International Trade Basics

FOCUS Business Solutions, Inc.

Offshore Manufacturing Summit
San Carlos, MX
October 19-20, 2006
Topics
• Overview of importing process
• Customs implications
• Assigning task of customs compliance
• Moving raw materials and goods
– Southbound
– Northbound
• Customs Border & Protection (CBP)
• Harmonized tariff classification
• NAFTA
• ADW’s
• Country of origin marking
• Communications
• Fixing mistakes
Executive Level View of an Importation

• Foreign purchase
• Purchase order issued
• Goods are shipped
• Goods are received
• Payment made to foreign supplier
• Finished goods shipped to customer

Departments involved: Engineering, purchasing, logistics,

shipping/receiving, accounts payable…
Customs Implications
• Foreign purchase
– Trade program requirements must be met
• Purchase order issued
– Dutiable assists must be declared
• Goods are shipped
– Freight charges can reduce duties owed
– Importer must hire a customshouse broker
• Goods are received
– Overages/shortages
• Payment made to foreign supplier
– Amount paid or payable
• Finished goods shipped to customers
– Duty Drawback
Assigning the Task of Customs Compliance

• Knowledge is required for other disciplines:

– Engineering
– Purchasing
– Logistics
– Accounting/Finance
• Knowledge required for Customs compliance:
– Experience, Experience, Experience
• Customs laws and regulations
• Harmonized tariff classification
• Trade programs
Moving Raw Materials and Goods

• Southbound to Mexico
– Raw materials are consolidated by The Offshore
Group
– Offshore prepares necessary paperwork to submit
to Mexican customs broker
– Offshore in conjunction with Mexican broker
assign harmonized tariff classifications
– Mexican broker prepares the Mexican entry
(Import Pedimento and Export Pedimento) and
submits to Mexican Customs
Moving Raw Materials and Goods

• Southbound to Mexico
– Duty Implications
• Definitive Importations – 10 -15% duty rate
• Temporary Importation
– PROSEC rate: 0-5%
– NAFTA rate: Usually duty free (0%)
– Offshore can advise PROSEC status
– To obtain NAFTA rate, customer must obtain/supply
NAFTA certificates to Offshore
– Importer of record into Mexico:
• Maquilas Tetakawi
• Manufacturas Zapaliname
Moving Raw Materials and Goods

• Importer of Record – Northbound from Mexico

– As Importer of Record, responsibilities include:
• Exercise of reasonable care
• Determination of harmonized tariff
classification number
• Duties, taxes, fines & penalties
• Selection of U.S. Customsbroker
• Transmission of packing slip data to Offshore
• Prepare Assembly Worksheet Descriptions
(ADW’s)
Moving Raw Materials and Goods
• Importer of Record – Northbound from Mexico (cont’d)
– As Importer of Record, responsibilities include:
• Obtain NAFTA certificates for raw materials
moving southbound
• Qualify finished goods for NAFTA treatment
• Respond to requests from CBP
• Participate in Reconciliation program
• Compliance with all other CBP laws and
regulations
– CBP is enforcing agency for over 60 other
governmental agencies
Customs Border & Protection (CBP)

• U.S. Customs and Border Protection’s top priority is

to keep terrorists and their weapons from entering the
United States. While welcoming all legitimate
travelers and trade, CBP officers and agents enforce
all applicable U.S. laws. CBP prevents narcotics,
agricultural pests and smuggled goods from entering
the country and also identifies and arrests those with
outstanding criminal warrants. On a typical day last
year, CBP officers welcomed 1.2 million people at the
nation’s 314 land, air and seaports while denying
entry to more than 3,000 inadmissible visitors.
Harmonized Tariff Classification

• One of the most critical and complex

components of an import transaction
– Knowledge needed to classify properly:
• Fit, form, function, material, and General Rules of
Interpretation
– Determines duty rate
– Critical for NAFTA determination and support
• CBP offers a “Binding Ruling” program
– CBP issues definitive opinion on tariff
classification
Harmonized Tariff Schedule Classification

Valves for Aircraft Engines

Other Parts of Aircraft 8803.30.0030 FREE

Hydraulic Valve 8481.20.0040 2%

Check Valve 8481.30.2090 5%

Brake Caliper Pin

Other Non-Threaded 7318.29.0000 2.8%
Articles
Other Articles of Metal 7326.90.8587 2.9%
Brakes and Parts 8708.39.5050 2.5%
Thereof
NAFTA

• Important to understand NAFTA rules of origin

and how they impact:
– NAFTA qualification process
– Sourcing decisions
• Tariff shift vs. Regional Value Content (RVC)
percentage
• Importance of correct HTS numbers
• NAFTA Audits
NAFTA vs. Unconditionally Duty Free HTS
Numbers
• Unconditionally duty free Items are free of duty
regardless of NAFTA or other trade agreements
• Merchandise Processing Fee (MPF) is assessed on
shipments from Canada or Mexico, unless NAFTA is
claimed
– MPF amount: .21% of Entered Value
– MPF minimum: $25.00 per Entry
– MPF maximum: $485.00 per Entry
• Refunds for duty and MPF can be obtained one year
from date of import
Assembly Description Worksheets (ADW’s)

• ADW’s are similar to production Bills of Material

• Important to keep ADW’s updated to reflect changes
in values
– Changes could alter NAFTA declaration
• ADW’s should reflect all costs associated with raw
materials and production of finished good
• ADW’s should be reviewed on annual basis
Country of Origin Marking
• Every article imported into the USA must be marked
to indicate it’s country of origin, unless excepted by
law
• If excepted by law, the outermost container must be
marked to indicate the country of origin of the
contents
• NAFTA marking rules of origin apply to articles
produced in Mexico or Canada and shipped to the
USA
• With regards to articles to be further processed in the
USA, the Federal Trade Commission governs use of
“Made in the U.S.A.”
Advance Notices and Communications

• Important to notify Offshore, customs broker,

and NAFTA provider of new part production
– Offshore can advise dutiable status on
importation of raw materials into Mexico
– NAFTA provider can advise of NAFTA eligibility
– Both of above require time and usually can’t be
done on moments notice
• Duties can quickly accrue before it’s realized
that a part is crossing the border without
benefit of NAFTA
Advance Notices and Communications

• Communicate, Communicate, Communicate

– Offshore
– Broker
– NAFTA/Customs provider
• Use caution in communicating with CBP
– Understand purpose of any request for
information
– Understand impact of duty on prior shipments
Fixing Mistakes

• Fixing mistakes require amendment to Customs

entry
• Be aware of time constraints
• Method of amendment depends on liquidation status
of entry
– SIL/PEA: Prior to liquidation
– Protests: 180 days from liquidation
– 520(d) 1 year from date of importation
– Prior Disclosure: Anytime prior to commencement
of formal investigation
Summary

• As importer of record company is subject to legal

requirements
• Classification of materials and finished Goods should
be as accurate as possible
• NAFTA can be complex and has potential to expose
company to penalty actions
• Keep ADW’s updated
• Communicate with appropriate parties
• Fix mistakes when discovered
• Make conscious decision who should handle
Customs responsibilities
Additional Information

• Contact:
Steve Haywood (734) 362-1000 ext. 224
FOCUS Business Solutions, Inc.
2674 W. Jefferson Ave.
Suite 100
Trenton, MI 48183
shaywood@focus-solutions.net

Also: http://www.cbp.gov/