Importing

• The country of origin of a product refers to as the “economic nationality” of the article you are importing.
• • The country of origin is not necessarily the same as the country from which you are purchasing the product, even if the product was made in that country.
• The country of origin can affect, among other things, admissibility, the application of preferential tariff rates, eligibility for special programs, marking requirement or the addition of retaliatory tariffs based on anti-dumping, countervailing and other trade protection needs (e.g.,  the 15%-25% tariff imposed in the U.S.-China trade war).
• All imports (or their packages/containers) must, unless specifically exempted, be marked in a manner that will indicate the article’s country of origin to the ultimate purchaser.
• Determining origin may be simple in the case of goods that are “wholly obtained” – i.e., grown, produced or manufactured – in a county, but it can be more complex where you are looking to sell a product that contains components from one or more countries.
  • Some free trade agreements – e.g., USMCA – may include specific rules of origin in order to benefit from duty-free access.
• The country of origin determination is very fact-specific.  U.S. Customs and Border Protection (CBP) relies on a body of court decisions, CBP regulations and agency interpretations to determine the country of origin of imported products.
  • Your customs broker – or your logistics provider’s customs broker – should be able to help with this.
  • You may ask CBP for a binding ruling on the country of origin.
    • A binding ruling is not a court process.  Effectively, it involves asking CBP a question and they will provide an answer that is binding on them (as opposed to a customs broker providing the answer, which is usually technically correct but with which CBP can disagree).

NOTE: it is important to determine the tariff code before committing to purchase a product, as this will have a major determinant effect on your costs (including duties payable and the conditions for entry into U.S. commerce).

• The U.S. subscribes to the Harmonized Tariff Schedule of the United States (HTSUS) to classify goods for the purpose of assessing duties. The schedule’s assigned tariff classification code impacts the rate of duty applied.
• You can perform an online search the HTSUS.  However, for many products, it is best to work with an expert – your customs broker or that of your logistics provider – as the rules can be very complex.
  • If you are buying a product that is generally available, the manufacturer may be able to help with this as the first six digits of the tariff code are universal throughout the world.
  • You can contact a U.S. Customs and Border Protection (CBP) import specialist at your local port of entry for a list of local customs brokers.
  • CBP maintains Centers of Excellence and Expertise for certain sectors (e.g., pharmaceuticals or agricultural products).
  • You may find relevant information on the CBP Customs Rulings Online Search System (CROSS).
  • If the product you are purchasing or manufacturing abroad is novel, it may require a classification ruling from CBP.
    • If you need a binding ruling on the classification, you will need to provide detailed information on the product.
      • While the ruling is binding, it is only as good as the information you provide to CBP.  That is to say, if you provide incomplete or erroneous information in your submission, then the ruling may not apply.

• Once you know the tariff code, you can find the tariff rate through an online search the HTSUS.
• • To determine the applicable tariff rate, you will need to know the country of origin.
    • Country of origin will be particularly important for determining whether the article is subject to preferential tariff rates (i.e., lower rates or duty-free).
  • The duties you will pay are based on the “dutiable value” of your merchandise.
    • This is basically the price that you paid for the articles, but it is not always the same as the invoice price.
    • If they are not already included in the invoice price of the good, then the “dutiable value” will also include:
      • Packing costs
      • Any selling commission you paid
      • Any royalty or license fees you paid
      • Proceeds of subsequent resale that you pay to the seller (e.g., if you pay $1 initially for the product and you agree to pay $0.25 per unit for each unit sold in the U.S., then the $0.25 per unit would be added to the price in determining the dutiable value)

(This list is not comprehensive but serves to illustrate some of the additional items that may be added to your invoice price when calculating duties to be paid.  Your customs broker will be able to provide a more complete answer based on your unique situation.)

