Ask the Wizard: Lessons on Liquidation

Each Friday, the Wizard joins us to share an answer to one of the questions asked during the week. This week we had several questions related to liquidation, so the Wizard wrapped them up into one neat little package for delivery to you. No CBP clearance required!

Question:

What is liquidation? How does it work and why should we care whether entries have liquidated?

In the midst of an economic crisis, the term “liquidation” might sound like something to be feared, but in reality, it is a good thing. “Liquidation” is a legal term that indicates all CBP requirements regarding an entry and the imported merchandise covered by it have been met. Liquidation indicates that the final computation of duties and review of the entry have been completed. Liquidation closes the entry unless post-entry issues are pursued or fraud is suspected.

Now that we have a definition, let’s see how the process works and why importers should care. The entry summary has been filed by the importer/broker, duties have been paid and the goods have been received. What else could be left for the importer to do? First, it is important to understand what is subject to liquidation. All entries covering imported merchandise except TIBs and transportation entries must be liquidated. In addition, the liquidation date for informal, mail and baggage entries will be

· The date of payment by the importer of duties due on the entry; or
· The date of release by CBP or postmaster when merchandise is duty free; or
· The date the free entry is accepted for articles released under special permit for immediate delivery under 19 CFR 142.

CBP will not send any special notification of the liquidation on an informal entry. It is up to the importer to keep track of liquidations and update whatever internal system is used to maintain the record of liquidations. For formal consumption entries, CBP will post the official notice in a conspicuous place in the Customhouse at the port of entry. The date of posting is the date the liquidation is effective. Brokers participating in ABI receive an electronic liquidation notice. Many brokers have systems that can transfer the liquidation data electronically to their importer clients or at least provide the data in report form. CBP will also try to provide importers with a “Courtesy Notice (CBP4333-A); however, this is an informal notice.

Liquidation normally occurs 314 days after the date of entry. Entries not liquidated within one year from the date of entry of the merchandise or date of final withdrawal of all merchandise in a warehouse, will be deemed liquidated by operation of law at the rate of duty, value, quantity and amount of duties provided by the importer at the time the entry summary was filed. As you would expect, there are exceptions to this rule. If the liquidation of the entry has been suspended or extended by CBP, liquidation will be delayed. Unless the liquidation of an entry continues to be suspended, any entry not liquidated within 4 years from the date of entry or final withdrawal of merchandise covered by a warehouse entry will be deemed liquidated by operation of law. If the liquidation continues to be suspended past the 4-year period, CBP must liquidate entries within 6 months following the suspension removed from Department of Commerce (DOC).

Why is the date of liquidation important? The date of liquidation is important because it triggers several deadlines. One of the most important deadlines is the time for filing a protest. If a protest is not filed within that 180-day window, the entry will be completely closed for review or change unless CBP suspects fraud. Now, the importer should watch for the liquidation. If the importer has flagged entries that require a protest, it becomes more important to monitor the liquidations. This can be done by a regular review of the incoming CBP 4333-A forms, reports provided by brokers and by requesting the broker to query the liquidation of the entry. Generally, the form or electronic data notifies you of the liquidation and nothing else needs to be done. If the form shows extension or suspension, you will want to find out why, unless you are already aware of the reason. If the form is pink, CBP disagreed with your estimated duty payment and requests additional funds. You may choose to accept their decision or to protest it. If you decide to protest their decision, you have 180 days from the liquidation date to do so. Payment must be submitted regardless of whether a protest is being filed. If the protest is successful, CBP will refund the money paid.

Finally, the importer may opt to file the courtesy CBP 4333-A documents with the entry. At the very least, the importer should make note of the liquidation or other status in the appropriate tracking system maintained by the broker. While importers may desire to destroy files that meet the “over 5 –year” criteria, it is important to determine the liquidation status first. If the file has not been liquidated, then the importer still faces some liability for the entry and destruction would not be the best option.

Do you have a question for the Wizard? Submit your question by clicking on the link in the space for “Ask the Wizard.” See you next Friday!

Should You Take Your Foreign Supplier to Dinner?

The dilemma of whether to take foreign suppliers to dinner is one that is not easily answered. It appears that the Foreign Corrupt Practices Act (FCPA) is waking up from a little nap. Ok, the FCPA has been around since 1977 and it has not actually been sleeping, but we are seeing more about it in the news. The Justice Department reports approximately 120 companies are currently under investigation. The FCPA came out of hibernation shortly after the scandal at Enron and the introduction of the Sarbanes-Oxley Act of 2002. (SOX). The FCPA prohibits improper payments to influence foreign officials who have the power to affect a company's business. Officials at the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have been aggressively pursuing more and more cases and obtaining results that include criminal fines, prison terms for individuals, and the return of monies obtained through illegal means. Because of the increased scrutiny by both the government and the press, many companies have placed more efforts on anti-corruption efforts.

The FCPA prohibits corrupt payments to foreign officials for the purpose of obtaining or keeping business. The provisions of the FCPA make it unlawful for a U.S. person to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. The provisions also apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. The purpose of the FCPA is to eliminate bribery of foreign officials, restore the public confidence in the integrity of American business, and change the way American firms do business.

Because of SEC investigations in the mid-1970's, over 400 U.S. companies admitted making questionable or illegal payments to foreign government officials, politicians, and political parties. Some of the payments were bribes of high foreign officials to secure some favorable action by a foreign government. Others were labeled as facilitating payments that were made to ensure that government employees performed their required duties.

It is important to understand the difference between a bribe and a facilitation fee. A bribe is the offering, giving, receiving, or soliciting of something of value for influencing the action of an official in the discharge of his or her public or legal duties. A facilitation fee or payment is one that is paid for routine governmental actions. The fee is paid to ensure that the government employees actually perform the task that they are legally obligated to perform. The fees may also be paid to expedite the process. Some of these fees include:

· obtaining permits, licenses, or other official documents;
· processing governmental papers, such as visas
· providing police protection,
· mail pick-up and delivery;
· providing phone service, power and water supply,
· loading and unloading cargo.

The bottom line is that a bribe could cost your company millions of dollars in penalties and send someone to jail and a facilitation fee will not.

Who is subject to the FCPA?

The FCPA applies to any individual, firm, officer, director, employee, or agent of a firm and any stockholder acting on behalf of a firm. Individuals and firms may also be penalized if they order, authorize, or assist someone else to violate the anti-bribery provisions or if they conspire to violate those provisions. U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in question, as can U.S. citizens or residents, themselves "domestic concerns," who were employed by or acting on behalf of such foreign-incorporated subsidiaries. The FCPA also prohibits corrupt payments through intermediaries. It is unlawful to make a payment to a third party, while knowing that all or a portion of the payment will go directly or indirectly to a foreign official. Intermediaries may include joint venture partners or agents.

The person making or authorizing the payment must have a corrupt intent, and the payment must be intended to induce the recipient to misuse his official position to direct business wrongfully or to provide to the payer or to any other person any improper advantage, or to induce a foreign official to use his or her influence improperly to affect or influence any act or decision.

The payment may be the actual payment, promising to pay, authorizing to pay or offering money or anything of value, including gifts or trips. The FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment, offer, or promise of payment. The FCPA prohibits payments made in order to assist the firm in obtaining or retaining business for or with, or directing business to, any person. The business to be obtained or retained does not need to be with a foreign government or foreign government instrumentality.

Best Practices

Is someone at your company violating the FCPA? How would you know? It is not likely that your co-worker is going to jump up and shout the he is bribing the customs officials in Brazil. In order to help companies maintain compliance with the FCPA, they should consider the following actions.

• Develop a policy consistent with the FCPA.
• Publish the policy in the employee manuals and on the company’s website.
• Provide clear guidelines for gifts, meals, entertainment, travel, donations and lobbying.
• Provide training for all employees and refresher training as needed.
• Establish and enforce similar guidelines for foreign branches, subsidiaries, etc.
• Use due diligence when selecting business partners that act as intermediaries.
• Establish a compliance monitoring program.
• Disclose any violations to the DOJ.

