New Customs laws specifically require that an importer exercise "reasonable care" to comply with the essential requirements imposed by the U.S. Customs Service on imports. Failure to do so can result in increased duties, penalties and costly delays in the release of shipments.

Simply stated, Customs requires that the importer declare a value for the imported product, at the time of importation, and that the product be identified, or "classified," based on the product classification number found in the Harmonized Tariff Schedule (HTS) provision which most closely corresponds to the product, following specific legal rules on classification. The HTS is a classification directory of several hundred pages which provides classification numbers and duty rates for all products.

The balance of the duty calculation is dependent on the value to which the duty rate is applied. The goods should be declared at the actual price paid or payable to the seller (invoice price). In addition, any amounts paid to the seller not included in the invoice must be declared. Some of the amounts included or paid may not be dutiable. If this sale is not the result of an arm's-length transaction or no legal "transaction value" can be found, Customs looks to arms-length prices for similar products, or if none exist to "deductive" (resale price less deductions) or "computed" (cost plus additions) values. Thus, the value and the duty rate yield the price paid to Customs. (Note: The failure to provide Customs with accurate descriptive or value information can result in substantial penalties, up to the domestic value of the goods.)

A number of other issues also affect the importation. Customs requires that the goods be legibly and conspicuously marked with the legal country of origin of the goods. Always a complex determination when the products contain components from multiple countries, recent developments indicate that NAFTA rules of origin will be the standard for the future, a step away from the current rule of "substantial transformation." Incorrectly marked products are prohibited entry into the U.S. Customs also enforces other agency requirements, such as quotas for textiles, product standards, foreign policy-related import limits (e.g. "trading with the enemy"), dumping duties, and intellectual property limitations.

The following questionnaire, while not exhaustive, should assist you in reviewing your import program and in identifying possible issues which need to be reviewed further. Be sure to consider each imported product and supplier in your analysis. If your response corresponds to a box marked with an asterisk or you are unsure of the answer, additional consideration of the issue is advised.

Classification
Have you reviewed the classification for your product to ensure that it is correct and that the correct duty is being paid?

If commercially feasible, are you sourcing the product in the country providing the lowest duty rate, including countries whose products are eligible for reduced duty or duty free entry (e.g. GSP and NAFTA)?

Do you maintain a current listing of product classifications, the country of origin and a file of special duty program compliance documents (e.g. NAFTA certificate of origin)?

Value
Are you declaring to Customs the price paid or payable for the goods?

If there are any amounts paid to the seller but not included in the sales price, have they been declared to Customs?

Is the importer "related" to the seller in any way?

If related, has the relationship affected the price paid or payable?

IF NOT INCLUDED IN THE SELLING PRICE, certain costs and charges must be ADDED to the price paid or payable and declared to Customs. Have you ADDED the following items:

- Packing costs paid by you?
- Selling commissions paid by you? (Buying commissions are not added if the agent qualifies as a "buying agent.")
- The value of "assists" you provide free of charge or at a reduced cost to the seller? (Assists can be materials, components, machines used in production, tools, dies, molds, non-U.S. engineering or design work.)
- Royalties of any nature?
- Proceeds from a resale accruing to the seller?

There are also amounts included in the sales price which may be deducted. IF INCLUDED IN THE SELLING PRICE, have you DEDUCTED the following charges:

- Seller's charges for erecting, assembling or maintaining merchandise in the U.S.?
- Domestic U.S. transportation charges?
- Customs duties and other Federal taxes payable as result of import?
- Charges for international shipment, insurance and related services?
- Charges for foreign inland freight itemized on the sellers invoice as paid to a third party and supported by good evidence, such as a common carrier's bill of lading?

Country Of Origin Marking
Are you and your supplier familiar with the test for determining country of origin of your imported product?

Have you reviewed the marking of your product and determined that the correct country of origin is conspicuous, legible and permanent?

Does the marking appear in close proximity to all geographical names on the product or packaging not the origin of the goods?

Does the marking appear in the manner or location specially required by Customs or other agencies for certain products (e.g. apparel marked in the nape of the neck; tools die-stamped with country)?

Will the marking remain visible until sale to the ultimate purchaser?

If packaged, is the country of origin visible?

Trade Sensitive Issues
Are the goods subject to any other agency requirements (e.g. textile quota limitations; EPA controls on motor vehicles and pesticides; FDA controls on food, drugs, eating utensils; CPSC requirements on safety of consumer products; OFAC embargo on country products)?

Have you arranged to have required documents and approvals provided by the seller or otherwise obtained?

Are the goods from a country whose imports are currently banned?

Are the goods subject to a dumping or countervailing duty order which imposes an additional duty or an exclusion order issued for infringement of U.S. intellectual property rights?

Do the goods infringe any U.S. patents, copyrights or trademarks?

Are your copyrights and trademarks registered with Customs, to protect against infringing imports?

Compliance Concerns
Do you maintain an internal procedures manual detailing compliance with Customs requirements?

Do you periodically review import operations to ascertain whether past compliance continues?

Do you maintain required import and accounting records for five years after the date of import?

Have you received binding rulings from Customs which ensure that favorable classifications, markings and special program eligibility are honored by Customs at the time of import?

Does your letter of credit condition payment on the seller's compliance with your Customs requirements?

SPECIAL PROGRAMS
Drawback
Are the imported goods reexported, either in the same condition as imported or after manufacture into a new product?

Are U.S. goods identical to the imported goods described above exported?

Do you claim a refund of duties paid when these goods are exported?

Deferring Duty
Are you aware that imported goods placed in a foreign trade zone or bonded warehouse are not subject to duty until withdrawn for consumption in the U.S. and, even then, at potentially reduced rates?

Foreign Assembly and Processing
Do you export U.S. goods for assembly or processing, then reimport them into the U.S. and pay duty only on the foreign components and labor?

Do you assemble products in a Caribbean Basin country entirely of U.S. components and request total duty-free treatment when the goods are reimported?