New and Revised Informed Compliance Publications

Customs and Border Protection has been busy reviewing and updating the Informed Compliance Publications this year. Since the first quarter of 2010, two new publications were added and 12 were updated. Here’s a brief overview of the new publications along with a list of the publications that have been reviewed and updated.

New Publications:

Ball Bearings – January 2010
This publication provides information about how bearings operate and the types of applications they service, such as vehicles, machines tools, machines and appliances. The first bearings were made of wood; however most modern bearings are made of steel. The document explains the types of bearings and provides drawings of each.


Passenger Vessel Services Act – April 2010
This publication identifies the laws and regulations for engaging in coastwise transportation of passengers. The goal of the coastwise laws was to protect U.S. shipping interests by granting a coastwise monopoly to American shipping that promotes development of the American merchant marine. Coastwise laws prohibit the transportation of passengers or merchandise between points in the United States in any vessel other than a coastwise-qualified vessel. The document defines passengers, explains where the law applies and the penalties for violation of the laws.

Revised and Updated Publications:

• Tractors vs. Heavy Industrial Machinery - January 2010
• Household Articles of Base Metal - January 2010
• Internal Combustion Piston Engines - January 2010
• Locks of Base Metal - January 2010
• Diodes, Transistors and Similar Semiconductor Devices - February 2010
• Turbojets, Tubropropellers and Other Gas Turbines - February 2010
• Button, Snap Fasteners, Slide Fasteners and Similar Articles - February 2010
• Personal Digital Assistants (PDAs) and Electronic Organizers - February 2010
• Base Metal Mountings and Fittings - February 2010
• Classification and Marking of Watches and Clocks - February 2010
• Classification of Cooking Ranges, Stoves and Ovens - February 2010
• Classification and Marking of Pipe Fittings under Heading 7307 - February 2010
• Distinguishing Bolts from Screws - March 2010
• Vehicles, Parts and Accessories - March 2010
• Agricultural Actual Use Provisions - March 2010
• Waste & Scrap Related to Chapter 81 - March 2010
• Coated Nonalloy Flat-Rolled Steel - March 2010
• Table and Kitchen Glassware - March 2010
• Stranded Wire, Rope and Cable of Iron or Steel - March 2010
• Agglomerated Stone - March 2010
• Cutlery of Headings 8211 Through 8215 - March 2010
• Hand Tool Sets Classified in 8205.90.00 and 8206.00.00 - April 2010
  

Tired of looking for updates? Click here to find out how you can have updated versions for all of the Informed Compliance Publications along with an extensive compilation of Customs Directives and other selected CBP information in loose-leaf and searchable CD-ROM.

Free Trade Tuesday - GSP

Welcome to Free Trade Tuesday! This week we are discussing one of the oldest free trade agreements, the Generalized System of Preferences (GSP).

Implemented in 1976, GSP is a program that offers special duty-free benefits on designated products from over 100 less developed countries. Initially, GSP was created to offer trade incentives to developing economies by allowing them to compete in the U.S. market with other, more highly developed economies. GSP helps these less developed economies establish key industrial areas by allowing the importation of certain products into the U.S. without payment of duty. This program is subject to annual renewal. In addition, products and countries can be removed from eligibility during these annual reviews. For example, goods from Taiwan, Hong Kong, Republic of Korea and Singapore were removed from eligibility in 1989.

A list of the eligible countries is found in GN 4(a) of the HTSUS. If a tariff number is eligible for GSP, the symbol "A" appears in the "Special" sub-column. The symbol “A+” denotes a Least–Developed Beneficiary Developing Country”, which means that payment of the merchandise processing fee is not due. Even if the country is eligible for GSP, some designated products from a specific country may not be eligible. These products are indicated by an asterisk (*) beside the letter. When you see the code "A*", check the list of exceptions found in GN 4(d) to see which country is ineligible for the tariff number in question.

In order to qualify for special treatment under GSP, the merchandise must be imported directly from the GSP country and be wholly the growth, product or manufacture of the GSP country. Imported directly means that the goods were shipped from the beneficiary country to the U.S. without passing through the territory of any other country. However, goods may transit through another country without losing eligibility so long as nothing is done to the merchandise other than loading and unloading and the goods do not enter the commerce of the other country.

The sum of the cost of the material produced in the beneficiary country plus direct costs of the processing operations performed in the country must not be less than 35% of the appraised value of the imported article in order to qualify for GSP benefits.