• • Low value (“de minimis”) shipments – i.e., those valued at $800 or less – will enter the U.S. duty-free.
• You will also need to determine whether you goods are subject to a quota.
  • There are three types of quotas: absolute, tariff-rate, and tariff preference level.
    • Absolute quotas impose a strict limit on the quantity or volume of goods that may enter the United States over a specific period.
    • Tariff Rate Quotas (TRQs) permit entry for a specified quantity or volume of merchandise to be entered at a reduced tariff rate during the quota period. Once the tariff-rate quota limit is reached, goods may still be entered but at a higher rate of duty.
    • Many Free Trade Agreements (FTAs) and other special trade legislation establish Tariff Preference Levels (TPLs) that CBP administers like tariff rate quotas.
  • Determining whether your import is subject to a quota is not always simple.
    • It is in the HTSUS, but that online document is very dense and it is easy to miss if you do not know what you are looking for.
    • A good solution is to contact a customs broker, a CBP import specialist at your local port of entry or a CBP Center of Excellence and Expertise.
• You may also need to confirm whether the product is subject to any countervailing (CV) or anti-dumping (AD) duties.
  • AD and CV duties are country or company-specific.
  • These duties are imposed to ensure fair trading in the United States: CV duties are imposed to offset subsidies provided by foreign governments, and AD duties are imposed to ensure that companies (or countries) are not selling products in the United States below fair market value.

• Depending on the product being imported, there may be specific import procedures imposed by Partner Government Agencies (e.g., USDA, FDA, EPA).
• Imported products need to meet the same regulatory requirements as any other like product manufactured in the United States.
• The following is not a comprehensive list, but following are sites with information on the regulation of many common products:
  • Animal and Veterinary Products
  • Automotive Parts
  • Consumer Products
  • Cosmetics
  • Firearms
  • Food Safety – USDA (basically safety of meat, poultry and egg products)
  • Food Safety – FDA (safety of all other food products)
  • Medical Devices
  • Organic Products
  • OSHA Standards (for products used in the workplace – e.g., safety shoes)
  • Pesticides
  • Pharmaceuticals
  • Tobacco Products
  • Toxic Substances
  • You can also try an online search for “[product name] regulation” or “[product name] compliance requirements” for more information.
  • SCORE Orlando may be able to assist you with understanding the regulations that govern the sale of your imported product.
  • It is always safest to consult with an attorney with knowledge of local, state and federal regulations and standards for your product in order to ensure your product will be in compliance with them.
• You also will need to ensure that your product is properly packaged and labelled for sale in the United States.

After identifying the product, you want and the conditions that will apply to importing it, you will need to find a supplier.  International sourcing in many ways is not very dissimilar to sourcing domestically, though the investment may be greater.

The first issue to address is whether you are looking for an off-the-shelf product or looking for a manufacturer to make your product or component for you based on your specifications or design.  Once you make that decision, the search to find a supplier or manufacturer will be relatively similar.

• You will need to determine what method of payment you will want to use and that the seller will accept.  In descending order of security for your business are:
  • Consignment of your goods – i.e., where you do not pay until you sell the goods – is a great option for you.  However, this is very risky from the seller’s perspective, as you will have possession of the goods and they do not know when they will be paid.
  • If you already have an ongoing relationship with your foreign supplier, then cash against documents (CAD) may be an option.  Open account provides the most security for you and the greatest risk for your supplier.  Under this method of payment, you will pay your supplier after receipt of an invoice, usually after you have taken delivery of the goods.  (Terms may also provide for payment after 30, 60 or 90 days after receipt of goods.)
  • A documentary collection may be useful for ongoing business relationships where your supplier does not need the protection (and expense) of a Letter of Credit (LC).  Under this arrangement, the bank holds the shipping documents against payment, i.e., you cannot take delivery of the goods until after you pay for them at the bank.  However, the banks do not verify the documents and do not guarantee payment as they do with LCs (which is slightly risker for your supplier as you can decide to cancel the sale even though the shipment has already entered the U.S.).
  • A letter of credit (LC) is a payment mechanism under which your bank (the “issuing bank”) guarantees payment when the documents required by the LC are presented.  LCs are generally pretty secure for your supplier, but they are also the most expensive form of payment (due to fees paid to the various banks involved).
  • Many sellers – and all online retailers – want payment by cash in advance.  This presents the greatest risk to you as it requires paying for goods before they are received.