Before taking that foreign supplier to a fancy dinner or slipping some cash under the table, consider what that dinner might actually cost you and your company. In December 2008, a fine of $800 million was imposed on a large multinational company. Not only could your company incur a hefty penalty payable to the U.S. government, but also the cost of rectifying internal corruption could exceed the amounts paid in penalties.

Trade Terms Tuesday

Welcome to Trade Terms Tuesday! Each Tuesday we will share three trade-related terms. In order to reach out to our diverse readership, we will try to provide one for exports, one for imports and one for logistics/transportation. This week, we continue with the E’s.

Export
An export is defined as any item that is sent from the United States to a foreign destination. “Items” include commodities, software or technology, clothing, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages, and technical information. Items can be sent by regular mail or hand-carried on an airplane. Items may be sent via facsimile to a foreign destination, software can be uploaded to, or downloaded from, an Internet site, or technology can be transmitted via e-mail or during a telephone conversation. Regardless of the method used for the transfer, the transaction is considered an export for export control purposes.

Explanatory Notes
Issued by the World Customs Organization (WCO), the Explanatory Notes provide detailed information, chapter-by-chapter; heading-by-heading, of what is included in and excluded from various sections, chapters, and headings in the HTSUS. Explanatory Notes are not part of the legal system; however, they do represent the views of classification experts.

Express Courier
An express carrier Transportation carrier, usually an airline, offers expedited delivery of small packages and documents and provides CBP clearance through the use of hubs, onsite CBP officials, and special entry processes.

Non-Dutiable Components of Valuation: Duties & Taxes

For the last few months, we have devoted Monday’s blog to issues related to valuation of imported merchandise. Last week the blog addressed post importation charges. The answer to last week’s question can be found at the end of this article. This week, we will look at the non-dutiable components, customs duties and taxes.

Part 152.103(j)(2) explains that transaction value can be reduced by an amount equal to the customs duties and other federal taxes currently payable on the imported merchandise if these amounts are included in the value. In addition to the customs duties, amounts for merchandise processing and harbor maintenance fees may also be deducted if they are included. State sales taxes cannot be deducted. Only the actual duties, not the estimated duties, are excluded from the value. HQ 546111


Example:

Jetson receives an invoice that includes the value of the merchandise and the U.S. customs duty. The total value of both of these amounts is shown to be $12,500. The duty rate for the merchandise is 7.5%. Since customs duties are not part of the price paid or payable, they may be deducted from the value. In order to deduct the duty, the value containing both the duty and value of merchandise must be divided by the duty rate. The resulting amount will be the entered value for CBP.

$12,500 /1.075 = $11627.91
(Value + Duty) / Duty Rate = Entered Value

$11627.91 x 7.5% = $872.09
Value x Duty Rate = Duty

$11627.91 + $872.09 = $12,500
Value + Duty = Original amount of invoice (which included value and duty)


Question

What is the transaction value of a shipment invoiced at $100,000 if the terms of sale are Delivered Duty Paid (DDP), the Ocean Freight paid is $6,000, the insurance paid is $850, the Duty Rate is 6.5%, and a Harbor Maintenance Fee and Merchandise Processing Fee are paid at .125% and .21% respectively?

A. $93,600
B. $87,191
C. $86,765
D. $100,000
E. $87,465


The answer will be provided next Monday when we continue to discuss the topic of valuation. We will wrap up our discussion of valuation in June. If you have any valuation topics you would like to see discussed here, please submit your request as a comment to this post or to the Wizard’s Corner.


Answer to Post Importation Question – Monday May 18, 2009

Without Deduction
$500,000 x 5% = $25,000

With Deduction
$500,000 – $25,000 = $475,000 x 5% = $23,750

Savings
$12,000 – $23,750 =$1250

Ask the Wizard: Denial of License

Each Friday, the Wizard joins us to share an answer to one of the questions asked during the week.

Question:
Will a bad credit score prevent me from obtaining my license?

While it is impossible to answer this question with a 100% guarantee, a low credit score will not automatically preclude someone from obtaining a license. A bankruptcy might throw up a little flag for additional investigation. The primary concern is whether an applicant has a history of fraud or could be susceptible to pressures that make them more likely to assist in smuggling, defrauding the U.S. government or compromising national security. Your local port office may be able to provide some additional information. Click HERE for a list of these ports.

While we are on this topic, it is a good time to discuss other issues that might prevent an applicant from obtaining a license. Part 111.16 provides a broad list of reasons a license might be denied. Some people worry that an arrest that happened years ago might keep them from obtaining a license. It all depends on the nature of the arrest. Arrests or convictions do not necessarily preclude the issuance of a license; however, lying on the application or to a CBP officer will kill the chances of obtaining the license. Even if you think the officer won’t find out, do not lie on the application or any document associated with the application. This includes verbal statements made to any CBP officer. Do not omit information. The regulations are clear on making false statements and omitting required information. As an example, an agent asked a person applying for a license about drugs. The person did not tell the agent about being caught with a small amount of marijuana when he was 18. It was not the drugs that caused the denial, but the failure to tell the agent about it. Lying or omitting relevant facts demonstrates dishonesty and lack of integrity and moral character. Review the list of actions that can cause denial or revocation of a license in 19 CFR 111.16 and 19 CFR 111.53. Please, do not be tempted to omit facts or not tell the whole truth when completing the application or talking with the agent during the interview. Think about how hard you worked to pass the exam and take the right path, the one that will lead you to the license you have earned.

Do you have a question for the Wizard? Submit your question by clicking on the link in the space for “Ask the Wizard.” Maybe the Wizard will have a question for the blog readers next week. See you next Friday!

Customs Broker License Exam - Individual Eligibility Requirements

Almost a year ago, we posted an article about the proposed changes to the eligibility requirements for taking the Customs Broker Exam. The purpose of the proposed amendments is to align the requirements for taking the written examination with the requirements an individual must satisfy in order to obtain a customs broker's license. Notice of Public Rulemaking and Comment was published in 73 FR 30328 on May 27, 2008. The final rule is expected to be published in June this year. While the changes might delay some potential exam applicants, the overall impact is expected to be minor since all applicants would be required to satisfy the requirements before obtaining the license.

The following changes would be made to 19 CFR 111.13.

Sec. 111.13 Written examination for individual license.

(b) Basic requirements, date, and place of examination.

In order to be eligible to take the written examination, an individual must be a citizen of the United States on the date of examination and not an officer or employee of the United States Government, and attain the age of 21 prior to the date of examination.

To view the comments submitted by the public, visit the Federal eRulemaking Portal and view Docket Number USCBP–2008–0059. Watch Boskage Trade News for updates on the final rule in June!

Trade Terms Tuesday

Welcome to Trade Terms Tuesday! Each Tuesday we will share three trade-related terms. In order to reach out to our diverse readership, we will try to provide one for exports, one for imports and one for logistics/transportation. This week, we continue with the D’s.

Denied Persons List (DPL)
The Bureau of Industry & Security maintains the DPL, a list of persons and business entities to which U.S. Exporters may not ship goods. Exporters are responsible for checking this list to ensure that all export transactions are properly authorized.


Duty Drawback
Duty Drawback is a process that allows a refund of all or part of customs duties paid on imported merchandise, which is subsequently exported. Exporters of rejected or unused imported goods, or goods manufactured with imported components may receive a refund of 99% of duties paid against those components upon exportation of the goods. The purpose of drawback is to encourage American exports and manufacturing. The drawback regulations are found in 19 CFR 191.