When making the 35% calculation, some items that may be included in the direct costs of processing are:
· Costs that can be attributed to the manufacturing process, growth or assembly of the merchandise;
· The actual labor costs;
· Costs of job training;
· Costs of dies, molds, tooling;
· Costs of machinery and depreciation; and
· Research and development costs.

When making the 35% calculation, some indirect costs that must be excluded are:
· Profit;
· General business expenses;
· Administrative salaries;
· Advertising; and Insurance.

If the article is not wholly from GSP country, it may still be eligible if the article is substantially transformed into a different article of commerce.

"Substantial transformation" means that, because of manufacturing, a new and different article emerges, having a distinctive name, character or use, which is different from that originally possessed by the article. The concept of substantial transformation will appear again in most other basic Special Duty Programs.

Example:
Wood, from trees grown in Italy, is shipped by vessel to Egypt where the wood is cut, painted and made into a table. The wood from Italy has been substantially transformed into a table that is a new and different article, thus meeting the definition of substantial transformation.

GSP - Key Facts
Expiration: 12/31/2010
HTS General Note: GN 4
Imported Directly: Yes
SPI: A
De Minimis: No
Origin Criteria: 35%, Substantial Transformation
MPF: Only Least Developed Beneficiary Countries Exempt
Countries: Multiple - Subject to Change. See GN 4a for more information.
Regulations: 19 CFR 10.171 – 10.178

Join us again next Tuesday when we discuss the Caribbean Basin Economic Recovery Act.

Can Your Copy Machine Keep a Secret?

Employees copy personal documents, such as tax returns and pay stubs. Doctors copy patient records. Engineers copy designs. Purchasing employees copy contracts and other technical documents. It’s just a part of doing business, so what’s the problem? The potential problem is the hard drive contained in most all digital copy machines manufactured since 2002. Unless your copy machine is equipped with an encryption package or your company arranges to have the hard drive scrubbed, every document that has been copied on the machine could be retrieved.

Many companies lease copy machines. When the lease is up, the machines are returned and sold. Where does the copy machine and your information go? Anywhere it wants to go! Just type “copy machine” in eBay and you’ll likely find more than 400 copy machines for sale. See the problem? The tax return you copied, your medical records and anything else that is copied could be viewed by anyone who removes that hard drive from the copier. So, what does this have to do with trade compliance? Confidentiality and Export Controls. A customs broker or importer might benefit from purchasing a copier used by a competitor. Think of the interesting client information and company secrets contained on that hard drive. What about export controls? What type of information could be “exported” to the purchasers of your old copy machine? When your leased machine is returned , it may be sold to a foreign company. It could be auctioned on eBay. As trade compliance employees, here are some questions to consider next time you use the copy machine in your office.

1. Does this machine contain an encryption package?
2. Is the hard drive scrubbed?
3. Who has access to the hard drive in this copy machine.
4. Where does the copy machine go when the company no longer uses it?
5. Do we copy sensitive documents on this machine?

Click HERE for an interesting report by CBS.

Participate in our Copy Machine Blog Poll found on the top right side of the page.

It's Time For A Change - Export Reforms

Just when the Wizard figured out when to consult the BIS and the DDTC along with the differences between the CCL and the USML, all the rules are going to change. While some might not be happy about all of the changes, others will probably find the consolidation much easier to understand.

This week, Defense Secretary Gates unveiled plans to simplify the export process by consolidating the export functions. This proposed unification would take place in three stages to allow for regulatory changes along with the required legislative approvals and other challenges.

The proposed reform includes changes to:

1. Export Control Lists
The Commerce Control List (CCL) would be combined with the U.S. Munitions List (USML)

2.Licensing
A single licensing agency would be created to have jurisdiction over defense and dual-use items and technologies.

3. Enforcement
A single agency would be created to enforce export controls currently shared by the Commerce Department, Department of Homeland Security and the FBI.

4. Information Technology
A new I.T. system would be implemented for licensing and enforcement.

While there are numerous hurdles involved in accomplishing these goals, the outcome should produce a more efficient trade friendly agency. The trade community should continue to watch for updates. The proposed reforms will affect the way companies do business. The new export process will require changes to procedures, internal processes, training and many other activities.

Trade Agreement Tuesday

Welcome to Trade Agreement Tuesdays! For the next 15 or so weeks, we will review the various free trade agreements and preferential programs.

Organizations often need to find ways to reduce costs involved in importing. One of the most obvious ways of reducing costs is finding lower-priced goods; however, there are other avenues to explore. The United States is a party to several programs designed to reduce and/or eliminate duties on certain merchandise from designated countries as well as provide benefits for exported products. Trade agreements are usually bilateral or multilateral. Bilateral agreements involve two countries, such as the U.S. - Chile, U.S. - Bahrain and U.S. Peru Free Trade Agreements. Multilateral agreements include more than two countries, such as NAFTA and DR-CAFTA.