• You will also need to consider in what currency you will pay for your imports.
• • You may have no choice but to buy in the local currency, particularly if you are buying in small volume or from a small online retailer that is not set up to accept payment in foreign currencies.
• Paying in U.S. dollars is the safest way to ensure you get the return you want on your sale.
  • However, this transfers the foreign exchange risk to the seller, who also is likely to want to be paid in their own currency.
  • For that reason, the seller will likely charge a premium to cover their currency-related risks – or potentially to profit from buyers’ desire to pay in their currency.
  • Paying in the local currency therefore may provide an opportunity for you to lower your costs.
• The constant fluctuation in the value of currencies in world markets may give rise to concern.
  • There are many sites online that will help convert currencies at the going rate – e.g., xe.com or Oanda
• However, you can avoid these fluctuations and arrive at predictable costing (in U.S. dollars) by using foreign exchange derivatives to hedge your currency risk.
  • Note that these derivatives come at a cost, which needs to either be factored into the price or they will reduce the anticipated profit from the sale.
  • If you are going to be making regular purchases, there may be value in using techniques like dollar cost averaging or timing the currency market to purchase the currency you will need.
    • However, there are risks involved in this, and you would also need to get a bank account in which to hold these funds.
• Note that there are a number of currencies that are pegged to the U.S. dollar (e.g., the Bahamian dollar of the Qatari rial) or that are allowed to float in a narrow margin (e.g., Chinese yuan), which may limit the risk involved in buying in a foreign currency.

• Oral agreements are permitted in international trade.
• If you need to sign a contract, you need to be clear about the terms.
  • Best tip: work with an attorney familiar with international and local (to the country where the supplier is located) contract law before signing any contract.
  • Be clear about the exact specifications so that you will know what you are getting and the seller/manufacturer will know what they are expected to produce.
  • Include payment terms
    • See Methods of Payment under Step 2.
  • Review the shipping terms.
    • Understand the applicable Incoterm (see section on Incoterms under Logistics), which provides for who is responsible for shipping and insurance costs.
  • Make sure that the seller – if they are responsible for insurance – has obtained adequate insurance.
    • The Incoterm used in the contract will determine who is responsible for insurance, but you cannot just assume that the insurance obtained by the seller will cover every type of loss you contemplate.
    • Make sure that the seller provides you with a certificate of insurance along with all other required shipping documentation.
  • Include details on delivery dates (i.e., by what date you expect to receive the products).
    • This is key if you have production or sales deadlines yourself.
  • Consider including a termination date for the contract.
  • If you are going to be a distributor or sales agent for the products, then be sure to reach agreement – and that the contract includes provisions that reflect this agreement – on:
    • A description of the territory for which you will have exclusivity
    • Who will be responsible for sales promotion and advertising
    • Who will register any trademarks/copyrights/patents and in whose name they will be
    • How defective or unsold products will be handled
    • Any sales targets for you
    • What is the order lead time (i.e., how long will it take from placing an order to receiving it)
    • Who will be responsible for increases in material or shipping costs between the order being placed and becoming actually available for shipment
    • Provisions for termination of the agreement and settlement of disputes

• It may be helpful to familiarize yourself with the basics of the entry process in order to better understand what your customs broker will be asking of you.
• If you are working with a customs broker (either directly or through your logistics provider), then they will take care of the entry process on your behalf and all you will need to do is ensure that your send them any documentation they need.
  • Note that even though you may hire a broker to act as your agent in the customs entry process, your business is ultimately responsible for the accuracy of information submitted to CBP and for duties paid.  Relying on a broker’s advice does not relieve you of these responsibilities.
• Don’t forget to review your contract or commercial invoice – in particular, the relevant Incoterm (see section on Incoterms in Logistics) – to determine whether you will be responsible for the import process.
• Regardless, it is worth familiarizing yourself with some of the terminology you may hear as well as the basics of the customs clearance process for your imports into the United States.

• Be sure to keep all import records (even though your customs broker will retain the documents.)
  • The general rule is that you must keep all documents related to imports for five years.
  • You will be required to produce these documents should CBP request them during this five-year period.
    • You may be subject to heavy fines should you fail to produce these records.
• There are two primary types of entry for products going directly into United States commerce: informal and formal entry.
• Informal entries, as defined by CBP regulations, are usually valued at less than $2,500 (value subject to change).
  • Informal entries do not require posting a bond.
  • Documentation for informal entry is less stringent than it is for formal entry.
  • Informal entry does not require a broker if the shipment is accompanied by the exporter or if the consignee comes to the port of entry to collect it.
  • Some products are restricted from informal entry, regardless of value.
    • For example, high risk products or goods subject to a quota or to anti-dumping or countervailing duties.
• Formal entries, as defined by CBP regulations, generally have an aggregate value of $2,500 or more and are required to be covered by a bond.  This bond ensures the payment of applicable duties and compliance with customs requirements.
• 24 hours before your cargo is loaded on a vessel, an Import Security Filing (ISF) must be transmitted to CBP.
• Before the cargo arrives and is offloaded from the vessel, the importer of record (i.e., the owner, purchaser, or licensed customs broker designated by the owner, purchaser, or consignee) will be sent an Arrival Notice with details for customs clearance and pick-up.
• The process for entering cargo into the U.S. is a multi-step process:

1. Evidence of Right to Make Entry – goods may be entered only by the owner, purchaser, or licensed customs broker. When the goods are consigned to order, a bill of lading or an air waybill may serve as the evidence of a right to make entry.
2. Entry for Consumption – 2 part process
   1. Filing of documents necessary to determine if the cargo can be released by customs
   2. Filing of documents necessary to assess duty and compile statistics
3. Surety – bond posted with customs to cover duties, taxes, and possible penalties.
4. Entry Summary Documentation
   1. Bill of Lading/Air Waybill
   2. Commercial Invoice and Packing List.
   3. Arrival Notice
   4. Duty Deposit must be paid within 10 days of entry and release.

• Your shipment may be inspected on entry into the United States.
  • CBP does not disclose details on why they decide to inspect individual shipments.  However, elements such as the shipper, importer, product type and country of origin or export are all taken into consideration, and some examinations are completely random.
    • As a first time importer, CBP will likely examine your first few shipments in order to establish credibility.

• • If your shipment is flagged for inspection, your customs broker and your carrier will receive an electronic system notification.
  • Your cargo may be x-rayed (VACIS/NII Exam); the container opened for a quick visual exam (Tailgate Exam); or the container may be transported to a customs warehouse for a more detailed inspection (Intensive Exam).
  • The Centralized Examination Station (CES – a privately operated facility designated by CBP for physical examination where imported cargo is made available for a customs inspection) charges a variety of fees related to these examinations, e.g., for the inspection itself, for drayage (moving the container) or demurrage (storing the container for longer than expected).
• The final step of your importing process will be for your shipment to be shipped to your designated point of delivery.
  • Again, you need to be sure of the relevant Incoterm in your contract as to who is responsible for moving the shipment once it has cleared customs to the point of delivery and to ensure that clear communications take place with your freight forwader as to how that will be handled.

• Foreign trade zones (FTZs) are an option for importing products.
• • These may also be colloquially referred to as “free trade zones” (and in most other countries, this what “FTZ” means).
• Benefits of operating within an FTZ include, among other things:
  • Duty exemption – if you plan to re-export your products, you will not need to pay any duties.
    • Note: you can claim a return of duties – aka “duty drawback” – that you paid for products you re-export even if they do not enter an FTZ.  However, it takes time for CBP to issue drawback refunds and they will only refund 99% of the duties paid (other 1% is kept as a processing fee).
  • Duty deferral: you won’t have to pay duties until the product leaves the FTZ
    • This is an advantage if you want to import in bulk.  For example, if your imported shipment represents 6 months’ supply, then you will not have to pay the duties up front on that whole shipment: you will only pay as you sell the articles to customers.
  • Duty reduction (“inverted tariff”) – if you purchase a component for use in a finished product that is subject to a lower tariff than the component, it will be subject to the lower tariff upon exit from the FTZ.
    • For example, if the tariff for a computer chip – subject to a 20% tariff – that you use in assembling your toy car – subject to a 5% tariff – then you would pay a tariff of only 5% on those chips, rather than 20%.
• If you want to take advantage of the benefits of an FTZ, you could operate within an FTZ magnet sites – usually located at ports or industrial parks – or apply for your own subzones (to operate within your own facilities).
  • Please note that if you want to operate a subzone on your own property, access you will need to strictly control access to that area and ensure no co-mingling of domestic and foreign merchandise.
• While there are many advantages of operating in an FTZ, you should be aware that there are also costs involved, including records management (you have to keep meticulous records on when products enter and exit the FTZ), fees to pay to the FTZ operator, and potentially higher rents to be located within the FTZ.
• For more information, contact CFITO or your local FTZ operator.