Dead Heading
Operation of a vehicle without a load of cargo is called dead heading. The term is used most frequently in the trucking industry to refer to the return trip from delivery of cargo or driving an empty to a location to pick up cargo. Deadheading is avoided when possible for cost efficiency and maximization of resources.

Non-Dutiable Components of Valuation: Post Importation Charges

For the last few months, we have devoted Monday’s blog to issues related to valuation of imported merchandise. Last week the blog addressed packing, a dutiable component of valuation. The answer to last week’s multiple-choice question can be found at the end of this article. This week, we will look at post importation charges as non-dutiable components.

19 CFR 152.103(i) provides a list of items that should be excluded from transaction value. When occurring after importation, the following constitute items that are not part of transaction value; however, the costs of these items must be identified separately.

• Construction
• Erection
• Assembly
• Maintenance
• Technical assistance
• Transportation after importation
  

Example
Tin Man Industries imports special metalworking machinery from Sammy Scarecrow for $500,000. In order to learn the proper methods of operating the complicated machinery, Tin Man’s employees require on-site training. The cost of this training, $25,000, is included in the value of the merchandise; however, if the cost is identified separately, then the training expenses will not be included in the transaction value. These fees are considered for "the construction, erection, assembly or maintenance of, or the technical assistance provided with respect to, the merchandise after its importation into the United States."


Question
Assume the duty rate of the machine in the previous example is 5%. How much does the importer save by being able to deduct the cost of the training expenses?

The answer will be provided next Monday when we continue to discuss the topic of valuation.



Answer to Packing Example – Monday May 11, 2009

Answer B
The shipping cartons and individual boxes are packing and the value of $1,500 is dutiable. Since these cartons are sufficient for international transportation and vacuum packaging is not necessary, the costs of $2,000 are extra and do not need to be included in the dutiable value. It does not make any difference that the invoice was submitted separately.

Ask the Wizard: Exam Q36

Each Friday, the Wizard joins us to share an answer to one of the questions asked during the week. Once again, the majority of questions asked this week involved the Customs Broker Exam.

Question:
Has anyone questioned #36? The answer given is B, but classification 8523.52.0000 does not exist in the HTS.

Answer B is correct. HTS 8523.52.0000 is found in Supplement 1 to the 2008 Harmonized Tariff Schedule of the United States. In the 2009 edition of the HTSUS, 8523.52.000 was changed to create two classifications, 8523.52.0010 and 8523.52.0090. This is an example of the importance of using the exact editions of the reference materials provided in the Notice of Examination posted by CBP. Another example of the importance of reading the Notice of Examination is the addition of Parts 200 to the End of Title 19, Code of Federal Regulations. Several examinees were surprised to see questions about antidumping on the April 2009 Exam.

It is possible to pass the exam using other editions; however, the chances of missing a few questions due to changes in those reference materials increase. For those who are studying for the October 2009 Exam, pay close attention to the required edition of the Regulations. Part 149, Importer Security Filing was added in 2009. If CBP lists the April 2009 edition of the CFR, then people using the 2008 edition will not have Part 149 to help them answer any questions that might be asked on the Importer Security Filing regulations.

Do you have a question for the Wizard? Submit your question by clicking on the link in the space for “Ask the Wizard.” Maybe the Wizard will have a question for the blog readers next week. See you next Friday!

CBE Appeal Checklist

As the excitement and anticipation fades, some of you may be thinking about appealing your exam score. If you appeal your CBP Exam score, it is important to follow CBP’s appeal requirements. CBP will reject the appeal if it:

• is incomplete, is untimely, or is in the wrong format.
• includes any arguments written by another person.
• does not provide supporting arguments.
• argues for an answer the applicant did not select.
• contests an incomplete erasure or insufficient marking on the applicant’s answer sheet.
  

CBP will provide to the examinee written notice of the decision on the appeal. If the CBP decision on the appeal affirms the result of the examination, the examinee may request review of the decision on the appeal by writing to the Secretary of Homeland Security, or his designee, within 60 calendar days after the date of the notice of that decision. 19 CFR 111.13(f)

The most frequent question we hear is “when will CBP notify me if they accept my appeal?” Unfortunately, there is no magic answer for that question. People who have shared their experiences lead us to believe that you are not likely to receive an answer before the date of the next exam. This could be frustrating because if your appeal is approved, it may not be necessary for you to take the next exam. However, if you appeal is not approved, you may want to take the next test while the information is still fresh.

Save yourself some time and expense by submitting your very best arguments the first time. To help you submit an appeal that complies with CBP requirements, we have created the CBE Appeal Checklist. Be sure to review each item and place a check mark next to the individual requirements.

Trade Terms Tuesday

Welcome to Trade Terms Tuesday! Each Tuesday we will share three trade-related terms. In order to reach out to our diverse readership, we will try to provide one for exports, one for imports and one for logistics/transportation. This week, we continue with the C’s.


Commerce Control List (CCL)
Included in the Export Administration Regulations, the Commerce Control List identifies all dual-use commodities, software, and technologies subject to the export licensing process as well as the conditions under which those commodities, technologies, and software may be exported.

Carnet
A carnet is a customs document that allows the holder to carry or send goods into certain foreign countries temporarily without paying duties or posting bonds. A carnet serves as both the entry document and a CBP bond.

Currency Adjustment Factor (CAF)
The CAF is an ancillary freight surcharge or adjustment imposed by a carrier to offset foreign currency fluctuations. The CAF is usually a percentage of a published rate. While freight rates are normally fixed for a specified period, the CAF is subject to daily revisions based on the fluctuation of currency.

Dutiable Components of Valuation: Packing

For the last two months, we have discussed issues related to valuation of imported merchandise. Last week the blog addressed assists, a dutiable component of valuation. The answer to last week’s multiple-choice question can be found at the end of this article.

Packing costs are defined as "the cost of all containers (except instruments of international traffic) and coverings of whatever nature or materials used in placing merchandise in condition, packed and ready for shipment to the United States." Packing costs are dutiable, and must be included in the value of imported merchandise. Packing costs are dutiable whether they are itemized separately on the invoice, or paid to the seller under a separate invoice. See 19 CFR 152.102(e).

The following are considered examples of dutiable packing:

• Using Cardboard boxes, Styrofoam, and pallets.
• Hanging of garments in a container
• Attachment of hangtags or price tickets; however, if supplied by a U.S. party, they may be eligible for duty-free treatment.

Extra packing that is not necessary to put the merchandise in condition ready for export is not dutiable. If a cardboard box is sufficient, but the importer also wants the goods vacuum packed, the cost for vacuum packing is not included in transaction value.

To test our understanding of this concept, let's take a look at an example.

Roller Company manufactures ball bearings that are sold to Bearings R’ Us for $300 each. Bearings R’ Us ordered 1500 ball bearings and was invoiced $450,000. Bearings R’Us requested that the ball bearings be vacuum packed before being placed in individual boxes for placement in the final cardboard box for shipping. Because of the additional packing, Roller Company submitted the invoice for the bearings showing $450,000 with the shipment and sent a separate invoice for the packing after the shipment was on the water. The separate invoice showed $1,500 for the shipping cartons and individual boxes and $2,000 for the vacuum packaging for a total of $3,500. What value should duty be calculated on?

A. $450,000
B. $451,500
C. $452,000
D. $453,500
E. None of the above.

The answer will be provided next Monday when we continue to discuss the topic of valuation.

Answer to Assists – Monday May 4, 2009
The answer is C. The value of the molds used in the production of merchandise supplied free of charge is dutiable, along with the cost of transportation of the mold from Taiwan to Japan. The value of the drawings is not dutiable since they were created in the U.S.

Ask the Wizard: Exam Pass Rates

Each Friday, the Wizard joins us to share an answer to one of the questions asked during the week. Since the majority of questions asked this week involved the Customs Broker Exam, the Wizard decided to respond to one of the questions related to the exam.

Question: What is the typical percentage of pass rate? Is 15% high, low or average?

