Agriculture Department, but is enforced for imports by U.S. Customs.  In 2008, that law was significantly expanded.  It now makes it illegal to import into the United States any plant product that was illegally harvested in a foreign country.

71. The foreign laws include both environmental and economic laws.  Therefore, if a tree is harvested in China in violation of Chinese government requirements, or without payment of a stumpage fee required by the Chinese government, it is illegal to import any product made with that tree into the U.S.

72. In addition, the U.S. importer is required to file a declaration with U.S. Customs that identifies the types and quantities of wood in the product.

73. The consequences for not following the Lacey Act's requirements are severe.  Products made from illegally harvested lumber can be seized by U.S. Customs, and the importer can be subject to penalties and fines, including possible criminal sanctions.

74. Chinese producers and exporters of wood products, or any products made with wood, should be aware of the Lacey Act's requirements.  This is because their U.S. buyers have to rely on the information provided by those Chinese suppliers to prepare the declaration, and also to be sure that the imported products were not made from illegally harvested lumber.

75. Chinese exporters should expect their purchasers to request information for Lacey Act compliance.  Those exporters that are willing and able to provide the required information will have a great competitive advantage over those that are not willing to cooperate.

76. Another law enforced by U.S. Customs is the Consumer Product Safety Improvement Act.  This law establishes product safety standards for products imported into the United States.  It prohibits, for example, the use of lead paint in children's toys.  Products that violate the standards can be seized, and the importer can be penalized.

77. Once again, the U.S. importer will have to rely on its Chinese suppliers to ship products that meet the legal requirements.  This means that the producer and seller of the goods should make certain that they are aware of any applicable product safety standard, and be sure that the merchandise meets that standard.  Having this capability provides a distinct advantage over competitors who do not.

78. U.S. Customs also is responsible for maintaining the security of the import process, which is why it is part of the Department of Homeland Security.  As part of that role, it has adopted cargo security programs that can affect foreign exporters in both positive and negative ways.

79. Let me tell you about one program that Chinese exporters should consider joining.  It is called the Customs -Trade Partnership against Terrorism.  Under this program, importers who meet certain security standards are provided expedited import processing benefits because they are considered trustworthy by U.S. Customs.  C-TPAT participants undergo fewer cargo inspections and receive expedited treatment of their imports.  For this reason, many U.S. importers have joined the C-TPAT program.

80. To show they are trustworthy, the importers must demonstrate that their entire supply chain is secure, including the producer, reseller, and freight carrier of the goods.  The importers' entire supply chain is subject to validation by U.S. Customs, to determine whether the security procedures meet the requirements.

81. This is where Chinese exporters can participate.  U.S. Customs has opened C-TPAT membership to selected foreign manufacturing operations.  There is now a test program underway, in which up to 300 Chinese companies can receive C-TPAT certification.  U.S. Customs has appointed private companies to conduct validations of Chinese companies who have applied for C-TPAT coverage.

82. Becoming a C-TPAT certified company can be a very important advantage, because it means that your American importers will have fewer cargo inspections and will receive their merchandise faster and with less difficulty than they would if you are not a member of C-TPAT. 

83. U.S. Customs also administers the Container Security Initiative, or CSI.  This is a program under which foreign governments allow U.S. Customs officials to be stationed in foreign ports of exportation.  These officials may inspect cargo before it is shipped to the U.S. The program is designed to permit Customs to identify containers with potentially harmful contents prior to export shipment.

84. Merchandise that is shipped from a CSI port is considered to be of lower risk upon arrival in the U.S. and therefore is less likely to be inspected and delayed by U.S. Customs. 

85. The Chinese government has designated Shanghai as a CSI port.  Hong Kong also is part of this program.  Therefore, cargoes sent from those ports will be given expedited treatment by U.S. Customs.

86. Finally, I would like to briefly mention antidumping duties.  I'm sure all Chinese exporters have heard of the U.S. antidumping duty laws.  These permit the U.S. government to impose additional duties against imports that are considered to have unfairly low prices.  Therefore, what is an advantage in a commercial setting can become a disadvantage if an antidumping case is brought against your products.

87. Two U.S. government agencies, the Commerce Department and the International Trade Commission, have responsibility for determining whether antidumping duties will be imposed against Chinese imports and how high the duties will be.  This is a very complex process that we will cover in a separate presentation.

88. U.S. Customs is responsible for administering the antidumping duties when the goods are imported.  The importer is responsible for paying antidumping duties, just as it is responsible for payment of regular Customs duties.  At the time of entry, the importer must make antidumping duty deposits.

89. However, antidumping entries are treated differently than regular entries.  They are not liquidated within the time period that I discussed earlier.  Instead, they are automatically given a suspension of liquidation.  This means that they are kept open.

90. The reason for this is that the Commerce Department can determine whether a higher or lower antidumping duty is appropriate for the entry.  The Commerce Department does this by conducting an administrative review of all exports made by specific Chinese exporters. 

91. If this administrative review finds that higher antidumping duties are appropriate, the Commerce Department will instruct U.S. Customs to liquidate the entry with additional duties.  If it finds that lower antidumping duties are appropriate, the Commerce Department will instruct U.S. Customs to liquidate the entry with duty refunds. 

92. Because the administrative review can take a year to complete, and can be appealed to the U.S. Court of International Trade after that, it is very common for liquidation of antidumping entries to take place years after entry.

93. This process has several consequences.  First, an importer and exporter can never predict the final antidumping duties that will apply to a particular entry, because those duties can change on a retroactive basis.  

94. Second, the importer can be assessed with duty increases years after the merchandise imported and in fact years after the merchandise was sold in the U.S. 

95. If the Chinese exporter participates in the Commerce Department antidumping administrative review process, it has an excellent opportunity to reduce the antidumping duties that its importers will have to pay, and therefore get a competitive advantage of other exporters with higher rates.

I hope this has provided you with some insights as to what happens to the merchandise after it arrives in the United States so that you can understand the legal requirements that apply to your U.S. importers.  With that note, I would like to point out that my office overlooks New York harbor, which of course is a very busy port of importation for merchandise.  This is the reason why we set up our customs practice in New York, because of the large volume of transactions that occur here.  I would like to invite you to our offices the next time that you're in New York and hope that we can provide answers to any questions that you may have about the U.S. Customs process.

 

 

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