It’s How Much in Duty?

Many importers believe mistakenly that the price of their goods is simple to determine: cost of goods (manufacture plus materials), general expenses, profit, duty and fees. What happens when the duty bill turns out to be higher than anticipated and the goods are already sold? This can happen in three common ways:

(1) the importer did not know that there was anti-dumping duty on the products imported;
(2) the importer brought the goods in conditionally duty-free under a duty preference program, but then the duty-free treatment was denied by Customs and
(3) the importer misclassified the products.

How do we avoid these problems? Due diligence and internal controls.

First is the situation where an importer ships goods that are subject to an anti-dumping duty order (ADD) and the importer did not realize it at the time of entry. How can this happen? Here is an example. There is an ADD order on petroleum wax candles from China. An importer contracts with a Chinese manufacturer for soy wax candles, assuming that soy wax candles are outside the scope of the ADD order. Post entry of the soy wax candles, Customs sends a CBP Form 28 Request for Information, asking for a sample and description of the candle. Customs tests the sample and determines that the candles are 99% soy wax and 1% petroleum wax. Because the candles contain petroleum wax, and are Chinese-origin, they are subject to ADD.

You may ask how this happened. The importer relied on the manufacturer’s oral guarantee that the candles were 100% soy wax. However, the importer never tested the candles prior to importation—he simply accepted the manufacturer’s statement. The importer should have tested the candles prior to importation to ensure that they were 100% soy wax. If the importer knew that they were not 100% soy wax, he could have (1) priced the candles to account for the ADD, (2) sourced the candles from a different country or (3) prepared and submitted a scope ruling request to the Department of Commerce to try to obtain a ruling stating that candles that contain only 1% petroleum wax, which is considered de minimis, should not be within the scope of the order.

Next is the situation where an importer brings the goods in duty-free under a duty preference program, but then the duty-free treatment is denied by Customs. Let’s say the importer is a jewelry company that sources jewelry in India. Some jewelry imported from India is conditionally duty-free under the Generalized System of Preferences (GSP).

Customs issues a CPB Form 28 Request for Information, asking for an explanation of the manufacturing process in India, including information about where the gold is sourced and the processing steps taken in India. The jewelry company cannot obtain this information from the Indian manufacturer. Customs denies the GSP claim. Jewelry that was duty-free under GSP is no longer entitled to the duty preference and thus, the importer must pay duty on the imported jewelry. The importer could have avoided this situation had the company obtained the proper records from the manufacturer at the time it purchased the jewelry. Recordkeeping is an important part of good internal controls.

Last is probably the most common situation—the importer misclassified the goods. A supplier of rolls of polyurethane misclassified the goods, thinking the goods were duty-free only to find out after the goods were imported and sold that they were classified under a different provision that had 6.5% duty. The potential liability is large: (1) the importer owes duty plus interest on the previous entries; (2) the importer may be subject to penalties and (3) the goods have been sold and thus, the importer cannot recoup any of the increased duty costs.

This can occur when an importer does not conduct annual internal reviews of the company’s import operations and does not conduct regular post entry reviews. Both annual review and post entry reviews are considered best practices by Customs and are a necessary part of the exercise of reasonable care.

Don’t be surprised and find yourself asking, “It’s how much in duty?”

Ask the Wizard: Where Can I Find Antidumping Information?

Each Friday, the Wizard joins us to share an answer to one of the questions asked during the week. This week, we had an interesting question about identifying goods subject to antidumping and/or countervailing duties.

Question:
How can I find out if my product is subject to antidumping and/or countervailing duties since the HTSUS does not provide this information?

Wow, this is a great question with a variety of solutions. If you are familiar with the classification process, you know that the Harmonized Tariff Schedule published by the United States International Trade Commission does not provide a list of HTS numbers that are subject to ADD or CVD cases. So, where is this information hiding? Is it some big secret? No, it is just a matter of doing a little detective work to find what you need. Brokers have the ability to obtain information by using ABI to query antidumping/countervailing duty cases by case number, International Organization for Standardization (ISO) country code or tariff number. Thus, our first option is to ask our broker to query ABI and provide a list.

The International Trade Administration and International Trade Commission have made the job easier by publishing a couple of useful lists on their websites. The lists can be accessed using either the ITA or the USITC websites. The first list, which is actually found on the USITC website, consists of an Excel spreadsheet that contains the case numbers, order dates, products and countries. The nice thing about this list is that it is short and can be sorted to find cases by country or product. If you need more detail about a case, then the second option, published by the ITA, allows you to search by country. Click on the country and then the product to obtain more detail.

These are a few of the quick ways to find out which products require antidumping and countervailing duties. In fact, Boskage has just developed an advanced HTSUS research tool at www.bcpsource.com, which (among many other helpful tools) brings all of these antidumping elements together in an easy-to-use format. Click here to sign up for a free trial!

Although most of our processes are moving to the electronic environment, the spreadsheet is an excellent quick reference tool to get you started. There is another option; however, we would NOT recommend that you try this one. You can stick your head in the sand, pretend your product isn't subject to antidumping and wait for CBP to send you a bill. With all of the better options we provided, there is no longer any need to hide from antidumping or countervailing issues.

Do you have a question for the Wizard? Submit your question by clicking on the link in the space for “Ask the Wizard.” The Wizard will be enjoying a long Thanksgiving weekend next Friday, so look for the next question and answer session on Friday December 4th.