The quick answer to the question is that 15% is slightly better than average. Using the pass rates for exams given in the last five years (April 2004 – October 2008); we find the average pass rate to be 14%. Keep in mind that CBP has not released the exact percentage for the April 2009 exam and 15% was their best estimate at the time. The actual pass rate may be a little higher or lower. Over the last 10 exams, the lowest pass rate was on the October 2005 exam, which had a 4% pass rate. The highest pass rate was on the October 2006 exam, which earned a 25% pass rate. Going back a few more years, we find that the highest pass rate of 52% came from the October 2001 Exam and the lowest at 3% from the April 2002 exam. There is no way to predict whether one test will be harder than another will. Don’t put many hopes in the rumors that circulate about how if the pass rate on the last exam was very low, the next test will be very easy and vice versa. The bottom line is that the test is difficult; otherwise, the pass rate would average a lot higher than 14%. With true dedication to your studies and use of the study methods that work best for your learning style, you can be part of that 14% and help push that percentage higher!

Do you have a question for the Wizard? Submit your question by clicking on the link in the space for “Ask the Wizard.” See you next Friday!

Unofficial Pass Rate for April Exam

Although CBP released the answers to the April Exam, the official pass rate has not been calculated. The unofficial estimate is around 15%, but CBP hopes to have a more accurate number late next week or the following week. While it’s nice to know the pass rate, most people want confirmation that they have actually passed the exam.

Since CBP gave credit to everyone for three questions, don’t expect to find many protest questions on this exam. The Wizard found two, possibly three that might be suitable, but even those might be a stretch depending on your original answer. Check the blog and comments to see what others are saying about the exam and share your thoughts with us too!

CBP Posts April 2009 Exam Results!

For all of you who have been patiently (or not so patiently) waiting on the results of the April 2009 Customs Broker Exam, the results are posted on the CBP web site. Thank you to the anonymous commenter who alerted us that the results were posted this afternoon! Results are mailed to individuals and should be in your mailboxes in the next 7 to 14 days. Some ports also call people, so you may receive a phone call.

For those of you who purchased the Boskage Study Plans that included the detailed exam commentary, we’ll be completing that information and posting it soon. Some of you will be very excited that CBP gave credit to everyone for three questions (6, 75 & 76). Look for upcoming articles and discussions on protesting questions on the exam. Congratulations to all who passed!

CBP Updates Informed Compliance Publications

Customs and Border Protection has been busy reviewing and updating the Informed Compliance Publications this year. Although CBP only added one new publication this year, 16 were reviewed and/or updated in 2009. Here’s a brief overview of the new publication along with a list of the publications that have been reviewed.

New
Coastwise Trade: Merchandise – January 2009
The purpose of this publication is to identify and explain the laws and regulations related to coastwise transportation of merchandise, so that the trade community is informed of its legal obligations. Coastwise transportation of merchandise takes place when merchandise laden at a point, included in the coastwise laws, is unladen at another coastwise point, regardless of the origin or ultimate destination of the merchandise. For example, a coastwise transportation occurs when merchandise is loaded onto a vessel in Los Angeles and moved to Portland, where it is unloaded. The publication summarizes the “Jones Act,” CBP Regulates, Exceptions and Waivers as related to coastwise trade.

Reviewed & Revised
· Base Metal Mountings and Fittings – Revised April 2009
· Eyewear Frames and Eyewear – Revised April 2009
· Fibers and Yarns – Revised February 2009
· Internal Combustion Piston Engines – Revised April 2009
· Vehicles, Parts and Accessories Under the HTSUS – Revised April 2009


Reviewed w/No Changes
· Agglomerated Stone – Reviewed March 2009
· Buttons, Snap-Fasteners, Slide Fasteners and Similar Articles – Reviewed March 2009
· Classification and Marking of Watches and Clocks – Reviewed April 2009
· Classification of Cooking Ranges, Stoves and Ovens - Reviewed April 2009
· Decorative Glassware - Reviewed March 2009
· Diodes, Transistors and Similar Semiconductor Devices - Reviewed March 2009
· Distinguishing Bolts from Screws - Reviewed March 2009
· Household Articles of Base Metal - Reviewed With No Changes February 2009
· Personal Digital Assistants (PDAs) and Electronic Organizers - Reviewed April 2009
· Table and Kitchen Glassware -Reviewed March 2009

Click HERE to access these publications.

Trade Terms Tuesday

Welcome to Trade Terms Tuesday! Each Tuesday we will share three trade-related terms. In order to reach out to our diverse readership, we will try to provide one for exports, one for imports and one for logistics/transportation. This week, we continue with the B’s.


Bureau of Industry & Security (BIS)
As part of the Department of Commerce, the Bureau of Industry & Security (BIS) has oversight for regulation of exports and issues of national security and technology. In addition to evaluating and issuing licenses for export and re-exports of goods and technology, the agency strives to protect the national security and stop proliferation of weapons of mass destruction. Activities include enforcing export regulations (EAR), anti-boycott and public safety laws, providing ECCN assistance, determining commodity jurisdiction and issuing licenses for certain goods.


Buying Commission
A buying commission is a component of valuation and consists of any monies paid to the buyer’s agent, who is controlled by, or works on behalf of the buyer. The most important distinction between buying and selling commissions is the amount of control exercised by the importer over the agent. The more control a buyer has over a "buying agent," the more likely it is CBP will find that a bona fide buying agency relationship exists.


Backhaul

The backhaul is the portion of a transportation trip that returns the carrier’s equipment to the origin point. The backhaul can contain a full, partial, or empty load. An empty backhaul is called deadheading.

Dutiable Components of Valuation: Assists

An “assist” is anything of value that the buyer provides to the seller, either directly, or indirectly, and free of charge, or at a reduced cost and used in connection with the production or the sale for export of the merchandise to the United States.

The CBP Regulations, 19 CFR 152.102(a)(2), define assists as:
1. Materials, components, parts, and similar items incorporated in imported merchandise.
2. Tools, dies, molds, and similar items used in the production of the merchandise.
3. Merchandise consumed in the production of the imported merchandise.
4. Engineering, artwork, design work and plans, and sketches that are done somewhere other than in the U.S., and used in production of the imported merchandise.

Note: No work provided in (4) will be treated as an assist if the work:

a. Is performed by an individual domiciled in the U.S.
b. Is performed by that individual while acting as an employee of the buyer.
c. Is incidental to other engineering, development, artwork, design work, or plans or sketches that are undertaken in the U.S.

Assists are considered dutiable components; therefore, the value of any assist must be added to the invoice value if not already included. Part 152.102(a)(3) provides the methods for determining the value of an assist. The important thing to remember is that regardless of where the assist originates, transportation costs to the place of production by the manufacturer are part of the value of any assist. Part 152.103 (e) explains the methods for apportioning the value of assists to imported merchandise. The total value of an assist may be apportioned over:

· The number of units produced with the assist on each shipment.
· The number of units produced up to the time of the first shipment, or,
· The entire anticipated production.
· Other methods subject to GAAP and approved by CBP.

To test our understanding of this concept, let's take a look at an example.

Totally Teevee, the importer, purchases a mold in Taiwan and ships it to Japan for use in manufacturing LCD televisions. The value of the mold is $50,000, and the transportation costs from Taiwan to Japan were $1,500. An engineer working for Teevee in the U.S. designed the new televisions and the drawings, valued at $1,000 were sent via express courier to the Japanese manufacturer at a cost of $30. Teevee decided to declare the entire cost of the mold on the first shipment. The invoice from the Japanese manufacturer stated only the value for the televisions ($1,250,000) and did not include the mold or drawings. What is the dutiable value for the imported merchandise ?

A. $1,250,000
B. $1,300,000
C. $1,301,500
D. $1,301,000
E. $1,302,530
F. None of the above

The answer will be provided next Monday when we discuss another dutiable component of valuation.