Each program has different requirements regarding allowance of the special duty treatment. Some of these programs are subject to change. The potential for importing goods free of duty and saving your company money by using one of the free trade agreements sounds like a great solution. However, the agreements are quite complex and products must meet certain rules in order to qualify. It’s important for importers to understand the requirements for special treatment before making the claim. Making incorrect claims for duty-free treatment could result in unexpected costs, such as payment of additional duties and penalties.

Click HERE to view a timeline containing the various trade agreements and the dates of implementation.

We will take each agreement/program in order of implementation. Next week, we will begin our study with the Generalized System of Preferences.

Where Is My Shipment?

What happened to that special order of bearings we placed with our sister company in Germany last week? We requested that the bearings be shipped by air because our customer has a machine down and needs the bearings to put it back in service.

By now, even those who don’t watch television or read newspapers may be feeling the effects of the volcano eruption in Europe. The cloud of volcanic ash caused the closure of airspace in much of northern and central Europe. Thus, if you are expecting air cargo from countries such as Austria, Denmark, France, Germany, Netherland, Sweden or parts of Italy, you may be waiting a little longer. Looking at the list of countries, the closures affect the major air hubs in Europe. When the airspace is reopened, expect continued delays as the airlines work through the backlog. Contact your broker and/or freight forwarder for updates on specific shipments. For passengers traveling to and from Europe, be prepared for continued delays as well.

Trade Compliance News

Former Port Director Convicted

Lorraine Henderson, who was responsible for inspection and admission of foreign parties seeking entry into the U.S. and preventing entry of illegal aliens, was convicted for encouraging an illegal alien to reside in the U.S. while knowing it was in violation of the law. Henderson, the former port director of the New England area, employed an illegal alien to clean her home during her tenure as port director. Even after another CBP Officer warned Henderson in 2006 that she was employing an illegal alien, Henderson ignored the warning and continued the employment. Henderson faces up to 5 years imprisonment, 3 years of supervised release and a $250,000 fine.

Where Are TSA Uniforms Made?

TSA, Border Patrol, CBP and other law enforcement officers stand on the front line of America’s borders to protect U.S. citizens from terrorists and other “bad guys.” What happens if those uniforms get into the wrong hands? Could someone impersonate a government officer and make their way into the U.S.? Let’s hope that we don’t find out the hard way. Additionally, our taxes are paying foreign parties to manufacture the TSA uniforms. Tell me it’s not true! So, our tax money is being sent overseas and foreign parties are manufacturing the uniforms worn by the government agents protecting the U.S.? Bingo!

The “Berry Amendment” requires that military uniforms be made in the United States; however, this amendment only applies to the DoD and U.S. Coast Guard. In 2009, the "Kissell Amendment“was added to the stimulus bill, requiring that all Homeland Security uniforms be made in the U.S. However, some of the foreign countries affected were not properly notified so the Department of Homeland Security said it would allow the TSA uniforms to be made in one of those countries.

Obviously, these issues upset some of the U.S. textile manufacturers and taxpayers. However, there are some details of the contract that require a certain percentage of the uniforms to be manufactured in the U.S. Additionally, the patches and other emblems for the agency are not sourced from foreign countries or attached to the uniforms in these countries. Perhaps some of these details might help taxpayers feel better about how their money is being spent and the security of the uniforms.

Consider this possibility. If the U.S. importer is a member of C-TPAT, it's possible that the foreign factories may be as secure, if not more secure than some of the U.S. facilities. Government uniforms could be stolen from any location, regardless of the country.

The whole issue makes for a nice debate, so feel free to post comments and respond to the latest poll question.

Should the government require that Homeland Security uniforms be 100% made in the United States?

Click HERE to search opportunities to bid on government contracts and view contracts that have been awarded.

Internal Audit for FCPA Violations

With the increased discovery and prosecution of FCPA violations by U.S. companies, one such company voluntarily initiated an internal audit of its FCPA practices. In October, 2008, Avon disclosed its investigation to the Justice Department and the SEC. The investigation started with travel and entertainment expenses in China, but has expanded to other countries. Four executives have been suspended. Other countries have encountered FCPA issues in China – Daimler, Avery Dennison and UTStarcom. In light of these recent events and the potential penalties, here are some questions to consider.

· Is your company doing business with China?
· How strong is your FCPA program?
· Are transactions with China and other countries audited for potential FCPA violations?
· Would your company disclose violations if detected during an internal audit?