Kirk Supports Export Growth

On April 23, 2009, the newest U.S. Trade Representative, Ron Kirk, delivered a speech concerning trade policy at the Georgetown University Law Center in Washington, D.C.

With millions of Americans unemployed during this economic crisis, many think that reduction of trade would lead to more jobs and improve the U.S. economy. However, Kirk indicated that prior to the recession, expansion in exports accounted for almost half of America’s overall GDP growth. Kirk stated, “An aggressive effort to keep trade flowing and open more markets to American goods and services absolutely must be a big part of our economic recovery here at home. To get our economy back on track, we need to increase exports.” Kirk pledged to support export efforts by small and medium-size American companies.

Some of the suggestions Kirk provided for creating a trade policy that improves the U.S. economy include:

· Finding opportunities to open new markets for American goods and services.
· Promoting economic development – by supporting trade with poorer developing countries.
· Supporting the global rules-based trading system.
· Identifying barriers to U.S. market access, determining which barriers to trade cost America the most jobs and opportunities, and going after those trade barriers.
· Strengthening support for American workers when trade takes a negative toll.
· Enforcing trade agreements and helping to protect American workers who lose jobs because of trade.
· Supporting expansion and improving Trade Adjustment Assistance in the American Recovery and Reinvestment Act.
· Completing the three trade agreements with Panama, Columbia and South Korea
· Ensuring Congress and the public have access to better information about America’s trade efforts.

Click HERE to read the full text of Kirk’s speech.

CBP Warning on E-Mail Scam

On April 24, 2009, CBP posted a notice on their web site that malicious e-mails claiming to be from U.S. Customs and Border Protection and a being circulated. These emails may have subject lines with text similar to “Parcel Requires Declaration” or “Your Consignment,” and reference packaged or other items that are being held by CBP. Variations of these messages may include an attached file which contains a damaging computer virus.

These e-mails are not authentic and have not been sent from the Department of Homeland Security or any CBP authorized system or individual. CBP does not contact individuals by e-mail for customs declarations issues. If you have received a similar e-mail message, do not open any attachments or click on any links contained in the emails. Do not respond to, or otherwise contact the sender or provide any information requested.

Please report the occurrence to the United States Computer Emergency Readiness Team (US-CERT) on the Report Phishing page.

If you believe you are the victim of this scam or other Internet crime, or if you are aware of an attempted crime, you can file a complaint with the Internet Crime Complaint Center.

CBP Launches Broker Self-Assessment Pilot Program

On Monday, April 27, 2009, U.S. Customs and Border Protection announced the launch of the Broker Self-Assessment (BSA) Outreach Pilot.

Similar to the ISA, brokers participating in the BSA must commit to update and improve internal controls, perform periodic testing of these internal controls, and disclose to CBP deficiencies discovered through the testing. The primary goal of the pilot is to foster a higher level of broker compliance with CBP laws and regulations, and identify and facilitate low risk trade.

In order to be eligible to participate in the BSA Pilot, a licensed customs broker must:

1. Be a licensed customs broker for a minimum period of five years.
2. Be a member with full benefits of the CTPAT.
3. Agree to comply with all applicable CBP laws and regulations.
4. Work in an automated environment through the Automated Broker Interface and the Automated Commercial Environment.
5. Possess a broker national permit.
6. Have and maintain a system of business records that demonstrates the accuracy of CBP transactions.
7. Complete a BSA Pilot Questionnaire and agree to:

• Continue to maintain and update its internal controls;
• Perform periodic testing of its internal control system based on risk;
• Make appropriate adjustments to the internal controls system with an eye toward improvement;
• Inform CBP of deficiencies identified in periodic testing using voluntary disclosures permitted under the BSA Pilot

Applications to participate in the pilot program will be accepted through May 27. After the application period closes, CBP will review the applications and select a limited number of participants representing key sectors of the brokerage community or whose structure and processes present potential challenges. All brokers meeting the requirements are encouraged to apply, as CBP will be seeking a representative group of small, medium and large organizations.

Additional information can be found in the Federal Register.

Trade Terms Tuesday

Welcome to Trade Terms Tuesday! Each Tuesday the blog will feature three trade-related terms. In order to reach out to our diverse readership, we will provide one for exports, one for imports and one for logistics/transportation. This week, we start with the A’s. Even though we have three different terms this week, the terms are somewhat related because they all represent an electronic process.


Automated Export System (AES)
The Automated Export System (AES) is the electronic method used to transmit the required export information and manifest information directly to Customs & Border Protection. Prior to AES, the declaration was submitted using the paper, Shipper’s Export Declaration (SED). AES was designed to assure compliance with and enforcement of laws relating to exporting, improve trade statistics, reduce duplicate reporting to multiple agencies, and improve customer service. Penalties may be imposed for incorrect submissions.


Automated Commercial Environment (ACE)
The Automated Commercial Environment (ACE) is the new account-based processing system designed to consolidate and automate border processing to enhance border security and foster our Nation's economic security. ACE supports account-based import processing. Customs and the trade are able to use ACE to facilitate processing and analysis of entry activities in the aggregate rather than on a transaction-by-transaction basis. ACE reduces labor-intensive efforts and improves compliance efforts for both brokers and importers. ACE improves communication between CBP and the trade community, allows the trade to access their own trade data, and allows for sharing information with other government agencies.


Automated Manifest System (AMS)
The Automated Manifest System is an electronic cargo control and release notification system for air, sea, rail and truck carriers. AMS is used for cargo inventory control and cargo release notification. AMS interfaces with Customs Cargo Selectivity and the In Bond System, which expedites the flow of cargo and entry processing and provides participants with electronic authorization to move cargo. AMS also reduces the need for paper documents and expedites the processing of manifest and waybill data, thus allowing cargo to move from one point to another in less time. The National In Bond System, incorporated within AMS, provides a means of tracking and transporting merchandise from one port to another within the United States.

Components of Valuation

For almost two months, we have been discussing valuation of imported goods. Now that we’ve discussed the various methods of valuation, we’ll look at the various components of valuation.

You may remember reading that transaction value is the price paid or payable for the imported products. Sounds simple, right? Well, it does provide us with a basis to start, but now we must determine if the "price paid" actually includes everything that is required. Then we must also determine if there are items included that could be deducted. Why would we want to do this? Why can't we just take the value on the sheet of paper and use it? The short explanation is that the price paid may not include items that must be included in order for the value to be reported according to CBP requirements. If we fail to add these required items, then the value is understated and CBP will not collect the correct amount of duties. Undervaluing merchandise means CBP collects LESS duty than required and being cheated out of monies will not make CBP happy. Then again, you probably wouldn't be too happy if your employers didn't pay you the proper amounts. Many of the valuation components fall into the categories of dutiable or non-dutiable. Some of these components fall into only one category, while others may fall into both, depending on how the transaction is structured. This article introduces you to the concepts of dutiable and non-dutiable components to value. Over the next few weeks, the articles will cover some of these components in more detail.

Dutiable Components

What costs are considered dutiable? Although transaction value may seem to be the price actually paid or payable for the merchandise, there are often arrangements between the buyer and seller that include supplementary agreements which can affect transaction value. Take a close look at the invoice to determine if dutiable components have been properly included. If not, then their values must be added. What are some of these dutiable components?

· Assists provided by the buyer
· Packing costs incurred by the buyer
· Selling commissions incurred by the buyer
· Repairs and warranties
· Proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly, to the seller


Non-Dutiable Components

Transaction value of imported merchandise should not include any of the following if identified separately from the price actually paid or payable. We refer to these items as the non-dutiable components.

• International transportation costs
• Cost of transporting the goods after they have been imported
• International insurance
• Cost of any prepaid customs duties and other federal taxes
• Costs of constructing, erecting, assembling, maintaining, or providing technical assistance for goods after importation into the U.S.
• Buying Commissions

Next Monday we will start to explore the dutiable components. Join us tomorrow as we start a new series called "Trade Term Tuesdays."

Don’t Leave Home Without It!

Effective June 1, 2009, the WHTI (Western Hemisphere Travel Initiative) will require all persons to present a valid passport when entering the United States by land or sea. The documentation requirements for air travel have been in effect since January 2007.

The Western Hemisphere Travel Initiative (WHTI) requires U.S. and Canadian travelers to present a passport or other document that shows identity and citizenship when entering the U.S. The goal of WHTI is to facilitate entry for U.S. citizens and legitimate foreign visitors, while strengthening U.S. border security. Standard documents will allow the Department of Homeland Security to quickly and accurately identify parties entering the U.S. Military personnel traveling under orders may present photo id and orders. Family members must present a passport (with the exception of children 15 and younger arriving by land or sea). If traveling from outside the Western Hemisphere, all U.S. citizens MUST present a passport, including children and infants.

On June 1, 2009, U.S. citizens returning home from Canada, Mexico, the Caribbean or Bermuda, by land or sea, will be required to present one of the travel documents listed below. Many of these documents are already available, and obtaining one now will ensure that you are ready on June 1, 2009, when they will be required.

U.S. Passport – This internationally recognized travel document verifies a person’s identity and nationality. It is accepted for travel by air, land and sea. The cost is $100 for persons age 16 and older, valid for 10 years for adults and issued by the U.S. Department of State.

U.S. Passport Card – This new, limited-use travel document fits in your wallet and costs less than a U.S. Passport. It is only valid for travel by land and sea. The cost is $45 for persons age 16 & older, valid for 10 years for adults and issued by the U.S. Department of State.

Enhanced Driver’s License (EDL) – Several states and Canadian provinces/territories are issuing this driver’s license or identification document that shows identity and citizenship. It is specifically designed for cross-border travel into the U.S. by land or sea. Currently, New York, Vermont and Washington issue the EDL.

Trusted Traveler Program Cards – NEXUS, SENTRI or FAST enrollment cards can speed entry into the U.S. and are issued only to pre-approved, low-risk travelers. The cards are valid for use at land crossings or sea ports; the NEXUS card can be used in airports with a NEXUS kiosk. Each card is issued by CBP and valid for 5 years. Costs range form $50 to $122.

Special Groups – Specially designated groups have different requirements. These groups include children, Native Americans, cruise ship passengers, U.S. lawful permanent residents, ferries and small boats and boaters.

With the new requirements taking effect at the start of prime travel time, it is anticipated that summer trips across the border may decrease as a result of the new requirements. Coupled with the slow economy, the financial impact is likely to be felt the most by popular tourist areas on either side the Canadian border. Don’t take the chance that your summer vacation could be ruined. Apply for the proper documents today!

Is It Time To Increase Informal Entry Amount?

Recently, members of the newly organized Express Association of America made a request to CBP to increase the current informal entry amount as well as the §321 (de minimis) amount for express couriers. This proposal has numerous potential benefits and very few drawbacks. Some of the benefits include the ability to:

· Redirect CBP resources to focus on security related issues and other high-risk areas.
· Improve productivity for both the trade and CBP.
· Subject fewer shipments subject to time-consuming process of formal entry.
· Reduce paperwork.
· Expedite delivery.
· Reduce MPF payments for shipments (other than express courier) currently falling in the $2,000 to $2,500 range.

Although a small benefit for the trade, the one potential drawback for CBP would be reduced collection of Merchandise Processing Fees. For shipments entered by parties other than express couriers, informal entries are subject to a cap of $2 per entry, whereas the MPF on a $2,000 entry would be $25. Thus, CBP would lose $23 per entry for those entries currently falling between $2,000 and $2,500. Informal entries processed by express couriers are subject to different calculations based on the number of air waybills in 19 CFR 24.23(b). To measure the potential for lost revenue for other shipments, CBP would need to determine how many entries fall within that range and multiply that number times $23. To determine the costs and benefits, CBP would need to take that loss of MPF revenue and weigh that amount with the ability to redirect resources, increased productivity due to reduced investment of time and other potential benefits.

Why wouldn’t CBP want to grant this request? By law, CBP has the authority to do so. As part of the Customs Modernization Act, Congress gave CBP the authority to increase the informal entry amount from $1,250 to $2,500; however, CBP only increased the amount to $2,000 in 1998. According to the Bureau of Labor Statistics Inflation Calculator, an article that cost $2,000 in 1998 would cost $2,609.93 in 2009. Thus, raising the informal entry limit to $2,500 would help bring the amount in line with inflation that occurred since the limit was last increased in 1998.

Maybe other trade associations should join the EEA and make their wishes known. Since the government is providing stimulus funds to financial institutions and other types of businesses, perhaps this could be the government’s stimulus contribution to the trade.

How Much Could Importers Pay for ISF Violations?

Even though CBP is not issuing penalties related to ISF until January 2010, the trade continues to speculate how enforcement will be structured. While all of the articles on the subject indicate that importers will be subject to liquidated damages penalties of $5,000 per violation, it is still unclear as to what constitutes a violation. CBP provides some guidance in the ISF FAQ posted on their website. When asked if there could be multiple violations on one ISF, the following answer was given: “While there may be multiple errors on an ISF transmission, CBP will issue liquidated damages for $5,000 for each ISF transmission that is not timely, complete and/or accurate.” Right away, we see that there could be more than one penalty issued for a single shipment since the ISF could be filed untimely and it could contain errors. Ouch!

Remember, the ISF Importer is ultimately responsible for the timely, accurate and complete submission of the ISF filing. Who is the ISF importer? Part 149.1 of the CBP Regulations states: “For purposes of this part, ‘Importer Security Filing (ISF) Importer’ means the party causing goods to arrive within the limits of a port in the United States by vessel. ISF Importer will be the goods' owner, purchaser, consignee, or agent such as a licensed customs broker.” If the importer enlists the services of a broker to file the data and an error is made or the data is not filed timely, which party gets the penalty? Similar to filing entry documentation, the importer is ultimately liable for the accuracy of the filing. Therefore, the importer could be liable for a minimum of $5000 per filing. Consider a worst-case scenario. The ISF data is not filed timely ($5,000), the first transmission contains an error ($5,000) and the second transmission to fix the first one contains an error. ($5,000). In this situation, it appears the importer could be responsible for $15,000 in penalties for one filing. Hopefully, the chances of this scenario occurring in actual practice are slim. It would not be a happy surprise for importers to receive a penalty letter containing a bill for $15,000. To reduce the chances of penalties, importers and agents should work very closely to reduce the potential for any errors. Additionally, the trade should consider working together with CBP to find a more palatable penalty structure.

Valuation and the Customs Broker Exam

As we continue our series on valuation, this week we will address one of the difficult questions from the April 2009 Customs Broker Exam. Valuation questions included on the exam are usually difficult. The key to answering Question 76 on this exam is knowing what components can be deducted and in what order.

Note: This is not the official answer to Question 76, but an attempt to analyze the question and provide a starting place for discussion.

Question 76
Select the correct answer for calculating the transaction value of a shipment with details as follows:

• $1,750,000 entered amount
• CIF New York Duty Paid, MPF included
• Price includes $25,000 ocean freight, $25 marine insurance, $1500 trucking freight (New York to Baltimore, MD), $100 broker fee in Baltimore, $100,000 customs duties and fees.
• The actual duty rate is 6.5%
• The actual MPF rate is 0.21%

Potential Answers:

A. TV = entered amount minus ocean freight, marine insurance, trucking freight, and customs broker fee; add MPF and 6.5% duty.