Note:

The comments to this posting reflect the views of the poster and not Boskage Commerce Publications. We cannot publish comments containing previously published content without attribution to the sources.

April 2010 Customs Broker Exam - Preliminary Answers-Updated!

***Exam Key Updated Monday April 12 at 5:30 PM***

Determining potential answers for the broker's exam questions after the test is different in a few key ways from taking the test, but none is more key than the fact that we have more than four hours. That means that we can take the time to research as much as we need to in order to get the most accurate (though still unofficial) document possible to all of you. Our first attempt may have some mistakes, but they will be corrected as new updates are posted.With that said, we're not finished yet -- BUT we do have most of them completed.

Click here for the preliminary unofficial exam answers.

No additional updates planned. Detailed commentary will be available soon for purchasers of the exam materials.

Note: Answers followed by "*" denote that there may be issues concerning the question and warrant additional investigation.

We'll post an update when the remaining answers are completed. As always, remember that these answers represent only our opinion. The official answers will come from Customs and Border Protection in a few weeks and will be posted on their site. In other words, we're probably answered the majority of the questions correctly, but these answers do not guarantee whether or not you've passed; it merely is presented as a helpful tool for broker students who are (quite understandably) eager to have any idea of where they stand.

If you would like to share your answers, explanations, questions, and other comments, we invite you to post them as comments to this blog; however, we ask that comments be professional and to the point. (emails sent directly to the Wizard may not be answered this week, so please use the comments!) Remember, we do not have the official answers. You’ll have plenty of time to argue with CBP if you disagree with their answers.

Happy browsing!

Exam Answers To Be Posted Soon!!!!!

We will try to post preliminary results between 1:00 and 2:00 p.m. eastern time. There may be a few questions that the Wizard has not answered in that preliminary batch, but at least 90% should be complete. Thanks for being patient.

April 2010 Exam Copy Received

We have a copy of the exam and the Wizard has started to work on it. We hope to have preliminary answers posted by Thursday morning. The Wizard isn't young any more and probably won't be able to pull an "all-nigher" to finish it. Besides, we want the best answers from the Wizard's fresh brain, right?

Enjoy your evening and visit us tomorrow afternoon. We'll also put out a "tweet" when the answers are posted!

p.s. Thank you to Greg Schulz and Ted Stimmel at Expeditors for supplying the copy of the exam!

Wanted: Customs Broker Exam Copy – April 7, 2010

Help!!!!!! In order for the Wizard to post “preliminary” exam answers, we need a copy of the exam as soon as possible on Wednesday afternoon. Most of you will be exhausted from the test and the first thing on your mind will be food, a nap or some other celebration. After you take care of those important needs, do we have any volunteers to scan and email the test or fax it Wednesday afternoon? Email would be best, but we’ll be happy with a fax too! The Wizard will start work on the answers as soon as a copy of the test is received.

Email: wizard@boskage.com

Fax: 269-673-5901

Eggs the Easter Bunny Can’t Bring to You

Why isn't it a good idea to import certain eggs?

If someone wanted to import the traditional hardboiled Easter egg, the answer to the question is simple – the eggs would be rotten and/or broken by the time they arrived. On the other hand, the importation of the plastic eggs is a booming business for seasonal importers. Imagine containers full of the colorful plastic eggs making their way into the U.S. However, there is one type of egg you won’t likely find in those containers…the Kinder Egg.

A Kinder Egg is a hollow chocolate egg that is about the same size as a hen's egg and packaged in a colorful foil wrapper. A colorful plastic capsule containing a small toy is found inside of the egg. So, the recipient gets two treats – a tasty chocolate egg and a surprise toy. Sounds good, so what’s so bad that the egg is banned in the U.S.?

First, the toy usually requires some assembly and the Consumer Product Safety Commission “CPSC” determined that many of the toys tested presented a choking hazard for small children.

Second, Section 402(d)(1) of the Federal Food, Drug and Cosmetic Act prohibits the embedding of non-food items completely enclosed inside food items, unless the non-edible part has a functional value. For example, the wood stick used in a popsicle is a non-food item, but it serves a purpose as a handle. Click HERE for a recent FDA Alert

The eggs are made in Germany, but often make their way into the U.S. by way of the Canadian border, the mail or by express carrier. Kinder Eggs can be found on Ebay too. The Wizard wonders if a CBP agent would pop out of the computer screen and slap the cuffs on or appear at your front door if you ordered these eggs. Not to worry, the Wizard is NOT curious enough to try it !

Happy Holidays!