B. TV – entered amount minus ocean freight, marine insurance, trucking freight and customs broker fee. Divide remainder by 1.0671. Multiply the remainder by .0021. Subtract $485from the entered amount minus the authorized deductions. Divide the remainder by 1.065.

C. TV = entered amount minus ocean freight, marine insurance, trucking freight, maximum MPF, and 6.5% actual duty rate.

D. Divide out the actual duty rate, and then subtract the ocean freight, marine insurance, trucking freight and customs broker fee.

E. TV = entered amount minus ocean freight, marine insurance, and trucking freight fee and divide by 1.06701, multiply by .0021 for actual MPF; subtract MPF as allowed from the entered amount minus deductions and divide by 1.065 to yield Transaction Value.

Let's determine the status of each component.
1. 25,000 freight - not dutiable [152.102(f)]
2. $2500 insurance - not dutiable [152.102(f)]
3. $1500 U.S. domestic transportation - not dutiable [152.103(i)(1)(ii)]
4. $100 broker fee - not dutiable [152.102(f) - related services]
5. Duties - not dutiable [152.103(i)(2)]
6. MPF - not dutiable [152.103(i)(2)]

Answer A is incorrect because duty and MPF are deducted, not added.
Answer C is incorrect because the brokerage fees should be deducted. This would be the second best answer.
Answer D is incorrect because duty should not be divided out on the amount that includes freight and insurance since these two items are non dutiable and their value should not be included in the amount duty is calculated on. Answer E is incorrect because the brokerage fee should be deducted before calculating the duty.
Answer B is the best answer, as explained below.

Deduct the ocean freight, insurance trucking freight and broker fee. Then divide the remainder by the duty and MPF rate. Since the maximum deduction for MPF is $485and this amount is met due to the value, only $485 should be deducted and then the duty can be deducted.

$1,750,000 - $25,000 - $2,500 - $1,500 - $100 = $1,720,900
$1,720,900/1.0671 = $1,612,689
$1,612,689 x .0021 = $3,386.61 MPF = $485 Max MPF

Go back to the value determined after deducting freight, insurance, trucking and broker fee:
$1,720,900 - $485 = $1,720,415

Calculate Duty Deduction
$1,720,415/1.065 = $1,615,413

Now that the Wizard has provided some thoughts on the potential answer to this question, we would like to hear from our readers. Is this explanation correct? Is there a better answer? We are looking forward to some great discussions on this issue, so please respond with your thoughts and answers for this question.

Latest News on ISF

From its introduction, the ISF has been a hot topic with importers, brokers, carriers and other members of the trade. Now that the trade is submitting the data elements, ISF still receives a lot of recognition in the news. To keep you updated on some of the new information, we have provided a list below along with a link to more detailed information.

1. RLF Eligibility – Entry/entry summary data can be transmitted using the RLF Prototype.

2. New Part Added to the CFR – Part 149 Importer Security Filing has been added to the CBP Regulations.

3. CBP Presentation – CBP posted a detailed PowerPoint presentation on ISF.

4. CBP Outreach – CBP has been conducting meetings with the trade in various cities all year. intended to give the importing and filing community a basic understanding of how to fulfill the new requirements. The next session will be held in Detroit on April 22. Dates for Atlanta, GA and Norfolk, VA will be announced soon.

5. ISF Performance Reports - CBP is ready to send out the Importer Security Filing (ISF) Performance Reports to filers, who may redistribute relevant portions to individual importers.


Tell us what you think about ISF and share your best practices, questions and other comments with other blog readers.

Check Your Marine Insurance

Until recent events, most of us probably thought pirates were a major league baseball team or something to see at the movies. Guess what? Pirates are alive and well in the Gulf of Aden. Things did end badly for three of the pirates when the Navy snipers killed them during their rescue of Maersk ship captain, Richard Phillips, but why does this concern importers and exporters? The answer is simple, marine insurance. "Premiums are going to go up because the pirates are going to become a little more vicious and hold out for more money," states Paul Keane, a partner at Cichanowicz, Callan, Keane, Vengrow & Textor LLP, who specializes in maritime cases. As evidenced this week, the pirates have become more violent.

With increased incidents of hijacking and violence, the marine insurance risks increase. Ship owners are being forced to carry more insurance and are bound to pass this cost on to their customers. Many importers and exporters also carry insurance on their marine cargo and those rates will rise. Now is the time to do a little checkup on your insurance coverage. Contact your broker, insurance carrier, or other party responsible for procuring marine insurance to find out more about how the pirates will cost your company more money.

Click HERE for a list of marine insurance companies and more information about maritime law.

Methods of Valuation: Prohibited Valuation

We want to thank our loyal readers who indulged us last week as we took a break from our regular blog schedule to post and discuss answers to the most recent Customs Broker Exam. Now, we'll return to our study on "Methods of Valuation." Last week we discussed computed value and derived value. Now that we have covered all of the acceptable methods of appraisement, we will finish this series with a list of methods that are prohibited.

Imported merchandise may not be appraised on the basis of:

a. Selling price in the U.S. of merchandise produced in the U.S.
b. A system that provides for the appraisement of imported merchandise at the higher of two alternative values.
c. The price of merchandise in the domestic market of the country of exportation.
d. The cost of production, other than a value determined under 19 CFR 152.106 for merchandise that is identical merchandise or similar merchandise to the merchandise being appraised.
e. The price of merchandise for export to a country other than the U.S.
f. Minimum values for appraisement.
g. Arbitrary or fictitious values.


Example:
Broker receives an invoice consisting of 5000 chainsaws valued at $20 each for a total of $100,000. In addition, the invoice includes 5 chainsaws and 10 blades free-of-charge. Broker calls Importer and requests values for the free-of-charge items. Importer tells Broker that all of the free-of-charge items are worth $1.00 each because Importer is not required to pay Seller for them.

This is clearly an example of an "arbitrary or fictitious" value. Regardless of the nature of the transaction between Importer and Seller, CBP requires the true value for all merchandise entered into the commerce, not just some arbitrary number. Failure to provide CBP with accurate valuation information will be considered a violation of the "reasonable care" standard and will subject the importer to penalties.

Next week we will start a series covering the various “components” of valuation.

Preliminary Answers for the April 2009 Exam

UPDATE: FULL COMPLETE COPY OF THE WIZARD'S ANSWERS NOW POSTED.

As many people sit on pins and needles waiting to see the answers posted for the most recent Customs Broker’s Exam, our very own Wizard has taken the exam and provided a list of possible answers and related regulations where the answers were found. Since we just received the exam this morning, the Wizard has not had time to complete all of the answers, so we are posting what the Wizard has completed today. We will post the remaining answers on Wednesday.

We invite you to post your answers, explanations, arguments and other comments. Obviously, Boskage Commerce Publications cannot guarantee the accuracy of these answers since CBP has the one and only answer key, but the Wizard has an excellent record of achieving a score of better than 90%.

Click HERE to view an complete copy of the Wizard’s answers for the April 2009 Exam!

NOTE: IF YOU ARE NOT SEEING THE COMPLETE ANSWERS, YOUR WEB BROWSER PROBABLY HAS THE OLD DOCUMENT CACHED AND IS NOT DISPLAYING THE NEW DOCUMENT.

IF THIS IS THE CASE FOR YOU, PLEASE HIT THE "F5" BUTTON TO RELOAD YOUR BROWSER'S CACHE.

April 2009 Exam Copy Received

We received a copy of the April 2009 Customs Broker Exam this morning and the Wizard just started to work. We will try to post preliminary answers (or whatever we have by then) by the close of business at 5:00 p.m. EST.

April 2009 Exam Needed

Does anyone have time to send a copy of the April 2009 Customs Broker Exam that was given today? The Wizard was hoping to work on it tonight so the preliminary answers could be posted on Tuesday. If you have a copy to send us today before 7:00 EST, please send by fax or email to the following:

Attention: Wizard
FAX: 269-673-5901
EMail: inquiries@boskage.com

Methods of Valuation: Computed Value

Welcome back to our series on "Methods of Valuation." Last week we discussed “Deductive Value.” This week we will look at Computed Value and Derived Value.

Computed Value
Computed value is the fifth method of valuation. If it is inappropriate to use any of the other methods, then computed value must be used. Computed value combines the value of the materials and other components of the imported merchandise in order to arrive at a value.

The computed value of imported merchandise is the sum of:

• Cost or value of the materials and the fabrication and other processing of any kind employed in the production of the imported merchandise (cost will not include taxes if the tax is refunded upon exportation);

• An amount for profit and general expenses equal to that usually reflected in sales of merchandise of the same class or kind as the imported merchandise that are made by the producer in the country of exportation (Based on the producer's profit and general expenses, unless the producer's profit and general expenses are inconsistent with the usual sales of merchandise of the same class or kind.);

• Any assist, if its value is not included above; and

• Packing costs.

Note:
Computed value may be used before deductive value if requested by the importer and approved by CBP. This election must be made at the time of entry. For an example, read ruling HQ 546735.

Example 1:
General expenses include items that are not allocatable to the production of goods such as:

• Administrative salaries
• Casualty and liability insurance
• Advertising costs
• Salesman's commissions and expenses

Example 2:
Computed value includes the amount equal to the apportioned value of any assists used in the production of the imported merchandise. The value of any engineering, development, artwork, design work and plans and sketches undertaken in the United States will be included in computed value only to the extent that their value has been charged to the producer.


Derived Value
Derived value, also known as the “fallback” method, is the sixth and final method of valuation. If all other methods are inappropriate, then derived value must be used. Derived value determines the dutiable value using a combination of the other five methods, and allows for the value to be "reasonably adjusted to the extent necessary."

Next week, we will complete this series on Methods of Valuation by presenting Prohibited Methods of Valuation.

Pack Your Bags: The Custom Broker Exam Checklist

With the exam just a few days away, it’s time to start thinking about what to pack for the exam. You will be using most of your resource materials up until the day before the exam, so it’s impossible to pack them in advance of the actual test. However, you can use the practical checklist we’ve created to make sure that you have everything on the list packed in your heavy-duty tote bag, large cardboard box or other container the night before the exam. If you are like most people, you may be a little nervous prior to the exam so you don’t want to run the risk of forgetting something important or being late because you couldn’t find your calculator, pens or other materials. Packing everything on your checklist the night before will help you relax and reduce unnecessary stress.

Click HERE to view and print your Customs Brokers License Exam Materials Checklist. You can customize this list to add specific items that you plan take to the exam. No matter what you plan to take, make sure to use the checklist to ensure you have each item packed and ready to go the night before the exam. Remember, electronic devices such as laptops and cell phones are prohibited.

Bureau of Census & Department of Defense

For the past few weeks we have introduced government agencies that regulate exports. Last week we introduced the S. Department of State – Directorate of Defense Controls. This week’s spotlight is on the Bureau of Census and Department of Defense.

Bureau of Census
As part of the Department of Commerce, the U.S. Census Bureau's Foreign Trade Division (FTD) is responsible for collection, processing and disseminating statistical data related to the United States’ trade (imports and exports) with foreign countries. In addition, Census issues the regulations for export reporting, oversees the Automated Export System (AES) and provides free filing access for the required information through AESDirect. Census does not issue licenses or “authorizations to ship product.”

A wide variety of trade statistics and information about the export regulations, AES and AESDirect, is available on the Census Bureau’s website. The data collected by the Census Bureau is considered confidential; therefore, it is illegal for information from individuals to be released. Data based on the items that are traded instead of the companies or individuals doing the trading is available. The information collected via AES is provided to BIS and DDTC for export control purposes.


Department of Defense
The Department of Defense (DoD) has oversight of the Army, Navy, Air Force, Marine Corps, as well as non-combat agencies such as the National Security Agency and the Defense Intelligence Agency The mission of the DoD is to provide military forces to deter war and to protect the security of the U.S. Working with the Department of Homeland Security, the DoD seeks to fight terrorism. To that end, the DoD reviews a certain percentage of export licenses issued by the Department of State. A key objective of the agency is to prevent certain technologies from falling into the wrong hands.

Customs Broker Exam Study Tip 11: Free Trade Agreements

With the increase of free trade agreements between the U.S. and other countries, the number of questions on the CBE related to these agreements has increased. In fact, “Trade Agreements” often has its very own section of questions on the exam. Free Trade Agreements (FTAs) are international agreements made between two or more nations that relate to common trade or service issues. FTAs reduce or eliminate all tariffs and other restrictions on substantially all the trade in goods between its member countries based on country of origin.

The information needed to answer questions about (FTA’s) is likely to be found in one of three places, the General Notes of the HTSUS, Chapters 98 an 99 of the HTSUS and 19 CFR Part 10. Memorize the titles of these General Notes and skim the text to become familiar with the topics covered in each. In your review of the programs, concentrate on the basic requirements such as tariff shift, de minimis and RVC requirements. Each program has different requirements regarding allowance of the special duty treatment, and some of these programs are subject to change. Most of these programs have very detailed requirements that must be met in order to claim the duty-free status. Additionally, these programs are often difficult to understand and some have limited use in daily practice. Don’t be too overwhelmed when encountering these problems. If they appear too difficult, move on and come back to them later.

Don’t overlook important terminology. Be sure to know the definitions for each of the following:

• Accumulation
• Direct Cost of Processing
• De Minimis
• Imported Directly
• Transshipment
• Regional Value Content RVC
• Tariff Shift
• Substantial Transformation

To view a list of the FTA’s, the references to the HTSUS General Notes, SPI and CFR references, click HERE.

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 for more helpful hints on studying for the Customs Broker Exam and other useful news for international trade professionals!

International Trade Compliance Circus

Wednesday is “news day” for the Boskage Trade News Blog. While reviewing the news for something worthy to print, the Wizard came across an article about the trade circus. Ok, the article was really about the “trade caucus,” but the Wizard was tired and visions of a trade circus danced in my head. With the state of the economy, the circus might be the only thing we can afford this year, so join me as we take a quick trip to the International Trade Compliance Circus.

Welcome to the International Trade Compliance Circus – you will never think of trade compliance in the same way again! The Ringmaster for the day is the Commissioner of U.S. Customs & Border Protection. He (or she) will be assisted by many officers who will be happy to assist you during your visit. First on our program for the day is the 10 + 2 ISF Elephant. ISF weighs 12000 lbs, so be careful to follow our instructions and she will not crush you. Next up, we have Lacey the Lion. Do not place any valuable body parts in her path if you want to keep them. The last importer foolishly tried to ignore her and was penalized an arm and a leg. For those of you who have been compliant this year, we will reward you with some free C-TPAT peanuts at the concession stand. If you look up, you will find a group of AES Acrobats demonstrating their skill, agility and coordination while walking the tight rope and swinging from the trapeze. Hang on tight – if they make a mistake it could cost them dearly. You cannot have a circus without the clowns and jugglers. Due to the economy, we have had to lay off our jugglers, but we have the clowns standing in to demonstrate the proper way for trade compliance departments to work and play well with others. To your left, you will see volunteers who are taking a break from studying for the Customs Broker Exam to be given next week. They are standing next to the CBE Cannon that is going to give them a ride on a cannonball. Next, you will experience a little magic as DOC and DOS make some license requests disappear. As a finale to our show, we will be drawing names out of the Ringmaster’s top hat for parting gifts to some of our guests. If your ticket number is called, please step right up and pick up your penalty notice. Penalties may be paid to the cashier at the exit.

We hope you have enjoyed your trip to the International Trade Compliance Circus! Please come back again. For a real treat, visit the Ringling Brothers and Barnum & Bailey website. Happy April Fool’s Day!