Customs Broker Exam Study Tip 12: CBP Directives

For many years, the Customs Brokers Exam only required the use of the HTSUS and the CBP Regulations; however, in 2004, CBP expanded its scope of materials to include Customs Directives and other reference materials. These materials are important because they provide guidance on activities brokers perform that aren’t included in the regulations. Since their addition, these resources have comprised 8% to 10% of the total questions on the exam. Because of the number of resources, it’s difficult to predict specific areas for testing. The best thing to do is to study all of it. We’ve provided the key highlights for the four most frequently tested supplemental resources.

1. Instructions for Preparation of CBP Form 7501
Although most entry summaries are completed electronically, it’s important to have a good understanding of the information contained in this document. By reading these instructions, you can complete a CBP 7501 by hand without the assistance of a computer. You should keep this document handy and review all blocks because it has been one of the most frequently tested supplemental resources since the implementation of the new CBP 7501 format in September 2005. Become very familiar with each block number, so you can easily reference it. Block 2 (Entry Type Code) and Block 31 (Net Quantity) are easy targets!


2. CD 3510-004 - Monetary Guidelines for Setting Bond Amounts
The purpose of the bond is to protect the revenue and ensure compliance. The amount of a bond is calculated using information on the bond application, the criteria in Part 113 of the CBP Regulations and the guidelines in this directive. This directive provides standardized guidelines for computing the bond amounts for all types of bonds. For the exam, it’s important to know how to calculate single entry and continuous bonds.

The first type of bond is the Activity 1, Importer or Broker Continuous Bond. The minimum amount of a bond in this category is $50,000.

For importers paying zero to $1,000,000 in duties and taxes, the bond should be computed as 10% of the duties and taxes paid for the previous calendar year and issued in increments of $10,000.

For importers paying over $1,000,000 in duties and taxes, the bond should be computed as 10% of the duties and taxes paid for the previous calendar year and issued in $100,000 increments.

The next type of bond is the Activity 1, Importer or Broker Single Transaction Bond. This bond is valid for one shipment and is computed in an amount not less than the total entered value of the merchandise plus all duties, taxes and fees, unless the merchandise falls into a special category. If the merchandise is subject to other government agency requirements such as the FDA or FCC, the bond will be computed in an amount of at least three times the total entered value of the shipment. In addition, the district director may set the single transaction bond amount at 10 percent of the total entered value for unconditionally free merchandise, which is not subject to the previously mentioned categories.

Note:
Not all of the government agencies are included in the list that requires a bond in the amount of three times the value of the shipment. If your goods are not regulated by one of the government agencies on the list, then the single entry bond will be written for value plus duty.


3. CD 3550-055 - Instructions for Deriving Manufacturer/Shipper Identification
Questions involving the manufacturer’s identification code “MID” should be some of the easiest to answer. Not only does this directive provide instructions on how to construct the code, but the information is also included in the CBP Form 7501 Instructions. Just memorize the rules for deriving the MID.

This code is commonly referred to as the MID or Manufacturer Identification Code. This technique is also known as keylining. On the broker’s exam from October 2005, a question required knowledge of the term keylining.

Customs requires the formation of a code from the name and address of the manufacturer.
The MID contains five components that are added together without spaces to create the code. The code can be up to 15 characters in length. The five components consist of the following information:

· Two letter abbreviation for the country of origin
· First three letters of the first name of the manufacturer
· First three letters of the second name of the manufacturer
· First four digits of the street address, and
· First three letters of the city name.

There are some general rules to consider.

· Ignore all punctuation
· Ignore single character initials. and
· Ignore the words “a”, “an”, “and’, “of”, and “the”.


4. 3550-067 - Entry Summary Acceptance and Rejection
Customs Directive 3550-067 provides guidelines for uniform acceptance and rejection of entry summaries. Five major areas of interest in this directive include the following:

· Collections Processing – Rejections
· Acceptance Review and Summary Processing
· Processing of Rejected Entry Summaries
· Time Limit
· Rejection Effect on Entry Summary Filing Time

This information is a little more complicated to grasp, so read each of the major areas and highlight key information.

Although we didn’t cover all of the directives and supplemental materials, they are not any less important. Remember the advice from the beginning of the article - the best thing to do is to study all of it.

We welcome your comments on these suggestions and encourage you to add your own ideas to this forum so that other students studying for the exam can benefit from your experiences. Check the Boskage Trade News regularly to find more useful news for international trade professionals! As soon as the Wizard obtains a copy of the test and has time to work out some preliminary answers, we’ll post them here for your review and comments.